Spencer Fane LLP Logo

THE FIDUCIARY CORNER: The Duty to Collect Delinquent Contributions

In a Field Assistance Bulletin issued February 1, 2008 (FAB 2008-01), the Department of Labor highlighted a problem that apparently is pervasive in retirement plan and trust documents: confusion over the responsibility to collect delinquent contributions. Recent DOL investigations uncovered plan and trust documents that neglected to assign responsibility for monitoring and collecting contributions, and some that even purported to relieve all of the plan’s fiduciaries from this responsibility. This guidance cautions that plan fiduciaries who ignore delinquent contributions do so at their own peril. Employers should review their documents carefully in light of this Bulletin, to make sure that these responsibilities are properly assigned.

The DOL noted that, although the duty to collect contributions is fiduciary in nature, there is often confusion about which plan fiduciary has this duty. Because this duty is characterized under ERISA as a “trustee” responsibility, it generally must be assigned to the plan’s trustee (either a discretionary or directed trustee) or an investment manager. In the absence of such a clear delegation of duties, however, the party with the authority to hire the trustee – which in many cases is the sponsoring employer – retains that responsibility, and may be liable for plan losses that result from delinquent contributions.

The Bulletin explained that employer contributions are delinquent when they are due under the terms of the plan and trust documents, but not yet paid. In that event, although the contributions are not yet plan assets, the claim against the employer for the delinquent contributions is a plan asset which must be protected. The failure to make reasonable and diligent efforts to collect delinquent contributions may amount to both a fiduciary breach and a prohibited transaction. The DOL acknowledged that fiduciaries considering a collection action may take into account factors such as the amount involved, the employer’s solvency, the likelihood of a successful recovery, and the expenses expected to be incurred in the collection effort.

A trust agreement may excuse particular trustees from the responsibility to collect contributions, but it is impossible under ERISA for all parties to completely avoid that duty. Even if the trust agreement specifically excludes a particular trustee from the responsibility to collect contributions – such as a directed trustee, which typically has only limited authority under the trust agreement – that trustee may nevertheless be liable as a co-fiduciary under ERISA if it knows that delinquent contributions are not being collected. In response to this Bulletin, employers should carefully review their plan documents to ensure that this responsibility is properly delegated, and that it is being fulfilled.