Is pension plan vulnerable to lawsuit against corporation??

[dmb]

If a corporation is being sued, is their pension plan protected against such lawsuit or is it fair game??

Thank you.

[Alonzo]

Probably exempt. Unless the lawsuit is by participants or former participants in the plan, and relates to benefits that "should" have been paid by the Plan.

But there are exceptions to everything. Talk to your lawyer.

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[pjkoehler]

It's a central pillar of qualified plan status (i.e. a plan that satisfies Code Section 401(a)) that plan assets are not exposed to the claims of the creditors of the corporate plan sponsor. Of course, to the extent that the plan holds shares of employer stock, the value of the shares will be impacted by any adverse judgment like any other shareholder, but the judgment creditor cannot successfully execute upon plan assets to satisfy a judgment against the corporation. It's not unheard of for state courts and local law enforcement with little sophistication in ERISA to mistakenly allow a judgment creditor to attempt to do so, however, the savy plan administrator would have no trouble persuading a federal court to invoke Federal preemption doctrine to prevent such efforts from being successful.

On the other hand, the assets of a nonqualified plan, whether a rabbi trust or COLI policies, enjoy no such protection, and unless the plan provides a fail-safe feature which automatically converts the trust to a secular trust, the assets of the trust or the COLI policies are fair game for the judgement creditor.

If the law suit is against the corporation's board of directors as plan fiduciaries on the basis of any of the theories recognized under ERISA's enforcement provisions, then to the extent of any benefit wrongfully denied, as well as, in the discretion of the court, the plaintiff's reasonable attorney fees, plan assets would certainly be exposed. To the extent that such denial occurred in the context of a breach of fiduciary duty which resulted in a loss to the plan or a profit to the breaching fiduciary, the plan would be entitled to proceed against the personal assets of the breaching fiduciary(ies), to recover the loss or force the fiduciary to disgorge the profit obtained by the breach.

[This message has been edited by PJK (edited 05-15-2000).]