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November 4,
2002
Memorandum for: Virginia C. Smith
Director of Enforcement, Regional Directors
From: Robert J. Doyle
Director of Regulations and Interpretations
Subject: Plan Amendments Made by Multiemployer Plan Trustees
Were the trustees of two related multiemployer plans subject to
ERISA's fiduciary standards when they amended the plans' trust agreement?
Employer Association X and Labor Union Y established a defined benefit plan
(DB plan) in 1955 and, in 1987, a defined contribution plan (DC Plan). Employer
contributions to Fund Z fund both plans. Although some DC Plan participants also
participate in the DB plan, most do not. In 1989, the DB plan was frozen. No new
employees became participants of the DB plan and the existing participants
accrued no further benefits. At that time, the trustees believed that the DB
plan needed no further contributions. All future contributions were allocated to
the DC Plan.
By 1999, the DB plan’s funding situation had apparently changed. That year,
Employer Association X and Labor Union Y amended the trust agreement to allocate
employer contributions to the DB plan in an amount equivalent to the forfeitures
in the DC Plan. The collective bargaining agreement under which the plans are
maintained only sets a formula for employer contributions to Fund Z; the trust
agreement specifies the allocation of contributions among the plans. The trust
agreement provides that either Employer Association X and Labor Union Y, or Fund
Z’s board of trustees may make amendments.
The 1999 reallocation did not prove sufficient to make the DB Plan solvent.
In 2002, the trustees voted to amend the trust agreement, this time diverting an
additional 20% of the employer contributions to the DB plan. The amendment
resolution states that the trustees were acting "in their Settlor
capacity."
Section 3(21) of ERISA defines a fiduciary as one who has or exercises
discretionary authority or control in the administration or management of an
employee benefit plan or its assets. Part 4 of Title I of ERISA establishes the
standards pursuant to which any fiduciary is to act, including the duty to act
solely in the interests of the participants and beneficiaries of the plan, to be
prudent in carrying out her responsibilities, and to avoid engaging in
prohibited transactions. Section 3(16) of ERISA, in relevant part, defines the
term "plan sponsor" of a plan established or maintained jointly by one
or more employers and one or more employee organizations, as the joint board
trustees who establish or maintain the plan.
In analyzing the extent to which assets of an employee benefit plan may
properly be applied toward the payment of certain expenses, the Department has
distinguished between activities that are “settlor” in nature (i.e.,
activities that relate to the establishment, design, and termination of plans)
and activities that are fiduciary in nature (i.e., activities involving
management of the plan). As indicated in various pronouncements, expenses
incurred in connection with the performance of settlor functions would not be
reasonable plan expenses as they would be incurred for the benefit of the
employer and would involve services for which an employer could reasonably be
expected to bear the cost in the normal course of its business or operations.(1)
In
applying these distinctions, the Department has generally recognized that
certain activities that would be settlor activities in the context of a single
employer plan might be fiduciary activities in the context of a multiemployer
plan.(2) This view was consistent with earlier case law, such as NLRB v. Amax Coal
Co., 453 U.S. 322 (1981) which held that employer appointed trustees of a
multiemployer plan do not represent the interests of the contributing employers,
but act as fiduciaries of the plan. 453 U.S. at 331-334. More recent Supreme
Court pronouncements on settlor functions, however, have led several courts to
conclude that multiemployer plan trustees may act in a settlor capacity without
regard to ERISA's fiduciary standards.(3)
For example, the Third Circuit Court of Appeals, in Walling v. Brady(4) and the
Sixth Circuit Court of Appeals, in Gard v. Blankenburg,(5) have taken the position
that boards of trustees may act as settlors when they amend plans, and that such
amendments are not subject to ERISA’s fiduciary responsibility provisions. As
the Third Circuit noted in the Walling case, the Supreme Court, in both Lockheed
Corp. v. Spink and Wright Corp. v. Schoonejongen,(6) recognized that the use of the
term “plan sponsor” is significant. Under ERISA section 3(16), the sponsor
of a multiemployer plan is the joint board of trustees that is directed,
pursuant to a collective bargaining agreement, to establish one or more employee
benefit plans. While the Walling court noted that, notwithstanding Lockheed,
there may be situations in which single employer and multiemployer plans should
be treated differently, they opined that under the facts of that case, involving
the amendment of a multiemployer plan, ERISA’s fiduciary rules did not apply.
