In FAB 2008-1, the DOL has generally placed a responsibility to oversee whether plan contributions are made on the trustee; and if appropriate to report the employer to the DOL if an employer fails to remit contributions due to the plan.

The DOL has issued new guidance to address the issue of “What are the responsibilities of named fiduciaries and trustees of ERISA-covered plans for the collection of delinquent employer and employee contributions?

Questions have been raised as to whether, and if so, to what extent, trust agreements and other instruments may define the scope of trustee undertakings and exclude responsibilities for monitoring the plan’s receipt of contributions, determining when they are delinquent and taking appropriate steps for collection.

FROM OUR EGTRRA DOCUMENT:
Article 3.4 Responsibility For Contributions  
Neither the Trustee (or the Custodian, if this is a Custodial Plan), nor the Sponsor shall be required to determine if the Employer has made a contribution or if the amount contributed from its general assets is in accordance with the Code and the provisions elected in the Adoption Agreement. The Employer shall have sole responsibility in this regard.  The Trustee (or Custodian if this is a Custodial Plan) shall be accountable solely for contributions actually received.  The Employer shall have the responsibility to determine whether the Contribution is within the limits of Article X.

Our document has tried to remove from the trustee or custodian the responsibility of collecting employer contributions. In FAB 2008-1, the DOL has issued guidance that changes the responsibilities of the trustee or custodian.

In the FAB, the DOL said:
“Employer contributions are delinquent when they are due and owing to the plan under the documents governing the plan, but have not been transmitted to the plan in a timely manner.  (Within a reasonable time after the legally enforceable obligation to make the contribution arises.)”

MHCO Comment: The DOL time for the employer to deliver employee deferrals is five business days. This has been learned from audit findings and verbal guidance. There is no written guidance from the DOL to inform employers of this DOL position.

Technically, contributions become an asset of the plan only when the contribution has been made.  However, when an employer fails to make a required contribution to the plan in accordance with the plan documents, the plan has a claim against the employer for the contribution and that claim is an asset of the plan.

In their analysis, the DOL quoted a 1985 Supreme Court case, Central States, Southeast and Southwest Areas Pension Fund vs. Central Transport. In that case, the Court noted that:

“One of the fundamental common-law duties of a trustee is to preserve and maintain trust assets, and this encompasses “determin[ing] exactly what property forms the subject matter of the trust…The trustee is thus expected to use reasonable diligence to discover the location of trust property and to take control of it without unnecessary delay.””

“Section 404(a) of ERISA requires that a fiduciary discharge his duties prudently and solely in the interests of the participants and beneficiaries of the plan. The steps necessary to discharge a duty to collect contributions will depend on the facts of each case.  In determining what collection actions to take, a fiduciary (Trustee or Custodian, etc.) should weigh the value of the plan assets involved, the likelihood of a successful recovery and the expenses expected to be incurred. Among the factors, the fiduciary may (I.E. MUST) take into account in deciding whether or not to expend plan assets to pursue a claim is the employer’s solvency. It is the DOL’s long held view that if the plan is not making systematic, reasonable and diligent efforts to collect delinquent employer contributions, or the failure to collect delinquent contributions is the result of an arrangement, agreement or understanding express or implied, between the plan (Trustee and administrators) and the delinquent employer, such failure to collect delinquent contributions may be deemed to be a prohibited transaction under Section 406 of ERISA.”
(Parentheticals above added by MHCO.)

ERISA Section 402(a)(1) provides that every employee benefit plan shall be established and maintained pursuant to a written instrument, and that the instrument “shall provide for one or more name fiduciaries who jointly or severally shall have the authority to control and manage the operation and administration of the plan. Although trust documents cannot excuse trustees from their duties under ERISA, ERISA clearly gives named fiduciaries the authority to appoint multiple trustees and to allocate trustee responsibilities among those trustees (including directed trustees)…  Thus, in accordance with the statutory framework, authority over a plan’s assets is subject to the trust requirements of ERISA, including a plan’s legal claim for delinquent contributions, must be assigned to:

i)  a plan trustee with discretionary authority over the assets,(NORMAL TRUSTEE)
ii) a directed trustee subject to the proper and lawful directions of a named fiduciary, or
iii) an investment manager (AS OPPOSED TO A TRUSTEE).

