Are Unpaid Employer Contributions Considered Plan Assets?

December 8, 2011

Authored by: benefitsbclp

Department of Labor regulations provide that deductions for an employee’s wages are assets of an ERISA fund as soon as these amounts can be segregated from the employer’s general assets. While no similar regulations exist regarding unpaid employer contributions, a recent district court case concluded that case law has developed the following general rule in the context of a multiemployer plan: “unpaid employer contributions are not assets of a fund unless the agreement between the fund and the employer specifically and clearly declares otherwise.” West Virginia Laborers’ Pension Trust Fund v. Owens Pipeline Service LLC, S.D.W.Va., No. 2:10-cv-00131, Nov. 18, 2011 (citing ITPE Pension Fund v. Hall, 334 F.3d 1011, 1013 (11th Cir. 2003)).

In the Owens case, the defendant, the company president and sole shareholder of the corporation, decided to make payments on a piece of equipment instead of making contributions to four multiemployer pension plans. Four pension trust funds sued claiming he was a fiduciary and personally liable for the missed contributions, which the funds argued were plan assets. The pension trust agreement stated that contributions “due and owing” to the fund were considered to be plan assets. While the defendant argued otherwise, the judge found the “due and owing” language mirrored several similar district court decisions in which the unpaid contributions were deemed to be plan assets. The judge held the agreement clearly provided “that once the various contributions were ‘due’ to the funds based upon the number of hours worked by union employees, the employer ‘owed’ the money and the money was a plan asset.”

What does this mean for employers?  An employer which is delinquent in its contributions could be liable under ERISA for failing to timely remit assets to a plan.  In addition, the individuals who control corporate resources may also be held personally liable under ERISA’s fiduciary provisions since they may be deemed to be controlling plan assets. Employers should review their plan and trust documents for the “due and owing” or similar binding language before halting employer contributions to an employee benefit plan.  Employers should also be aware that some courts construe plan assets even more broadly. For example, the Tenth Circuit views a contractual right to unpaid contributions as a plan asset, regardless of the language in plan documents. See In re Luna, 406 F.3d 1192 (2005).