Compliance January 8, 2013

Employer Contributions Owed Are Not Plan Assets

A court ruled contributions owed to a 401(k) are not plan assets, so an employer did not breach fiduciary duties by not contributing.
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The 11th U.S. Circuit Court of Appeals agreed with a district court decision that the unpaid contributions were not plan assets because they were not clearly identified as plan assets in the governing plan documents. The district court entered judgment in favor of the employer because it did not breach a fiduciary duty as a matter of law.  

The appellate court explained that while the Employee Retirement Income Security Act (ERISA) does not define the term “assets,” federal regulations do prescribe that ERISA plan assets “include amounts (other than union dues) that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his wages by an employer, for contribution or repayment of a participant loan to the plan, as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer’s general assets.”   

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Thus, an employee’s elective contributions to an ERISA plan, withheld from his wages, are “plan assets” even when the funds remain in the employer’s possession. However, federal regulations do not address employer contributions to an ERISA plan. “Recognizing this absence of regulation, we have held that unpaid employer contributions are not ‘plan assets’ unless specific and clear language in the plan documents or other evidence so indicates,” the 11th Circuit opinion said.  

Manuel Pantoja worked for Edward Zengel & Son Express, Inc. (EZS) for approximately six months in 2009. From February until August 2009, EZS withheld fringe benefits totaling $3,472.17 without depositing most of the money owed into the plan. Instead, EZS used the money to pay its payroll taxes.   

Pantoja learned there was less than $300 in his 401(k) account when Hartford Life Insurance Company sent him a balance statement in late 2009. In March 2010, Pantoja filed suit against EZS, and three corporate officers alleging a breach of fiduciary duty and requesting injunctive relief. After Pantoja filed the lawsuit, EZS remitted to the plan the funds owed to Pantoja, plus interest.  

The 11th Circuit’s opinion is at http://www.ca11.uscourts.gov/unpub/ops/201210036.pdf.

Deals & People January 7, 2013

LPL Adds EVP of Business Technology Services

Donie Lochan joined LPL Financial LLC as executive vice president of business technology services (BTS).

 

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Lochan will lead BTS’ risk management, audit compliance, business continuity, disaster recovery planning and information security. He will also shape and implement the company’s comprehensive roadmap for expanding its technological capabilities.

Lochan will be based in San Diego and report to Victor Fetter, who recently joined the company as chief information officer and managing director of BTS.

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Lochan has more than 21 years of experience in business technology and financial services. He previously worked for Bain & Company where, as a partner in its global financial services practice, he was the regional leader of the Asia Pacific IT Services unit, and developed growth and transformational strategies and solutions for financial institutions.

Before Bain, Lochan was a vice president and partner at Ernst & Young, where he served as the global head of its wealth management practice and helped leading companies in North America, Europe and Asia to increase their profits and reduce costs by aligning their investments in business and technology.

Lochan received his bachlor’s degree in mathematics/statistics and computing with first class honors from the University of Greenwich/Kings College, England, in 1990, where he received the IBM award for outstanding academic achievement.

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