Recent Department of Labor (“DOL”) investigations have revealed various agreements attempting to relieve trustees of the responsibility to monitor and collect delinquent employer and employee contributions to retirement plans. In response, the DOL released Field Assistance Bulletin (“FAB”) 2008-01 to address the scope of responsibilities of named fiduciaries and trustees of ERISA-covered plans to collect such contributions.
In general, employer contributions are delinquent when they are due to a plan under its governing documents but have not been timely deposited. While the DOL’s position is that employer contributions become plan assets only when actually contributed, a plan has a claim against an employer that does not make a required contribution, and that claim is a plan asset. Employers are more familiar with the rule that employee contributions are delinquent if they become plan assets while still in the hands of the employer on the earliest date they reasonably could be segregated from the employer’s general assets.
The DOL reiterated that the trustee is responsible under common law for enforcing claims of a trust, including collecting contributions. The steps necessary to discharge this duty depend on the facts and circumstances of each case. A fiduciary should weigh the value of the plan assets involved against the probability of recovery and the expense associated with the recovery process. Failure to collect may result in a prohibited transaction.
Under ERISA, all plan trustees are fiduciaries and must discharge their duties in the interest of participants and beneficiaries. Although plan and trust documents cannot excuse a trustee from its fiduciary duty, ERISA does give fiduciaries the authority to appoint multiple trustees and to allocate specific duties, such as collection of contributions, to a single trustee. Alternatively, a plan may provide that a named fiduciary may direct a trustee as to this responsibility or appoint an investment manager to fulfill this duty. If the trust agreement or plan document limits the scope of the trustee’s responsibilities or is ambiguous, however, then the named fiduciary with the authority to hire and monitor the trustee must ensure that all trustee responsibilities, including collecting delinquent contributions, are properly assigned to a trustee or investment manager. Otherwise, the fiduciary with the authority to hire the trustee may itself be on the hook for plan losses.
This FAB reminds plan sponsors to address the duty to collect delinquent contributions in their trust agreements, plan documents or investment manager agreements and to properly assign this responsibility to the plan trustee or investment manager, or to direct the trustee as to this responsibility. Plan sponsors may want to review and amend their existing documents to make sure this responsibility is adequately addressed.