Advisory Opinion 2002-06A

Dear Messrs. Savell and Maples:

This is in response to your letter on behalf of the Trustees of the Iron Workers Mid-South Pension Fund (Trustees) requesting guidance concerning the application of the fiduciary provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). Specifically, you ask whether the Trustees must adopt the delinquent contribution procedures set forth in a collective bargaining agreement that conflict with the Trustees previously adopted delinquent contribution procedures.

You represent that the Iron Workers Mid-South Pension Fund (Fund) is a jointly administered Taft-Hartley defined benefit plan that receives its funding, in part, through employer contributions. You represent that the Fund was initially created in 1964, pursuant to collective bargaining between labor and management, with labor and management as settlors of the initial trust agreement. Seven iron workers local unions participate in the Fund pursuant to collective bargaining agreements entered into between the local unions and employers. The collective bargaining agreements of two employer associations, the Oklahoma Commercial and Industrial Builders and Steel Erectors Association (OCIBSEA) and the Mid-South Erectors Association (MSEA), contain language requiring the payment of contributions to the Fund. The OCIBSEA consists of employers within the geographical jurisdiction of Iron Workers Local Union Nos. 48 and 584. The MSEA includes employers within the jurisdiction of Iron Workers Local Union Nos. 58, 469, 591, 623 and 710. The members of these employer associations negotiate with the unions on various issues relating to the employment of iron workers within the unions' jurisdiction. The employer associations act as the bargaining representatives of employers who subsequently sign either an attachment to the collective bargaining agreement or a short form agreement, which binds them to all provisions contained in the collective bargaining agreement, or a fund participating agreement, which only binds the employer to those provisions in the collective bargaining agreement relating to fringe benefit contributions. The union negotiators act as bargaining representatives for those represented by the union.

You represent that the employer associations select employer representatives to serve as trustees of the Iron Workers Mid-South Pension Fund. These employer trustees sign the Iron Workers Mid-South Pension Fund Trust Agreement (Trust Agreement) on behalf of the employers they represent and in their capacity as employer trustees. The business agents for each of the local unions that participate in the Fund sign the Trust Agreement on behalf of the unions and in their capacity as union trustees.

You represent that the Trust Agreement grants to the Trustees the power to "assess against a delinquent employer a substantial amount as liquidated damages, together with an additional amount as interest, such amounts to be fixed by the rules, regulations or resolutions promulgated by the Trustees and as amended by them from time to time" (section 5.6 of the Trust Agreement). You further represent that the Trustees have adopted delinquent contribution procedures with respect to the Fund (Delinquent Contribution Procedures). The Fund's Delinquent Contribution Procedures provide, in part, that any employer who has failed to pay its contributions to the Fund by the first day of the third month following the work month shall be required to pay liquidated damages of 10 percent of the total amount of the delinquent contributions. The Delinquent Contribution Procedures also provide for the assessment of monthly interest against delinquent employers.

According to your representations, the collective bargaining agreements are not incorporated into the Trust Agreement or the plan document, but provisions in the Trust Agreement reference the collective bargaining agreements with respect to the amount and due date of employer contributions. You further represent that the Trust Agreement may be amended only by a majority vote of the Trustees.

You represent that, pursuant to negotiations during 1999, OCIBSEA and Iron Workers Local Unions Nos. 48 and 584 entered into a collective bargaining agreement effective June 1, 1999 (Collective Bargaining Agreement). The Collective Bargaining Agreement provides that penalties may not be assessed against any delinquent employer, except in extenuating circumstances such as habitual delinquent employers. The Collective Bargaining Agreement also sets out the applicable interest to be assessed against delinquent employers and provides for the assessment of daily interest against delinquent employers. You represent that the five other participating unions defer to the Trustees on issues of assessment of interest and penalties against delinquent employers, as had Iron Workers Local Unions Nos. 48 and 584 prior to adoption of the Collective Bargaining Agreement.

You have requested guidance on whether or not the Trustees must amend the Delinquent Contribution Procedures to adopt the delinquent contribution procedures in the Collective Bargaining Agreement.

The provisions of ERISA sections 402, 403, 404 and 405 are intended to, among other things, provide a basis for certainty regarding the identity and responsibilities of those parties involved in managing and operating the plan, as well as each party's liability for mismanagement. In this regard, Section 403(c)(1) of ERISA provides, in part, that the assets of a plan shall be held for the exclusive purpose of providing benefits to participants in the plan and their beneficiaries. Similarly, section 404(a)(1) of ERISA provides, in part, that a fiduciary shall discharge his or her duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries. Sections 404(a)(1)(B) and (D) of ERISA require plan fiduciaries, in discharging their duties to a plan, to act prudently, and in accordance with the documents and instruments governing the plan, insofar as such documents and instruments are consistent with the provisions of Titles I and IV of ERISA.

