Collecting Delinquent Employer Contributions

[Guest JD698]

Employer is delinquent in contributions and has filed for bankruptcy. Do the trustees violate their fiduciary duties if they do not file a proof of claim where legal fees will exceed the amount owed?

[Bill Ecklund]

No. PTE 76-1 states:

Sec. I.

Effective January 1, 1975—

(a) The restrictions of sections 406(a) and 407(a) of the Act shall not apply to:

(3) A determination by a multiple employer plan to consider a contribution due the plan from any employer any of whose employees are covered by the plan as uncollectable, in whole or in part, and to terminate efforts to collect such contribution, if the following conditions are met:

(i) Prior to making such determination, the plan has made, or has caused to be made, such reasonable, diligent and systematic efforts as are appropriate under the circumstances to collect such contribution or any part thereof; and

(ii) Such determination is set forth in writing and is reasonable and appropriate based on the likelihood of collecting such contribution or the approximate expenses that would be incurred if the plan continued to attempt to collect such contribution or any part thereof.

[jpod]

I don't understand why this class exemption is responsive to JD698's question.

First pt exemptions only provide exemptions from pts. They do not establish that an act or failure to act is not a breach of fiduciary duty under ERISA. I'm not sure why there would be a pt here, but that's besides the point.

Second, and on the other hand, if your assumption is correct that the amount of legal fees necessary to file a proof of claim would exceed the delinquent amount, I think the Trustees can sleep fairly comfortably after they prepare a memorandum or minutes of a meeting that documents their reasons for not pursuing the claim. Fiduciaries must act prudently, and spending $X in hopes of collecting less than $X seems kind of imprudent to me. However, if you are merely speculating on the number of cents on the dollar which the Trustees might be able to collect out of bankruptcy, then their deliberations and documentation of same should be more sophisticated than that (and don't forget that there is joint and several liability of all members under common control with the bankrupt employer).

[KJohnson]

It's a PT because it could be considered an extension of credit to a party in interest. I think that the logic of the class exemption probably tracks the same logic as a fiduciary analysis--don't through good money after bad. But, how much could it cost to fill out a proof of claim? I would think that paralegals do the bulk of it and it couldn't be more than an hour of attorney time. So are you talking about a delinquency less than a couple of hundred dollars?