Fiduciary Breach Issues
As explained in FAB 2004-03, a fiduciary is liable for the breach of another fiduciary if the fiduciary “participates knowingly” in the breach of the other fiduciary.  In addition, a fiduciary is liable for the breach of another fiduciary if the fiduciary’s failure to comply with Section 404(a) in the administration of his specific fiduciary responsibilities enables the other fiduciary to commit a breach.

Also a fiduciary is liable for the breach of another fiduciary if the fiduciary has knowledge of the breach of the other fiduciary, unless the fiduciary takes reasonable efforts under the circumstances to remedy the breach.

Efforts to remedy may, depending on the circumstances, include advising the named fiduciary or the DOL of the breach, reporting the breach to other fiduciaries of the plan, directly taking actions to enforce the contribution obligation on behalf of the plan seeking an amendment of the relevant plan and trust documents, or seeking a court order mandating a proper allocation of fiduciary responsibility over contributions.

Thus, if you as fiduciary know that another fiduciary is not doing their job, you may have to go to court and have the plan amended.

The documents and instruments governing a plan cannot serve to absolve a co-fiduciary from liability for failing to take steps to remedy a known breach of another fiduciary.

It is the DOL view that a named or functional fiduciary who has the authority to appoint the plan’s trustee(s) must ensure that the obligation to collect contributions is appropriately assigned to a trustee, unless the plan expressly provides that the trustee will be a directed trustee with respect to contributions or the authority to collect contributions is delegated to an investment manager.

Thus, although a fiduciary may enter into a trust agreement under which a particular trustee is not responsible for monitoring and collecting contributions, if no trustee or investment manager has the responsibility, the fiduciary with authority to hire the trustees may be liable for plan losses due to a failure to collect contributions because the fiduciary failed to specifically allocate this responsibility…

MHCO Comment: Employer is fiduciary in personal and not corporate capacity.

DOL's Conclusion
“The responsibility for collecting contributions is a trustee responsibility. If a plan has two or more trustees, the duty may be allocated to a single trustee. A plan may also provide that a named fiduciary may direct a trustee as to this responsibility or may appoint an investment manager to take on this duty. To the extent the nature and scope of the trustee’s responsibilities are specifically limited in the plan documents or trust agreement, it is generally the responsibility of the named fiduciary with the authority to hire and monitor trustees to assure that all trustee responsibilities with respect to the management and control of the plan’s assets (including collecting delinquent contributions) have been properly assigned to a trustee or investment manager.”

MHCO DISCUSSION QUESTION – Where does this leave providers?

Clearly, plan language alone will no longer be sufficient to protect them.

For Banks serving in the trustee role (directed or discretionary), are they not now responsible for forcing the employer to forward contributions due to the plan, not just participant deferrals; unless some other party is made responsible for that function.

For TPA/Recordkeepers the answer would appear to be it is dependent on their actual role.  If the TPA/recordkeeper is purely in the role of recordkeeper with no responsibility for asset investment, apparently nothing has changed.

For TPAs/recordkeepers who are now acting in the investment advisory role, unless responsibility is specifically allocated elsewhere, it is their job to make sure contributions are made, especially for self-trusteed employer plans.

A positive note about this change is that for an employer who is not timely depositing the employees' deferrals, there is now guidance that can be used to let the employer know that he or she may have to be reported to the DOL or sued if the contributions are not made.

As to discretionary contributions, it appears that the rules will apply once the employer has declared that a discretionary contribution is being made. At that point, the contribution becomes due and owing to the plan. Click here for FAB 2008-1