The facts in Walling are very similar to those in the present case. In
Walling, the board of trustees of a multiemployer defined benefit pension plan
and group health plan amended the health plan (pursuant to authority granted
under the collective bargaining agreement and the plan document) to require that
participants pay $100 per month in order to receive benefits and amended the
pension plan (also pursuant to authority granted under the collective bargaining
agreement and the plan document) to provide an additional $100 benefit to those
participants who were also participants in the health plan. The court in
Walling, in concluding that the trustees’ amendment of the pension plan fell
outside of the scope of ERISA’s fiduciary responsibility provisions, noted
that imposing fiduciary duties on a sponsor’s decision to amend a plan,
whether the employer in the case of a single-employer plan, or the trustees in
the case of a multiemployer plan, would divide the sponsor’s loyalties and
make amendment of a plan impossible.
In Advisory Opinion 80-8A,(7) we considered the issue of whether trustees who
allocate employer contributions to related multiemployer plans established and
maintained under the same collective bargaining agreements engage in a fiduciary
act in making such allocations. In that opinion, we concluded that where
allocations are made pursuant to a fixed formula established in the collective
bargaining agreement, which formula is binding on the trustees, the trustees are
not, solely by reason of such allocation, engaged in an act described in section
406(b)(2). However, the opinion noted that if the trustees exercise discretion
in determining how to allocate employer contributions among the related plans,
the trustees were engaging in a transaction involving the plans to which
contributions were allocated, or withheld, and that such transactions could
violate section 406(b)(2) since the plans may have competing interests as to the
fixed pool of money. We note, however, that the opinion expressly reserved the
question of whether the trustees would be engaged in a fiduciary violation where
the collective bargaining agreement gives the trustees the authority to make
prospective changes in the formula under which contributions are allocated among
related plans.
In the case at hand, the collective bargaining agreements vested broad
authority in the trustees to act establish the Fund, as well as the DB Plan and
the DC Plan. The trustees also had the authority to amend the Fund and the
plans. Pursuant to this authority, the trustees have amended the trust agreement
and the plans to provide for the allocation of a portion of the employer
contributions to the DB Plan, based on a fixed formula contained in the trust
agreement. Once the amendment was properly adopted, the formula became binding
on the trustees.
In our view, where relevant documents (e.g., collective bargaining
agreements, trust documents, and plan documents) contemplate that the board of
trustees of a multi-employer plan will act as fiduciaries in carrying out
activities which would otherwise be settlor in nature, such activities would be
governed by the fiduciary provisions of ERISA. In our view, such designation by
the plan would result in the board of trustees exercising discretion as
fiduciaries in the management or administration of a plan or its assets when
undertaking the activities. However, where, as here, the relevant plan documents
are silent, then the activities of the board of trustees which are settlor in
nature generally will be viewed as carried out by the board of trustees in a
settlor capacity, and such activities would not be fiduciary activities subject
to Title I of ERISA. Accordingly, it is the view of this Office that the
Trustees of the Fund did not violate their fiduciary duties under ERISA in
amending the Fund, the DB Plan, and the DC Plan to provide for an allocation of
employer contributions to the DB Plan.
It is also the view of this Office that, consistent with the plan expense
guidance discussed above, it would not be appropriate for a multiemployer plan
to pay for expenses attendant to activities that a multiemployer plan trustee
carries out in a settlor capacity.
Any questions concerning this matter may be directed to Louis Campagna or
David Lurie, Division of Fiduciary Interpretations at 202.693.8510.
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See, Advisory Opinion Nos. 97-03A
and 2001-01A. Also see letter to Kirk F. Maldonado from Elliot I.
Daniel (March 2, 1987).
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Advisory Opinions 97-03A and
2001-01A both indicate “these so-called ‘settlor’ functions
include decisions relating to the establishment, design, and
termination of plans, and except in the context of multiemployer
plans, generally are not fiduciary activities.” (Emphasis added)
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E.g., Walling v. Brady, 125 F.3d 114
(3rd Cir. 1997); Gard v. Blackenburg, No. 00-1234 (6th Cir. 2002)
Hartline v. Sheetmetal Workers' National Pension Fund, 134 F. Supp. 2d
1 (D.D.C. 2000), citing Lockheed Corp. v. Spink, 517 U.S. 882 (1996);
Wright Corp. v. Schoonejongen, 514 U.S. 73 (1995). See also Pope v.
Central States, Southeast and Southwest Areas Health and Welfare Fund,
27 F.3d 211 (6th Cir. 1994).
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125 F.3d 114 (3d Cir., 1997)
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No. 00-1234 (6th Cir., 2002)
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517 U.S. 882 (1996); 514 U.S. 73
(1995)
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February 1, 1980
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