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DOL Expands Enforcement of Delinquent Contributions
– March 18, 2009
Recent Department of Labor (DOL) investigations have resulted in the issuance of a Field Assistance Bulletin (FAB) 2008-01 which explains the DOL’s position regarding the fiduciary responsibility for the collection of delinquent contributions to retirement plans.
Delinquent Contributions. Employer contributions are delinquent when the employer does not make the contribution by the deadline imposed under the plan document. However, since most plan documents do not impose contribution deadlines, the DOL’s position is that employer contributions are delinquent if not contributed to the plan within a reasonable time after the legally enforceable obligation to make the contribution arises. Participant contributions are delinquent if the employer does not transmit the contributions by the earlier of (1) as soon as the employer reasonably can segregate the contributions from its own assets, or (2) the 15th business day of the month following the month the employer withheld the contributions.
Recently, the DOL issued proposed regulation for small plans (less than 100 participants) which will consider participant contributions as timely transmitted to the trust if contributed within seven business days following the date such contributions are withheld.
Fiduciary Duty. Under general trust law, a trustee has a duty to enforce valid claims held by the trust, including the collection of delinquent contributions. ERISA, the federal statute that established minimum standards for retirement plans and basically governs all plans, requires a fiduciary to discharge its duties prudently and in the sole interest of the plan participants and beneficiaries. The steps necessary to discharge a duty to collect delinquent contributions will depend on the facts, including the value of the assets involved, the likelihood of a successful recovery and the expected expense of recovery. Trustees are always ERISA fiduciaries and must act prudently and in the sole interest of participants and beneficiaries.
Allocation of Responsibility. ERISA permits a plan to authorize an agreement allocating specific responsibilities among trustees, in which case a trustee will not be directly liable for any loss resulting from the acts or omissions of the other trustee to whom the agreements has assigned the responsibilities. Authority over the plan assets subject to the trust requirement, including a claim for delinquent contributions, must be assigned to: (1) a discretionary trustee; (2) a directed trustee subject to lawful directions of a named fiduciary; or (3) an investment manager.
Named Fiduciary. ERISA requires that each plan have a named fiduciary. Generally, the employer serves as the plan’s named fiduciary. The named fiduciary must ensure the obligation to collect contributions is assigned to a trustee, directed trustee or an investment manager. While a fiduciary may enter into an agreement under which a particular trustee is not responsible for monitoring and collecting contributions, if no trustee or investment manager has this responsibility, the fiduciary with authority to hire the trustee (generally the named fiduciary) may be liable for losses due to a failure to collect.
Co-Fiduciary Liability. Although the named fiduciary may not have allocated the responsibility with respect to the collection of delinquent contributions to a fiduciary, the trustee would still have the obligation to take appropriate steps to remedy the situation where the trustee knows that no party has assumed the responsibility and that delinquent contributions are going uncollected. The DOL bases this position on ERISA’s co-fiduciary liability provisions. Avoiding co-fiduciary liability requires taking “reasonable efforts under the circumstances” to remedy a known breach of fiduciary duty. A plan document (or other governing instruments) cannot absolve a co-fiduciary from liability for failing to take steps to remedy a known breach of another fiduciary.
The issuance of this FAB signals the DOL’s intention to expand its enforcement regarding the collection of delinquent contributions beyond employers to plan fiduciaries. Plan fiduciaries who do not have direct responsibility for collecting delinquent contributions nevertheless must review practices and procedures to determine if they must take action as co-fiduciaries.
Angela D. Vascoe
318.429.2053
avascoe@hmvcpa.com
Angela is a Retirement Services Specialist in our Retirement Plan Services Department. She received a Bachelor of Science in both Accounting and Finance from Louisiana State University in Shreveport.