Compliance January 18, 2007

Employers as Plan Sponsors Owe Fiduciary Duty to Participants

January 18, 2007 (PLANSPONSOR.com) - The U.S. District Court for the Central District of Illinois has affirmed a plan participant's charge that the owners of the company for which she worked breached their fiduciary duties by failing to make matching contributions to a 401(k) plan on her behalf.
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The court dismissed the argument from the owners of Dovetail Inc. that they were acting as employer and/or corporate officers and owed no fiduciary duty to participant Sandra Leister, saying, “[E]mployers who are also plan sponsors wear two hats: one as a fiduciary in administering or managing the plan for the benefit of participants and the other as employer in performing settlor functions such as establishing, funding, amending, and terminating the trust.”

According to the opinion, co-owner Michelle Peterson was identified as trustee of the plan by a Certification of Investment Powers and Peterson admitted to not paying more than $18,000 owed to Leister as matching contributions. The court also moved forward a fiduciary breach claim against the owners of Dovetail for failing to provide a Summary Plan Description (SPD) requested by Leister, saying the documents they did provide did not meet the SPD requirements as established by the Employee Retirement Income Security Act (ERISA).

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Leister complaint alleged, among other things, the defendants:

  • breached their fiduciary duty by failing to make matching contributions and timely deposits of Leister’s elective deferrals;
  • while acting as trustees and/or administrators, failed to provide Leister with pertinent documents for the plan and Dovetail’s long term disability plan;
  • terminated Leister’s dental and long term disability insurance without notice to Leister; and
  • failed to provide Leister with all compensation promised to her according to the terms of her
  • employment agreement.

The court said the issues of damages, restitution, penalties, and attorney fees, and other relief related to its judgment were to be determined at trial.

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