In a recent Federal District Court Case, the Court denied a CEO’s motion to dismiss a claim for fiduciary liability brought by the United States Department of Labor (DOL) under the Employee Retirement Income Security Act of 1974, as amended (ERISA). In its suit, the DOL alleged the CEO was a plan fiduciary of a health and welfare plan because the employer failed to segregate contributions withheld from employees’ pay from company assets as soon as reasonably possible, and to use the funds to pay claims. The DOL also alleged the employer had failed to segregate contributions made pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA) from general assets and to use the funds to pay claims. Although this case involves a health and welfare plan, the same fiduciary rules apply to a retirement plan subject to ERISA.
The employer established a plan in 1985 to provide medical, dental, prescription drug, life insurance and short-term disability benefits to its employees. The Plan was funded by employer contributions, employee premium contributions deducted from payroll, and former employees’ premium payments for continuation of coverage under the (COBRA). Employee and COBRA contributions were held in the employer’s general bank account until paid out to provide the plan’s benefits.
ERISA provides that a person can become a fiduciary by: (1) being a “named fiduciary” in the plan instrument, (2) exercising discretionary authority or control over the management of the plan, (3) exercising any authority or control over the management or disposition of plan assets, (4) rendering investment advice for a fee or having authority or responsibility to do so, or (5) having any discretionary authority or responsibility over plan administration. A fiduciary can be held jointly liable with another fiduciary for 1) participating knowingly in an act of another fiduciary, knowing the act was a breach; (2) failing to monitor or supervise another fiduciary and thereby enabling a fiduciary breach; or (3) having knowledge of a breach by another fiduciary and failing to make reasonable efforts under the circumstances to remedy the breach.
The DOL argued that the CEO, as a signatory to the company’s bank accounts, had a fiduciary duty to monitor the plan’s other fiduciaries, as well as the employer’s management and administration of the plan.
The CEO argued he could not be a fiduciary merely because he had general signature authority over the employer’s bank accounts. In his view he could only become a plan fiduciary if he were named a fiduciary under the plan or exercised discretionary control or authority over the plan or the management of its assets.
The Court refused to dismiss the case against the CEO. The court concluded that a person can become a plan fiduciary by exercising any authority or control over the management or disposition of plan assets, even without discretion. The court declined to decide whether discretion was an ERISA fiduciary requirement at this stage in the proceeding, noting that prior appellate court decisions have not been consistent on this issue.
Whether discretion over plan assets is required in order to attain fiduciary is an unsettled issue. Corporate officers and others with check signing authority over company accounts are well advised to create separate accounts to receive employee contributions required to be turned over to the plan or used to pay plan benefits. Only people intending to be plan fiduciaries should serve as signatories on the plan’s bank accounts or company bank accounts holding assets destined for contribution to the plan to avoid potential fiduciary liability under ERISA.
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