Another Way to Become Personally Liable to a Multiemployer Plan
I have blogged in the past about individuals and businesses that are not signatories to a collective bargaining agreement being found liable for withdrawal liability imposed by multiemployer pension plans (plans jointly trusteed by union and management trustees for the benefit of a number of unionized employers). Withdrawal liability is imposed when an employer exits the multiemployer plan. If the plan has unfunded vested benefits, the withdrawing employer must pay its share. In recent years, some of the withdrawal liability amounts have been significant.
As I noted in previous blogs (here, here and here), employers that are part of the same controlled group are liable for the withdrawal liability. This can include partners and shareholders who individually own the real estate on which a business operates.
In addition to withdrawal liability, employers are also liable for delinquent contributions to multiemployer plans. To collect those delinquent contributions, the multiemployer pension plans sometimes have an additional tool in their tool box: imposing fiduciary liability on the officer of a business that fails to pay its plan contributions.
Under ERISA, plan fiduciaries must use plan assets only for plan purposes. The trustees of the multiemployer plan are themselves plan fiduciaries. A number of multiemployer plans are now providing in their trust agreements that the contributions owed to the plan constitute plan assets beginning on the date that the contribution is owed. For example, if contributions are owed based upon hours worked by the union employees, then the amount of the contribution becomes a plan asset when the hours are worked. The plan then argues that those in charge of the employer are therefore fiduciaries with respect to their use of those plan assets. If the contributions are not timely paid because the business’s managers decide to use company funds to pay other obligations, those managers can be held personally liable for failure to use plan assets for the purpose intended.
A recent federal district court decision upheld such an argument. The court concluded that the founders and sole officers of a cleaning company violated their fiduciary duties under ERISA by failing to remit contributions to a multiemployer plan. The plan’s collection policy specifically provided that “all money owed to the trust, which money (whether paid, unpaid, segregated or otherwise traceable, or not) becomes a trust asset on the due date.” Because of that statement, the court determined that the contributions became trust assets from the date they were owed and that the officers of the company who chose to pay other company obligations were personally liable for the delinquent contributions. That liability attached even though the business was operated in corporate form.
Contact Benefits Notes for more information.