Responsibility of Trustee to Collect Employee Deferrals (Posted March 15, 2001) Technical Tip 8: The following question and answer were from the DOL Q&A Session at the 2000 ASPPA Annual Conference: With respect to the rules for the timely deposit of employee deferrals, many bank trustees feel "trapped" because they cannot resign until the employer appoints a successor trustee. What options do trustees have to avoid liability in those situations? DOL Response: A bank trustee is a fiduciary. If the bank trustee becomes aware of a fiduciary breach, they are obligated under Section 405(a)(3) of ERISA which states that co-fiduciaries must take reasonable efforts under the circumstances to remedy the breach. Even as a directed trustee, if the bank becomes aware of the violation, they may have a duty to collect but also may have co-fiduciary liability if they become aware that deposits are not being made. Bank trustees have an obligation to take necessary, prudent steps to correct the violation including notifying the DOL and possibly filing lawsuits. In Reg. §2509.75-5, the DOL analyzed an analogous situation and concluded that the plan fiduciaries were required under §404 (fiduciary responsibility) and §405 (co-fiduciary responsibility) to take reasonable steps to protect the participants--which could include contacting the appropriate Regional Office of the PWBA. The regulation stated: "FR-10 Q: An employee benefit plan is considering the construction of a building to house the administration of the plan. One trustee has proposed that the building be constructed on a cost plus basis by a particular contractor without competitive bidding. When the trustee was questioned by another trustee as to the basis of choice of the contractor, the impact of the building on the plan’s administrative costs, whether a cost plus contract would yield a better price to the plan than a fixed price basis, and why a negotiated contract would be better than letting the contract for competitive bidding, no satisfactory answers were provided. Several of the trustees have argued that letting such a contract would be a violation of their general fiduciary responsibilities. Despite their arguments, a majority of the trustees appear to be ready to vote to construct the building as proposed. What should the minority trustees do to protect themselves from liability under section 409(a) of the Act and section 405(b)(1)(A) of the Act? A: Here, where a majority of trustees appear ready to take action which would clearly be contrary to the prudence requirement of section 404(a)(1)(B) of the Act, it is incumbent on the minority trustees to take all reasonable and legal steps to prevent the action. Such steps might include preparations to obtain an injunction from a Federal District court under section 502(a)(3) of the Act, to notify the Labor Department, or to publicize the vote if the decision is to proceed as proposed. If, having taken all reasonable and legal steps to prevent the imprudent action, the minority trustees have not succeeded, they will not incur liability for the action of the majority. Mere resignation, however, without taking steps to prevent the imprudent action, will not suffice to avoid liability for the minority trustees once they have knowledge that the imprudent action is under consideration. More generally, trustees should take great care to document adequately all meetings where actions are taken with respect to management and control of plan assets. Written minutes of all actions taken should be kept describing the action taken, and stating how each trustee voted on each matter. If, as in the case above, trustees object to a proposed action on the ground of possible violation of the fiduciary responsibility provisions of the Act, the trustees so objecting should insist that their objections and the responses to such objections be included in the record of the meeting. It should be noted that, where a trustee believes that a co-trustee has already committed a breach, resignation by the trustee as a protest against such breach will not generally be considered sufficient to discharge the trustee’s positive duty under section 405(a)(3) to make reasonable efforts under the circumstances to remedy the breach." (Emphasis added.) Caveat: The answer was drafted by Fred Reish and Brad Huss, the program moderators, based on their understandings of discussions with four senior officials of the Pension and Welfare Benefits Administration (PWBA) of the U.S. DOL. As a result, it does not represent a formal or binding position statement by the PWBA. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.