Field Assistance Bulletin No. 2002-02

Issue

Were the trustees of two related multiemployer plans subject to ERISA's fiduciary standards when they amended the plans' trust agreement?

Background

Employer Association X and Labor Union Y established a defined benefit plan (DB plan) in 1955 and, in 1987, a defined contribution plan (DC Plan). Employer contributions to Fund Z fund both plans. Although some DC Plan participants also participate in the DB plan, most do not. In 1989, the DB plan was frozen. No new employees became participants of the DB plan and the existing participants accrued no further benefits. At that time, the trustees believed that the DB plan needed no further contributions. All future contributions were allocated to the DC Plan.

By 1999, the DB plan's funding situation had apparently changed. That year, Employer Association X and Labor Union Y amended the trust agreement to allocate employer contributions to the DB plan in an amount equivalent to the forfeitures in the DC Plan. The collective bargaining agreement under which the plans are maintained only sets a formula for employer contributions to Fund Z; the trust agreement specifies the allocation of contributions among the plans. The trust agreement provides that either Employer Association X and Labor Union Y, or Fund Z's board of trustees may make amendments.

The 1999 reallocation did not prove sufficient to make the DB Plan solvent. In 2002, the trustees voted to amend the trust agreement, this time diverting an additional 20% of the employer contributions to the DB plan. The amendment resolution states that the trustees were acting "in their Settlor capacity."

Analysis

Section 3(21) of ERISA defines a fiduciary as one who has or exercises discretionary authority or control in the administration or management of an employee benefit plan or its assets. Part 4 of Title I of ERISA establishes the standards pursuant to which any fiduciary is to act, including the duty to act solely in the interests of the participants and beneficiaries of the plan, to be prudent in carrying out her responsibilities, and to avoid engaging in prohibited transactions. Section 3(16) of ERISA, in relevant part, defines the term "plan sponsor" of a plan established or maintained jointly by one or more employers and one or more employee organizations, as the joint board trustees who establish or maintain the plan.

In analyzing the extent to which assets of an employee benefit plan may properly be applied toward the payment of certain expenses, the Department has distinguished between activities that are settlor in nature (i.e., activities that relate to the establishment, design, and termination of plans) and activities that are fiduciary in nature (i.e., activities involving management of the plan). As indicated in various pronouncements, expenses incurred in connection with the performance of settlor functions would not be reasonable plan expenses as they would be incurred for the benefit of the employer and would involve services for which an employer could reasonably be expected to bear the cost in the normal course of its business or operations.⁽¹⁾ In applying these distinctions, the Department has generally recognized that certain activities that would be settlor activities in the context of a single employer plan might be fiduciary activities in the context of a multiemployer plan.⁽²⁾ This view was consistent with earlier case law, such as NLRB v. Amax Coal Co., 453 U.S. 322 (1981) which held that employer appointed trustees of a multiemployer plan do not represent the interests of the contributing employers, but act as fiduciaries of the plan. 453 U.S. at 331-334. More recent Supreme Court pronouncements on settlor functions, however, have led several courts to conclude that multiemployer plan trustees may act in a settlor capacity without regard to ERISA's fiduciary standards.⁽³⁾

For example, the Third Circuit Court of Appeals, in Walling v. Brady⁽⁴⁾ and the Sixth Circuit Court of Appeals, in Gard v. Blankenburg,⁽⁵⁾ have taken the position that boards of trustees may act as settlors when they amend plans, and that such amendments are not subject to ERISA's fiduciary responsibility provisions. As the Third Circuit noted in the Walling case, the Supreme Court, in both Lockheed Corp. v. Spink and Wright Corp. v. Schoonejongen,⁽⁶⁾ recognized that the use of the term "plan sponsor" is significant. Under ERISA section 3(16), the sponsor of a multiemployer plan is the joint board of trustees that is directed, pursuant to a collective bargaining agreement, to establish one or more employee benefit plans. While the Walling court noted that, notwithstanding Lockheed, there may be situations in which single employer and multiemployer plans should be treated differently, they opined that under the facts of that case, involving the amendment of a multiemployer plan, ERISAs fiduciary rules did not apply.

The facts in Walling are very similar to those in the present case. In Walling, the board of trustees of a multiemployer defined benefit pension plan and group health plan amended the health plan (pursuant to authority granted under the collective bargaining agreement and the plan document) to require that participants pay $100 per month in order to receive benefits and amended the pension plan (also pursuant to authority granted under the collective bargaining agreement and the plan document) to provide an additional $100 benefit to those participants who were also participants in the health plan. The court in Walling, in concluding that the trustees' amendment of the pension plan fell outside of the scope of ERISA's fiduciary responsibility provisions, noted that imposing fiduciary duties on a sponsors decision to amend a plan, whether the employer in the case of a single-employer plan, or the trustees in the case of a multiemployer plan, would divide the sponsor's loyalties and make amendment of a plan impossible.

In Advisory Opinion 80-8A,⁽⁷⁾ we considered the issue of whether trustees who allocate employer contributions to related multiemployer plans established and maintained under the same collective bargaining agreements engage in a fiduciary act in making such allocations. In that opinion, we concluded that where allocations are made pursuant to a fixed formula established in the collective bargaining agreement, which formula is binding on the trustees, the trustees are not, solely by reason of such allocation, engaged in an act described in section 406(b)(2). However, the opinion noted that if the trustees exercise discretion in determining how to allocate employer contributions among the related plans, the trustees were engaging in a transaction involving the plans to which contributions were allocated, or withheld, and that such transactions could violate section 406(b)(2) since the plans may have competing interests as to the fixed pool of money. We note, however, that the opinion expressly reserved the question of whether the trustees would be engaged in a fiduciary violation where the collective bargaining agreement gives the trustees the authority to make prospective changes in the formula under which contributions are allocated among related plans.

In the case at hand, the collective bargaining agreements vested broad authority in the trustees to act establish the Fund, as well as the DB Plan and the DC Plan. The trustees also had the authority to amend the Fund and the plans. Pursuant to this authority, the trustees have amended the trust agreement and the plans to provide for the allocation of a portion of the employer contributions to the DB Plan, based on a fixed formula contained in the trust agreement. Once the amendment was properly adopted, the formula became binding on the trustees.

Conclusion

In our view, where relevant documents (e.g., collective bargaining agreements, trust documents, and plan documents) contemplate that the board of trustees of a multi-employer plan will act as fiduciaries in carrying out activities which would otherwise be settlor in nature, such activities would be governed by the fiduciary provisions of ERISA. In our view, such designation by the plan would result in the board of trustees exercising discretion as fiduciaries in the management or administration of a plan or its assets when undertaking the activities. However, where, as here, the relevant plan documents are silent, then the activities of the board of trustees which are settlor in nature generally will be viewed as carried out by the board of trustees in a settlor capacity, and such activities would not be fiduciary activities subject to Title I of ERISA. Accordingly, it is the view of this Office that the Trustees of the Fund did not violate their fiduciary duties under ERISA in amending the Fund, the DB Plan, and the DC Plan to provide for an allocation of employer contributions to the DB Plan.

It is also the view of this Office that, consistent with the plan expense guidance discussed above, it would not be appropriate for a multiemployer plan to pay for expenses attendant to activities that a multiemployer plan trustee carries out in a settlor capacity.

Any questions concerning this matter may be directed to Louis Campagna or David Lurie, Division of Fiduciary Interpretations at 202.693.8510.