Employer Breached ERISA by Failing to Make Rollover Distribution


An employer breached his fiduciary duties under the Employee Retirement Income Security Act (ERISA) by failing to honor a former employee’s rollover distribution request.




 The U.S. District Court for the Southern District of New York found that under the J&R Equipment, In. 401(k) Plan and Trust, Edward Klepeis was entitled to have his vested balance in the plan rolled over as of December 31, 2005. Klepeis asked Joseph T. Falanga, owner of J&R and sole trustee of the plan, to roll over his plan assets when he resigned in January 2005. Under the terms of the plan, Klepeis would be entitled to distribution on the next anniversary date—December 31, 2005.   

The court rejected the defendants’ argument that Falanga was justified in ignoring Klepeis’ rollover request because it was not in the proper form, noting that the plan does not require formal claims for participants to receive benefits. According to the court opinion, when Klepeis complained in 2005 about Falanga’s unresponsiveness to his rollover request, Qualified Plan Consultants (QPC), the plan administrator told Klepeis that it needed only Falanga’s authorization, not a formal request by Klepeis. The court said Falanga, as a plan fiduciary with the duty to provide plan benefits to participants, should have given his authorization without unreasonable delay.  

In addition, the court found Falanga breached his fiduciary duty by failing to execute the subsequent written rollover requests. It rejected the argument that the refusal to execute the first written request was justified because it was untimely. The defendants point to no authority, in either the plan or the ERISA statute, for any timing requirement.



The defendants argued that the refusal to execute the second written request was justified because the request was not timely, and because the funds were frozen pending Internal Revenue Service (IRS) approval of the plan’s termination. The court noted that the Summary Plan Description (SPD) does state that upon termination, the plan assets will be distributed as soon as practicable, but such a provision does not allow a fiduciary to hold onto a participant’s assets before plan termination occurs or where a participant has no notice that termination has occurred.   

The court granted summary judgment to Klepeis.  

In January 2011, Klepeis received a letter stating that his account had been transferred into an IRA managed by Rollover Systems, Inc.; however, his balance had fallen from $63,936.41, the full value in his plan account as of December 31, 2005, to $57,312.76. The court said J&R would be credited for the amount it rolled over.   

The court also found that prejudgment interest on $63,936.41 beginning on December 31, 2005, is an appropriate part of Klepeis’ compensation, as he should have been able to invest his money as he saw fit as of that date, and that he is entitled to attorneys’ fees. He was granted leave to submit proof for his claims of pre-judgment interest and attorneys’ fees.  

The opinion in Klepeis v. J&R Equipment Inc. is here.