Section 402(a) of ERISA provides that every employee benefit plan shall be established and maintained pursuant to a written instrument. This instrument must provide for one or more named fiduciaries who have authority to control and manage the operation and administration of the plan. The named fiduciaries may be either named in the plan instrument or chosen, through a procedure specified in the plan, by the plan sponsor. A written plan is required so that every employee may, on examining the plan documents, determine exactly what his or her rights and obligations are under the plan. Also, a written plan is required so the employees may know who is responsible for operating the plan. See Conference Report accompanying ERISA, H.R. Rep. No. 1280, 93rd Cong., 2d Sess. 297 (1974).

Section 405(c)(1) of ERISA provides, in part, that the named fiduciaries may designate persons other than named fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the plan. Section 405(c)(3) of ERISA defines "trustee responsibility" to mean any responsibility provided in the plan's trust instrument to manage or control the assets of the plan, other than a power under the trust instrument of a named fiduciary to appoint an investment manager in accordance with section 402(c)(3).

Section 403(a) of ERISA provides, in part, that all assets of an employee benefit plan must be held in trust by one or more trustees. The trustee(s) must have exclusive authority and discretion to manage and control such assets, with two exceptions: (1) when the plan expressly provides that the trustee(s) are subject to the direction of a named fiduciary who is not a trustee, in which case the trustees are subject to proper directions made in accordance with the terms of the plan and not contrary to ERISA; (2) when the authority to manage, acquire or dispose of assets of the plan is delegated to one or more investment managers pursuant to section 402(c)(3).

ERISA section 402(b) sets forth the requisite features of an employee benefit plan. Section 402(b)(2) of ERISA requires plans to describe any procedure for allocating responsibilities for operation and administration of the plan, including any procedure described in section 405(c)(1).

ERISA section 402(b)(3) provides that every employee benefit plan shall provide a procedure for amending the plan and for identifying the persons who have authority to amend the plan. As the Department has noted in Advisory Opinion 97-03A (January 23, 1997), the primary purpose of this provision is to ensure that every plan has a workable amendment procedure.

It is the view of the Department that, when the trustees of a jointly administered Taft-Hartley or other plan have established delinquent contribution procedures pursuant to their authority under the terms of the trust agreement, which trust agreement may be amended only by the trustees, the delinquent contribution procedures set forth in a collective bargaining agreement to which the trustees were not a party are null and void with respect to the trust agreement not binding on the trustees. Whether or not the employers who have signed the collective bargaining agreement are bound by the delinquent contribution procedures in the trust agreement would depend on the facts and circumstances and is beyond the scope of this letter. Instead, such Trustees have a duty under section 404(a)(1)(D) of ERISA to act prudently and, among other things, to adhere to all of the trust provisions, including the delinquent contribution procedures, the documents and instruments governing the plan so long as they such provisions are consistent with Titles I and IV of ERISA. Where the trust agreement and the collective bargaining agreement are in conflict on collection procedures, the trustees would need to consider the likelihood of being able to enforce their procedures against employers who have agreed to different procedures in the collective bargaining agreement. We also note that, when the terms of a trust agreement provide that the amount and due date of contributions by employers to the trust are governed by collective bargaining agreements, the trustees must act in accordance with the provisions of the collective bargaining agreements setting forth the amount and due date of employer contributions, so long as they are consistent with Titles I and IV of ERISA.

The Department has taken the position that plan trustees who are in a position to collect contributions owed to a multiemployer plan but fail to do so could violate section 404(a) of ERISA. (Advisory Opinion 78-28A, December 5, 1978). Moreover, in the preamble to Prohibited Transaction Exemption 76-1 (41 Fed. Reg. 12740 (March 26, 1976) at 12741), the Department stated that fiduciaries of multiemployer plans who do not establish and implement collection procedures which are reasonable, diligent and systematic may be found to be engaging in prohibited transactions under section 406 of ERISA. See letter to Bernard M. Baum from John J. Canary (September 3, 1997). In this regard, the responsible plan fiduciaries should evaluate, in accordance with their fiduciary responsibilities and based on all relevant facts and circumstances, whether any particular delinquent contribution procedures are appropriate in order to meet these objectives.

We do not, however, express any views as to whether or not a trust agreement could provide (or be properly amended to provide) that delinquent contribution procedures are subject to collective bargaining or whether or not a trust agreement could provide that an employer or employer association or a union has the authority to amend the terms of the trust agreement.

This letter constitutes an advisory opinion under ERISA Procedure 76-1, 41 Fed. Reg. 36281 (Aug. 27, 1976). Accordingly, it is issued subject to the provisions of that procedure, including section 10 thereof relating to the effect of advisory opinions.