Solis v Plan Benefit Services Inc.
Rev. 04/24/09; E-mail Alert 2009-6

The U.S. District Court for the District of Massachusetts has agreed with Secretary of Labor Hilda L. Solis in Solis v. Plan Benefit Services Inc. (PBS). The case ruled that a provision in a qualified plan’s Master Plan and Trust Agreement that removes the trustee from being responsible for monitoring and collecting employer contributions is a violation of ERISA Sections 403 and 410.  The court further agreed with Solis that included in the term “plan assets” is the responsibility of the trustee to collect unpaid contributions.  The court disagreed with Solis’s claim that PBS breached its fiduciary duties relating to ERISA Section 404. 

PBS serves as Plan Sponsor and Recordkeeper for “The Contractors and Employees Retirement Plan”, a plan that allows employers to adopt it and offer either 401(k) profit sharing or money purchase plans to their employees.  PBS is responsible for the language in the Master Plan and the Adoption Agreements; they also have the authority to amend the Trust Agreement.  The Master Plan currently services 1,100 retirement plans.

Charges were brought against PBS after learning of the plan provision in 2007, when the department sued an employer who participated in the plan for failing to make contributions.  The Secretary charged that PBS violated ERISA Sections 403, 404, and 410 by failing to ensure the employer contributions were collected by the Trustee and for having a plan provision that relieves the trustee from the obligation to collect employer contributions. 

ERISA Section 403 states that trustees “shall have exclusive authority and discretion to manage and control the assets of the plan."  Although ERISA does not define the term “plan assets”, after performing a property rights test the court agreed with Solis that plan assets include the right to collect unpaid employer contributions.  Solis had asked the court to consider Field Assistance Bulletin (FAB) 2008-1, which states “plan assets” included unpaid employer contributions.  PBS had argued that a plan document would have to specifically define unpaid employer contributions as “plan assets” in order to be treated that way.  Without giving deference to the bulletin, the court found that Section 403 was violated, since plan trustees are responsible for protecting plan assets and PBS had eliminated the trustee’s responsibility to collect employer contributions.

ERISA Section 404 addresses fiduciary liability protections and responsibilities relating to qualified plans.  Solis had charged that PBS faces fiduciary liability for failing to ensure the trustee is responsible for the collection of employer contributions.  The court ruled in favor of PBS, finding that although PBS has the power to appoint or remove a trustee it was not acting as a fiduciary when it designed plan structures in the manner that was in question.

ERISA Section 410 provides that “any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void against public policy”.  The court determined that PBS had violated Section 410 by eliminating the trustee’s responsibility to collect employer contributions.

The language in question is found in many pre-approved documents.  Fiduciaries, particularly trustees, must understand that they can not rely on the plan’s express language to avoid doing what the DOL considers to be a significant fiduciary duty.  Note, that for plans that are self-trusteed, it is not clear exactly how the bulletin’s guidance would be enforced.