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May 7, 2003
Memorandum for: Virginia C. Smith
Director of Enforcement, Regional Directors
From: Robert J. Doyle
Director of Regulations and Interpretations
Subject: Application of Participant Contribution
Requirements to Multiemployer Defined Contribution Pension Plans
In the context of a multiemployer defined contribution
pension plan, to what extent may collective bargaining, employer participation
and similar agreements be taken into account in determining when participant
contributions can reasonably be segregated from the general assets of
participating employers?
In 1996, the Department adopted final rules defining when
amounts that a participant pays to, or has withheld by, an employer for
contribution to an employee benefit plan are “plan assets” for purposes
of Title I of ERISA. These rules are set forth at 29 CFR § 2510.3-102 (“Definition
of plan assets – participant contributions”). In general, the rules
provide that the assets of a plan include amounts that a participant or
beneficiary pays to, or amounts that a participant has withheld from his
wages by an employer, for contribution to the plan as of the earliest date
on which such contributions can reasonably be segregated from the employer’s
general assets.(1) With respect to
pension plans, the rules also provide that in no event shall such date be
later than the 15th business day of the month following the month in which
the amounts were received by the employer (in the case of amounts paid to
the employers) or in which the amounts would otherwise have been payable to
the participant (in the case of amounts withheld by the employer from a
participant’s wages).(2)
On the basis of information obtained by, and furnished
to, the Department, many multiemployer defined contribution pension plans
establish through collective bargaining, employer participation and similar
agreements, the form, manner and timing of amounts for contributions to
employee benefit plans, including participant contributions to defined
contribution pension plans. Frequently, such agreements provide for
contributions to be remitted to the plan at specific times, without regard
to when any given participating employer might be able to mechanically
segregate monies from its general assets. Such practices, therefore, have
raised questions concerning the extent to which multiemployer defined
contribution pension plan trustees and participating employers must
disregard the terms of collective bargaining and employer participation
agreements in order to ensure compliance with the terms of the plan assets -
participant contribution regulation. Determining when participant
contributions to a multiemployer, defined contribution plan become plan
assets is critical to understanding the fiduciary obligations of plan
trustees and participating employers in handling participant contributions.(3)
In adopting changes to the plan assets – participant
contribution rules in 1996, the Department recognized that plan sponsors and
fiduciaries must weigh the costs and benefits, as well as risks presented to
participants, of processes established for the transmittal and receipt of
participant contributions.(4) In
this regard, many commenters on the proposed rules, while acknowledging that
participant contributions could be segregated quickly and frequently into a
trust established to temporarily hold such contributions until they could be
reconciled, represented that the costs of establishing and administering
such a trust would be considerable, outweighing any additional benefits to
participants.(5) Taking such
comments into consideration, the Department indicated that, while the final
rule significantly reduces the maximum period during which participant
contributions may be treated as other than plan assets, the final rule “accommodates
employers who are unable reasonably to segregate participant contributions
from their general assets more frequently than in what appears to be a
fairly standard monthly processing cycle for participant contributions to
pension plans.”(6)
With regard to multiemployer plans specifically, several
commenters on the proposed rules argued that, given the unique nature of
such plans, multiemployer plans with participant contributions should either
be exempt from the plan asset – participant contribution rules altogether
or exempt from the maximum period within which contributions must be made.
While the Department did not adopt either of these suggestions, the
Department did determine that “the maximum time period for pension plans
in the final rule was sufficient to accommodate multiemployer plans."
The Department also recognized that transmission of participant
contributions may be controlled by pre-existing collective bargaining
agreements and, therefore, postponed the application of the final rule’s
new maximum period (within which participant contributions must be
transmitted to a plan) for collectively bargained pension plans.(7)
It is the view of this Office that the provisions of the
participant contribution regulation apply in the same way to multiemployer
plans that the provisions apply to single employer plans. That is,
participant contributions deducted by or paid to an employer become plan
assets as soon as they can reasonably be segregated from the employer's
general assets. As is the case with single employer plans, if a
multiemployer plan maintains a reasonable process for the expeditious and
cost-effective receipt of contributions, this process may be taken into
account in determining when participant contributions can reasonably be
segregated from the employer's general assets. To the extent that a
collective bargaining agreement, for example, describes such a process, then
the collective bargaining agreement should be considered in determining when
participant contributions become plan assets.
To be reasonable, a plan's process for receiving
participant contributions should take into account how quickly the
participating employers can reasonably segregate and forward contributions.
The plan fiduciaries should also consider how costly to the plan a more
expeditious process would be. These costs should be balanced against any
additional income and security the plan and plan participants would realize
from a faster system.
No matter how reasonable a pension plan's process,
however, participants contributions become plan assets no later than the 15th business day of the month following the month in which the amounts were
received by the employer (in the case of amounts paid to the employers) or
in which the amounts would otherwise have been payable to the participant
(in the case of amounts withheld by the employer from a participant’s
wages). Thus neither a collective bargaining agreement, nor any other
agreement between the plan and an employer, can justify a failure to comply
with the maximum periods in the regulation.
In determining when participant contributions can
reasonably be segregated from the general assets of any given contributing
employer to a multiemployer defined contribution plan, it is the view of
this Office that the time frames established in collective bargaining,
employer participation and similar agreements must be taken into account to
the extent such agreements represent the considered judgment of the plan’s
trustees that such time frames reflect the appropriate balancing of the
costs of transmitting, receiving and processing such contributions relative
to the protections provided to participants and beneficiaries, provided that
any such time frames do not extend beyond the maximum period prescribed in
§ 2510.3-102(b). As with other fiduciary duties, plan trustees must make
such determinations prudently and solely in the interest of plans’
participants and beneficiaries.(8)
Questions concerning the information contained in this Bulletin may be
directed to Louis Campagna or David Lurie, at 202.693.8510.
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See paragraph (a) of § 2510.3-102.
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See paragraph (b) of § 2510.3-102.
Also note that paragraph (d) of § 2510.3-102 describes the
circumstances under which the maximum time period may be extended.
-
The obligation of a fiduciary to
collect participant contributions from an employer is similar to the
obligations of a fiduciary to collect contributions payable by an
employer on its own behalf. In this respect, the Department has
indicated that if a multiple employer trustee does not establish and
implement collection procedures which are reasonable, diligent and
systematic, it may be found to be engaging in prohibited transactions
for failing to collect delinquent contributions. See section
406(a)(1)(B). Cf. Central States Pension Fund v. Central Transport,
Inc., 472 U.S. 559, 574 (1985) where the Court interpreted 406(a)(1)(B)
as creating a requirement that the plan trustee assure full and prompt
collection of all contributions owed to the plan.
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See 61 Fed. Reg. at 41226.
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See 61 Fed. Reg. at 41222.
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See 61 Fed. Reg. at 41223.
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See 61 Fed. Reg. at 41228.
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The mere fact that plan settlors via
collective bargaining establish specific dates for the transmittal of
participant contributions does not relieve plan trustees from their
fiduciary responsibility to determine that the established time frames
reflect the appropriate balancing of costs and protections. If the
trustees determine that time frames established in collective bargaining
agreements fail to reflect the appropriate balance and, therefore, would
result in an unreasonable delay in transmittal of participant
contributions, the trustees must take steps to collect participant
contributions from employers consistent with their fiduciary
obligations.
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