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CCH® PENSION — 09/04/09

Company officer not liable as fiduciary for company's failure to remit 401(k) plan contributions

The principal of a company that failed to remit 401(k) and other plan contributions to a multiemployer fund was not a fiduciary subject to personal liability for the missed contributions because the plan administrator did not provide evidence establishing that the officer actually exercised discretionary authority or control over the management of plan assets, the U.S. Court of Appeals in New York (CA-2) has ruled in Finkel v. Romanowicz. The principal's status as an officer of the company and the fact that he signed distribution checks on behalf of the company did not, the court explained, indicate that he possessed or exercised authority or control over the management of the plan assets.

Employer failure to remit contributions required under CBA

An employer, in breach of an obligation under collective bargaining agreements (CBAs), failed to both withhold specified portions of employee wages and remit them to the Joint Board administering several ERISA funds maintained under the CBA. The Joint Board sought to impose joint and several liability against the employer and the principal for the delinquent contributions to the 401(k) plan, maintaining that the officer had withheld contributions in breach of fiduciary obligations under ERISA.

The administrator secured a default judgment against the employer and the principal, who failed to respond to the complaint or appear in court. A magistrate ruled that the employer was liable for the unpaid contributions to the 401(k) plan and the other benefit funds. However, the magistrate recommended dismissal of the claim against the principal, finding that, because the administrator had not established that the principal was a fiduciary of the 401(k) plan, it did not state a prima facie case of breach of fiduciary duty.

The federal trial court adopted the recommendations of the magistrate, holding that the administrator had failed to establish the principal's fiduciary status because it did not demonstrate his exercise of authority over plan assets.

Fiduciary status of principal

On appeal, the administrator claimed that ERISA §3(21)(A), in defining a fiduciary, only requires an individual to exercise minimal control over plan assets. ERISA, the administrator argued, does not condition fiduciary status on discretionary control or authority over the disposition of the assets.

The appeals court, however, noted that, even under a broad construction of ERISA's definition of fiduciary, the principal's status as an officer of the employer did not render him a fiduciary of the plan. ERISA defines a fiduciary in functional terms. Thus, the court explained, even a company officer who is authorized to sign checks on the company's account and has general knowledge that deductions were made from wages, will not be treated as an ERISA fiduciary if he has no responsibility for determining which of the company's creditors will be paid and in what order.

Accordingly, absent evidence that the principal: (1) selected investments or exchanged one investment for another, (2) was responsible for determining which of the company's creditors would be paid and in what order, or (3) otherwise possessed authority or control over the management of the 401(k) plan assets, it was not a plan fiduciary, subject to joint and several liability for the company's failure to timely remit the contributions to the plan.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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