Nonqualified Plan Sponsor Loses Lawsuit over FICA Taxes

A group of nonqualifed retirement plan participants argue their employer reduced their retirement benefits by not paying FICA taxes on their accounts per the plan document.

A federal district court found that, rather than properly withholding nonqualified retirement plan participants’ Federal Income Contributions Act (FICA) taxes as required by the plan, Henkel Corp. caused participants to pay these taxes at the time of each benefit payment, effectively reducing their anticipated retirement benefits. 

The U.S. District Court for the Eastern District of Michigan noted that Henkel admitted in a letter to participants that it had not properly withheld taxes. This resulted in the participants owing more in FICA taxes than they would have owed had Henkel properly and timely paid taxes when they were due. The court granted summary judgment to the participants because Henkel failed to adhere to the purpose and terms of the plan, resulting in a reduced benefit to the participants. 

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

According to the court opinion, Section 4.4 of the plan reads:

“Taxes. For each Plan Year in which a Deferral is being withheld or a Match is credited to a Participant’s Account, the company shall ratably withhold from that portion of the Participant’s compensation that is not being deferred the Participant’s share of all applicable Federal, state or local taxes. If necessary, the Committee may reduce a Participant’s Deferral in order to comply with this Section.”

“Pursuant to the plan’s design and purpose, the defendants are required to properly and timely withhold the taxes on the funds of the plan participants while the funds were in the control of the defendants,” U.S. District Court Judge Gershwin A. Drain wrote in his opinion.

ERISApedia Provides ERISA Answers

The launch of ERISApedia.com provides retirement plan sponsors, administrators, attorneys and advisers with easy access to compliance information and important retirement industry materials.

With a platform that combines search tools and a user-friendly interface, the website ERISApedia.com provides answers to common questions asked by retirement plan sponsors and service providers. 

The website is operated by Burrmont Compliance Labs, an organization offering compliance and other tools for the retirement plan industry.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Included on the website is “The Qualified Plan eSource,” a discourse designed for Employee Retirement Income Security Act (ERISA) professionals working with defined contribution plans. Written by industry expert Timothy McCutcheon, the document contributes answers in an easy-access format with direct links to government source materials. 

McCutcheon, who has over 20 years of experience in ERISA and is the founder of ftwilliam.com, says the online ERISApedia is designed to be easy to use, to give relevant results quickly, and to present results in a useful format.

ERISApedia.com also includes government and regulatory source materials specifically relevant to ERISA professionals, which have been selected by the website’s editors.

«