May 17, 2012
--- Some retirement plan sponsors mistakenly believe
their fiduciary liability ended when the company doors closed. ---
An article from Lockton Retirement
Services explains that the Employee Retirement Income Security Act (ERISA) was
enacted to compel high standards of fiduciary duties with respect to the
protection of employee benefit plans. Likewise, the Bankruptcy Code (the Code)
was intended to protect those who have been injured by the debtor’s wrongful
acts, known as defalcation. When a fiduciary seeks to discharge a defalcated
plan debt in a bankruptcy, both the Code and ERISA have been violated.
“Defalcation for purposes of ERISA
covered plans includes misappropriation of plan assets, the failure to forward
employee contributions and the stopping of only the fiduciary’s contributions
while continuing others,” Samuel Henson, J.D, senior ERISA counsel at Lockton,
wrote in the article.
Where the Department of Labor (DOL)
has determined that evidence of defalcation exists, it can file an adversary
complaint to establish the non-dischargeability of the retirement plan’s debt
under Code §523(a)(4). In addition, the DOL may file a proof of claim on behalf
of the plan pursuant to ERISA §502(a), seeking to have the plan debt classified
as a priority unsecured claim, according to Henson.
Assuming the DOL succeeds in
discharging the plan’s debt, it will then seek to collect that debt. In those
situations where the employer has assets not subject to secured creditors, the
DOL may be able to recover monies owed to the retirement plan. However, in
those situations in which the employer has no assets and has closed its doors,
the DOL may pursue a fiduciary personally under ERISA §409.
To read the full article, go to http://www.lockton.com/Resource_/PageResource/MKT/personal_fiduciary_keyQ2.pdf.