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CCH® PENSION AND BENEFITS — 6/28/06

Working owner entitled to benefits under multiemployer plan

A lump-sum contribution to multiemployer plan on behalf of a working owner did not violate the exclusive benefit provision of ERISA, according to an opinion letter released by the Employee Benefits Security Administration (EBSA).

A multiemployer pension plan requested an advisory opinion as to whether a working owner of a corporation that was a contributing employer to the plan would be considered an "employee" under ERISA for purposes of plan participation. The individual once worked as a covered employee under the collective bargaining agreement (CBA), later forming a corporation wholly owned by him which became a contributing employer to the fund, and which made contributions on his behalf as a non-bargaining employee. In addition to providing benefits to covered employees under the CBA, the plan provided benefits to certain other individuals connected to corporate employers contributing to the plan, including employees not covered by the CBA (non-bargaining employees), and officers and shareholders of contributing employers. The plan terms were amended in 2001 to provide that any non-bargaining employee who was at one time a bargaining unit employee would be granted retroactive pension service to the date he became a non-bargaining employee, provided that the employer made a one-time lump-sum contribution equal to the amount of all employer contributions which would have been made on the employee's behalf since becoming a non-bargaining employee, plus accrued earnings on such contributions.

The advisory opinion stated that, despite the ERISA §404(a)(1)(A) requirement that plan fiduciaries act solely in the interest of the participants, the extension of coverage to working owners (individuals with ownership in a business who are actively engaged in providing services to that business) is permitted. The opinion noted that in Yates v. Hendon (CCH Pension Plan Guide ¶23,987K), the U.S. Supreme Court held that a working owner of a business may qualify as both an "employee" and a "participant" in a pension plan for ERISA purposes, provided that there is at least one common law employee of the business other than the working owner and his spouse.

The advisory opinion held that where the individual in question performed work for his own corporation that contributes to the plan as an employer, and where he would have been covered by the CBA had he not been required to be considered a "supervisor" under federal labor law, a retroactive contribution to the plan on the working owner's behalf would not violate the anti-inurement and exclusive benefit directives of ERISA §403(c)(1) and ERISA §404(a)(1)(A).

For more information on this and related topics, consult the CCH Pension Plan Guide.

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