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Theodore M. Lieverman, Esq.
Tomar, Simonoff, Adourian, O’Brien,
Kaplan, Jacoby & Graziano
Tomar Plaza
20 Brace Road
Cherry Hill, New Jersey 08034-0379
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1999-12A
ERISA Sec. 404(a)
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Dear Mr. Lieverman:
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This is in response to your request on behalf of the Sheet Metal Workers
International Association Local 25 of New Jersey Welfare Fund (Local 25
Welfare Fund)(1) and the Sheet Metal
Workers International Association Local 27 of New Jersey Welfare Fund (Local
27 Welfare Fund), jointly referred to herein as the Welfare Funds.
Specifically, you request an advisory opinion as to whether the Sheet Metal
Workers International Association National Pension Fund (National Pension
Fund) may honor a side bar agreement with the Welfare Funds to pay the
Welfare Funds certain monies received in settlement of litigation, with
respect to which the Welfare Funds and the National Pension Fund were
co-plaintiffs, without contravening Title I of the Employee Retirement
Income Security Act, as amended (ERISA).
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The information provided indicates that, following the
dismantling of the Sheet Metal Workers International Association Local 22
by the Sheet Metal Workers International Association, a dispute arose over
the right to control the Sheet Metal Workers International Association
Local 22 of New Jersey Welfare Fund (Local 22 Welfare Fund) and the Sheet
Metal Workers International Association Local 22 of New Jersey Pension
Fund (Local 22 Pension Fund), jointly referred to herein as the Local 22
Funds. This dispute resulted in litigation in which the Welfare Funds and
the National Pension Fund, as co-plaintiffs, sued the Local 22 Funds.(2)
The court of appeals described the dispute as follows:
This case arises from a dispute between two labor
unions over the right to control a welfare fund and a pension fund. One
union, an independent local [Local 22] seceded from the other, an
international union, and asserted control over the local’s pension and
welfare funds, which had previously been controlled by the
international. After the secession, a subgroup within the independent
returned to membership in locals affiliated with the international . . .
. The plaintiffs sought to have control over the independent’s pension
and welfare funds returned to the international. Further the plaintiffs
sought to have the defendant funds disgorge to the plaintiff funds those
assets in the defendant funds attributable to employees who left the
independent to rejoin locals affiliated with the international.
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960 F.2d at 1199.
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In reversing and remanding the case to the district
court, the court of appeals directed the district court to determine the
extent to which the Local 22 Funds should transfer monies to the Welfare
Funds and the National Pension Fund, the determinations to be based on
findings as to the actual population changes in union membership.(3)
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Following remand, the parties entered into settlement negotiations. You
represent that, while the Welfare Funds expended time and effort in
litigation on behalf of themselves and the other plaintiffs, the Local 22
Funds insisted on a settlement agreement that included a release of the
Welfare Funds’ claims without any payment of monies by the Local 22 Funds
to the Welfare Funds. You represent that the Welfare Funds and the National
Pension Fund, taking into account the continued cost of litigation, entered
into a sidebar agreement pursuant to which the Welfare Funds agreed to
release their claims as part of a settlement with the Local 22 Funds, and,
in exchange, the National Pension Fund agreed to pay over to the Welfare
Funds ten percent of any proceeds it received pursuant to the settlement
agreement with the Local 22 Funds. The sidebar agreement further provided
that the National Pension Fund would hold the agreed-upon ten percent of
settlement proceeds in escrow for the Welfare Funds and would pay such
proceeds to the Funds when and if the Department of Labor issued guidance
sanctioning the transaction.
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At issue is whether the payment by the National Pension Fund to the Welfare
Funds pursuant to the sidebar agreement would violate ERISA. We note, first,
that sections 403(c) and 404(a) of ERISA require, among other things, that a
plan fiduciary act prudently, solely in the interest of the plan’s
participants and beneficiaries, and for exclusive purposed of providing
benefits to their participants and beneficiaries.(4)
In the situation presented, the propriety of the contemplated payment to the
Welfare Funds depends, in part, on whether the fiduciaries of the National
Pension Fund and the Welfare Funds discharged their duties prudently and
solely in the interest of their respective participants and beneficiaries in
entering into the sidebar agreement. Whether that action met those standards
would depend, among other things, on whether the payment of ten percent of
the settlement proceeds by the National Pension Fund to the Welfare Funds
constituted adequate value for obtaining the release of the Welfare Funds’
claims. Given the inherently factual nature of such determinations, the
Department expresses no opinion herein on those specific questions. If,
however, the fiduciaries of the National Pension Fund and the Welfare Funds
did properly discharge their duties in entering into the sidebar agreement,
the answer to the question you pose turns only on whether payments pursuant
to the sidebar agreement would violate ERISA’s prohibited transaction
provisions.
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Based on our understanding of the facts, including that there is no
party-in-interest relationship between the National Pension Fund and the
Welfare Funds, that the sidebar agreement predated the settlement agreement,
and that execution of the sidebar agreement was a condition to the Welfare
Funds’ execution of the settlement agreement, it is the view of the
Department that the prohibited transaction provisions of ERISA would not
preclude the National Pension Fund from paying the Welfare Funds amounts
owing pursuant to the terms of the sidebar agreement.
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This letter constitutes an advisory opinion under ERISA Procedure 76-1, 41
Fed. Reg. 36281 (1976). Accordingly, this letter is issued subject to the
provisions of that procedure, including section 10 thereof, relating to the
effect of advisory opinions.
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Sincerely yours,
Susan G. Lahne
Acting Chief, Division of Fiduciary Interpretations
Office of Regulations and Interpretations
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The entity known as Sheet Metal
Workers International Association Local 25 Welfare Fund was previously
included within the Sheet Metal Workers International Association
Local 28 Welfare Fund (Local 28 Welfare Fund). References to the Local
25 Welfare Fund, therefore, should be read to include the Local 28
Welfare Fund, as appropriate.
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See Sheet Metal Workers’ Local 28
of New Jersey Welfare Fund, et al v. Gallagher, 960 F.2d 1195 (3d Cir.
1992); Sheet Metal Workers’ Local 28 of New Jersey Welfare Fund v.
Gallagher, 13 E.B.C. 1729 (D.N.J. 1990).
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See 960 F.2d at 1209 - 1217.
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The Department expresses no view on
the propriety or merits of the litigation or settlement negotiations
relating thereto.
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