Unpaid employer contributions to 401(k) plan were not plan assets for which company officers were liable as fiduciaries

Corporate officers did not breach duties as fiduciaries under ERISA by failing to make contributions to a 401(k) plan because the unpaid contributions were not clearly identified as plan assets in the governing plan documents, according to the U.S. Court of Appeals in Atlanta (CA-11).

Failure to remit contractually owed contributions

A privately owned trucking company entered into a contract with the U.S. Post Office that required it to provide certain minimum wages and fringe benefits to employees who performed services related to the contract. The employer elected to satisfy its fringe benefit obligation by depositing money into a 401(k) plan established for its employees.

Employees deferred a percentage of their salary to the plan. The employer was required under the plan to make contributions for employees who performed work covered by the contract with the Post Office. The contributions were to be equal to the balance of the fringe benefit payments for the health and welfare of each participant and were to be fully vested.

An employee who had worked for the company for six months, brought suit after discovering that the company had withheld $3,472 from his paycheck without depositing most on the money owed to him to the plan. The company, which used the money to pay its payroll taxes, subsequently remitted to the plan the funds owed to the employee, plus interest.

Despite the fact that the funds had been restored to his account, the employer filed suit under ERISA against three corporate officers, alleging breach of fiduciary duty and requesting injunctive relief. A federal trial court granted partial summary judgment in favor of the officers, ruling that they did not breach fiduciary duties, as a matter of law, because the wrongfully withheld fringe benefits were not plan assets.

Plan must treat unpaid contributions as plan assets

Initially, the Eleventh Circuit explained that a person is subject to liability under ERISA as a fiduciary if “he exercises any discretionary authority or discretionary control respecting management of a plan or exercises any authority or control respecting management or disposition of its assets.” However, ERISA does not define “plan assets,” and the governing regulations do not address employer contributions to a plan. Absent regulatory guidance, the Eleventh Circuit has held that unpaid employer contributions are not plan assets unless so indicated by specific and clear language in the plan documents.

Legal right to contributions does not create fiduciary relationship

The employee countered that the nonelective, unpaid employer contributions should have been treated as employee contributions because they were required under the contract and were not within the discretion of the employer. However, the court stressed that a legal right to unpaid benefits, absent a clear intention, expressed in the plan documents, does not create a fiduciary relationship sufficient to transform unpaid employer contributions into plan assets.

Courts have found unpaid employer contributions to be plan assets, but only where the plan documents clearly indicate that the contributions become assets when they are “due” or “owing,” rather than when they are actually remitted to the plan. Absent such clear and specific language, the unpaid contributions to the 401(k) plan were not plan assets. Accordingly, the corporate officers could not be charged with breach of fiduciary duty, as a matter of law.

Source: Pantoja v. Edward Zengel and Son Express, Inc. (CA-11).