Memorandum for: Virginia C. Smith
Director of Enforcement, Regional Directors
From: Robert J. Doyle
Director of Regulations and Interpretations
Subject: Plan Amendments Made
by Multiemployer Plan Trustees
Were the trustees of two related
multiemployer plans subject to ERISA's fiduciary standards
when they amended the plans' trust agreement?
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."
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, ERISA’s 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 sponsor’s
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.
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.
See, Advisory Opinion Nos.
97-03A and 2001-01A. Also see letter to Kirk F. Maldonado
Elliot I. Daniel (March 2, 1987).
Advisory Opinions 97-03A
and 2001-01A both indicate “these so-called ‘settlor’
decisions relating to the establishment, design, and
termination of plans, and except in the context of multiemployer
generally are not fiduciary activities.” (Emphasis
E.g., Walling v. Brady,
125 F.3d 114 (3rd Cir. 1997); Gard v. Blackenburg, No.
Cir. 2002) Hartline v. Sheetmetal Workers' National
Pension Fund, 134 F. Supp. 2d 1 (D.D.C. 2000), citing
Corp. v. Spink, 517 U.S. 882 (1996); Wright Corp. v.
Schoonejongen, 514 U.S. 73 (1995). See also Pope v. Central
and Southwest Areas Health and Welfare Fund, 27 F.3d
211 (6th Cir. 1994).