News & Insights

Emerging Trend Under ERISA: Unpaid Employer Fund Contributions
June 17, 2014
by Robert Conte


South Bend / Mishawaka, IN – The Employee Retirement Income Security Act of 1974, as amended (ERISA), requires trustees of multi-employer pension and benefit funds to collect contributions required to be made by contributing employers under their collective bargaining agreements (CBA’s) with the labor union sponsoring the plans.

As it relates to these contributions, a trend is emerging. The Federal courts have found, depending on the language of the plan documents, unpaid employer contributions due under a CBA may be viewed as plan assets, when the CBA defines them as such. Therefore, employer representatives who exercise fiduciary control over the plan assets (officers, directors or other representatives of the employer) can be held individually liable under ERISA for the unpaid amounts, together with interest and penalties. These cases will help plan trustees and administrators collect monies owed to the plan while at the same time serve as a warning to contributing employers, make sure you fully understand the obligations you are undertaking when agreeing to contribute to ERISA funds under a CBA.

Generally, an employer will agree, under the CBA, to make specified contributions to fund the pension’s health and wellness benefits promised to plan participants. If those contributions are not timely remitted, it constitutes a violation of the CBA, and under the plan’s rules, the fund trustees have a legal duty to collect the unpaid contributions. However, unlike employee contributions, which DOL regulations view as plan assets, employer contributions are seen as contractual obligations that do not become plan assets until paid by the employer to the trust fund. Simply, employer contributions did not constitute plan assets, and the employer’s failure to make the CBA mandated contributions resulted in a violation of the CBA not a breach of an ERISA fiduciary duty. Enter the emerging trend.

A recent Federal court decision indicates a desire to carve out an exception to the general rule that employer contributions do not constitute plan assets until actually received by the trust fund. Although that rule continues, other decisions indicate a willingness by the courts to carve out this exception. Plans looking to protect their ability to collect fund contributions should be explicitly defined in the plan documents, that plan assets include all unpaid contributions in the hands of the employer. Employers must also be aware of such provisions; by failing to do so, its officers, directors, and other representatives who choose to pay other creditors rather than the trust fund could be held personally liable for the unpaid amounts, along with interest and penalties, and may not be able to escape this liability through a subsequent bankruptcy filing.

Source: Unpaid Employer Contributions as Plan Assets: Expansion of Liability Under ERISA; Neal Schelberg and Aaron Feuer, Proskauer Rose LLP; The ERISA Litigation Newsletter, May 2014, JD Supra® Business Advisor.