The United States Court of Appeals for the 11th Circuit upheld a district court ruling that an employer's unpaid fringe benefit contributions owed to an employee 401(k) plan were not plan assets under the Employee Retirement Income Security Act because they were not clearly identified as plan assets in the governing documents. It also ruled that the employer did not breach its fiduciary duty by not depositing the correct funds into the retirement plan.
The initial lawsuit was filed in the District Court for the Southern District of Florida by former employee Manuel Pantoja against Edward Zengel & Son Express, Inc., a family-owned trucking company that contracts with the U.S. Postal Service to haul mail.
As part of the trucking company's contract with the postal service, it was obligated to provide certain minimum wages and fringe benefits to its employees who performed services related to the contract. EZS could fulfill its obligation by either paying the fringe benefits as wages or directly providing benefits, like depositing money into an employee 401(k) plan, according to the appeal.
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Pantoja worked for EZS for about six months in 2009, but from February until August 2009, EZS withheld fringe benefits totaling $3,472.17 without depositing most of the money owed to Pantoja into the retirement plan. The company used that money to pay its payroll taxes.
The employee learned there was less than $300 in his 401(k) account so he filed a lawsuit. The company remitted the funds it owed to him, plus interest, but Pantoja filed suit against EZS and three corporate officers in March 2010. The district court denied the claim because federal regulations do not address employer contributions to an ERISA plan, which was the issue in this case.
"Recognizing this absence of regulation, we have held that unpaid employer contributions are not 'plan assets' unless specific and clear language in the plan documents or other evidence so indicates," according to the appeals court decision. "We have been hesitant to hold otherwise because of the unfairness in imposing strict fiduciary responsibilities—and personal liability—upon corporate officers who are not clearly aware of their status as fiduciaries."
It added that an employer's failure to pay contributions owed to the plan simply meant the employer was a debtor to the ERISA plan, not a fiduciary.
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