It didn’t get quite the attention that did the landmark Supreme Court ruling in LaRue v. DeWolff that defined contribution participants can bring fiduciary breach suits to recover individual damages. The "it" is the Department of Labor’s recent Field Assistance Bulletin (FAB) No. 2008-01, and it’s long-term implication may be as profound.
The Department of Labor (DOL) said that it issued its FAB after a number of pension plan investigations revealed:
- Agreements that purport to relieve the financial institutions serving as plan trustees of any responsibility to monitor and collect delinquent contributions.
- Circumstances where no other trust agreement or plan document assigns those obligations to another trustee or imposes the obligations on a named fiduciary with the authority to direct a trustee.
- Plan documents and trust agreements silent or ambiguous on the matter.
The issue, said the DOL, is "what are the responsibilities of named fiduciaries and trustees of ERISA-covered plans for the collection of delinquent employer and employee contributions?" The answer, said the DOL, is that
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.
And so if plan language alone will no longer be sufficient to protect plan providers, where does it leave them. McKay Hochman, a firm that provides products and technical services to retirement plan providers, offered their commentary on the matter:
- 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.
Here is a link to McKay Hochman’s complete Commentary on this issue. This will not be, I am sure, the last word on this issue.
Picture above from the website, BLENDER-DOC.FR.