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Thomas J. Lilly
Lilly & Bienstock
300 Garden City Plaza
Garden City, New York 11530
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1999-17A
ERISA Sec. 404(a)(1)(D)
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Dear Mr. Lilly:
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This is in response to your request for an advisory opinion on behalf of the
Graphic Communications International Union, Local 51-23M, which is the union
co-sponsor of the Printers League - Local 23 Relocation, Displacement,
Supplementary Unemployment Benefit, Vacation, and Fringe Benefit Fund (the
Fund), a Taft-Hartley welfare benefit plan, regarding the fiduciary
responsibility provisions of the Employee Retirement Income Security Act of
1974 (ERISA). Specifically, you ask whether an assertion made by Fund
trustees that they may only be removed (other than by death or resignation)
“for cause” would establish lifetime terms of appointment inconsistent
with the fiduciary responsibility requirements of ERISA and Advisory Opinion
85-41A.
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You represent that Graphic Communications International Union (GCIU) Locals
51 and 23 merged, pursuant to a Merger Agreement effective April 1, 1996, to
create GCIU Local 51- 23M (Local 51-23M). According to the terms of the
merger, Local 51-23M assumed the rights, duties and obligations of Locals 51
and 23. These rights, duties and obligations extend to employee benefit
plans, including the Fund. The Fund provides vacation, dislocation,
supplemental unemployment, and dental benefits to participants, most of whom
are former members of Local 23.
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The Fund was created pursuant to an initial Trust Agreement, effective May
1, 1975. Section 6.3 of the Trust Agreement has provided since its inception
that any union-designated trustee may be removed by the union president at
any time, with or without cause. A union- designated trustee is a Fund
trustee appointed by the union president on behalf of the employees. On
December 4, 1995, the incumbent Fund trustees, acting pursuant to authority
granted to them by an amendment executed on June 1, 1993, amended the Trust
Agreement to add a new section 6.7, which provides that:
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If the Union merges with another union, the then-serving Union- designated
Trustees shall remain as Trustees, and the then-serving Chair shall remain
as Chair. If a Union-designated Trustee resigns, retires, or is otherwise
removed, and if the then-serving Chair is a Union-designated trustee, the
Chair shall appoint his or her successor. If the then-serving Chair is not a
Union-designated Trustee, the President of the union into which the Union
merged shall appoint the successor to any Union-designated Trustee who
resigns, retires, or is otherwise removed. The successor to any
Union-designated Trustee shall have been a member of the Union before the
merger.
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You represent that the Fund’s incumbent union-designated trustees have
interpreted section 6.7 to mean that, in the event of a union merger, the
incumbent union-designated trustees may no longer be removed by the union
president at will, but only for cause or by reason of death or resignation.(1)
Accordingly, the incumbent trustees have declined to comply with
directions of the president of Local 51-23M, who, following the merger,
attempted to remove them and to appoint new trustees.
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In Advisory Opinion 85-41A (December 5, 1985), the Department expressed the
view that a lifetime term of appointment for a pension plan trustee would
generally be inconsistent with ERISA’s fiduciary responsibility
provisions. As explained in Advisory Opinion 85-41A, Congress intended, in
enacting the fiduciary responsibility provisions, to ensure that the conduct
of plan fiduciaries (including trustees) would be in accordance with high
standards of loyalty and prudence and subject to effective oversight.
Congress supported these broad objectives, inter alia, by creating
prohibited transaction rules, one of which prohibits any contract or
arrangement to provide trustee or other services to a plan unless, among
other requirements, the contract or arrangement is reasonable. In
particular, Congress indicated its expectation that such service
arrangements would be readily terminable by the plan so that it would not
become locked into a disadvantageous relationship. See H.R. Rep. No. 1280,
93rd Cong., 2d Sess., at 312 (1974), reprinted in Legislative History of the
Employee Retirement Income Security Act of 1974, at 4579 (1976). Consistent
with the legislative intent, regulation section 29 CFR 2550.408b-2(c)
states, in part, that a contract or arrangement to provide trustee or other
services to the plan is reasonable only if it permits termination of the
contract or arrangement by the plan on reasonably short notice without
penalty to the plan. As stated in Advisory Opinion 85-41A, an arrangement
whereby trustees are to serve for unlimited terms subject to removal only
upon proof of malfeasance, misconduct, or incapacity, or upon their own
voluntary resignation or death, would not be reasonable within the meaning
of the regulation.
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It is the view of the Department that the principles articulated in Advisory
Opinion 85- 41A apply equally to the terms of the appointment of trustees of
funded welfare plans like the Fund. Under section 404(a)(1)(D) of ERISA,
plan fiduciaries are required to act in accordance with plan documents and
instruments only insofar as they are consistent with Titles I and IV of
ERISA. Therefore, it is the view of the Department that the incumbent
trustees cannot rely upon their interpretation of section 6.7 of the Trust
Agreement regarding the terms of appointment for trustees to the extent that
such interpretation would purport to sanction an unreasonable arrangement
such as that described in Advisory Opinion 85-41A, pursuant to which the
incumbent trustees would be removable only for cause.
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This letter constitutes an advisory opinion under ERISA Procedure 76-1.
Accordingly, it is subject to the provisions of that procedure, including
section 10 thereof relating to the effect of advisory opinions.
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Sincerely,
Susan G. Lahne
Acting Chief, Division of Fiduciary Interpretations
Office of Regulations and Interpretations
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Enclosure
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The Department takes no position
regarding the incumbent trustees’ interpretation of section 6.7.
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