Compliance May 17, 2012

Fiduciary Liability Continues After Company Closing

Some retirement plan sponsors mistakenly believe their fiduciary liability ended when the company doors closed.
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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.  

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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.

 

Data & Research May 17, 2012

Chamber of Commerce Makes Retirement Benefits Suggestions

The U.S. Chamber of Commerce released a white paper offering guidelines on initiatives to bolster the voluntary employment-based retirement benefits system and retirement security for workers.
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“Private Retirement Benefits in the 21st Century: A Path Forward” lays out a path to continue the success of the private employer-provided retirement system and increase retirement security for millions of workers.


Specifically, it recommends: 

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  • Encouraging employers to create and maintain retirement plans by expanding plan sponsorship among small businesses, streamlining notice requirements and allowing for greater use of electronic disclosures, reforming multi-employer defined benefit funding rules to prevent bankruptcy among small employers, reforming single-employer defined benefit funding rules to allow for greater predictability and clarifying the hybrid plan rules and regulations; 
  • Encouraging greater individual savings by pushing for the use of automatic plan features, promoting financial education for retirement and helping preserve retirement assets; and 
  • Implementing strategies to make retirement assets last by encouraging additional distribution options, addressing required minimum distribution rules, encouraging employers to offer voluntary products and eliminating barriers to phased retirement. 

“This white paper offers detailed guidelines to help employers create and maintain retirement plans, and for workers to increase their savings. It also identifies ways to make retirement assets last for future retirees,” said Randy Johnson, senior vice president for labor, immigration & employee benefits at the Chamber. 

In a statement, Pension Benefit Guaranty Corporation Director Josh Gotbaum supported the white paper. “When business talks about ideas that could make workers more secure, we welcome the conversation. We all need to work, both to preserve the benefits of the pensions we have and to find new ways to provide for a secure retirement,” he said.  

The report can be downloaded from http://www.uschamber.com/reports/private-retirement-benefits-21st-century-path-forward.

 

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