Compliance

Court Finds Custodian Not an ERISA Fiduciary

By Rebecca Moore editors@plansponsor.com | June 18, 2012

June 18, 2012 (PLANSPONSOR.com) – A bankruptcy trustee has standing to sue the custodian of 401(k) plan assets from which a plan administrator embezzled, but the custodian is not an Employee Retirement Income Security Act (ERISA) fiduciary.

The 6th U.S. Circuit Court of Appeals found the trustee brings the suit in his role as an ERISA fiduciary, rather than his role as a trustee to the debtor’s estate.  “The Trustee… holds such statutory authority—not because the ERISA plans represent part of the debtor’s estate (they do not, because the plan assets are held in trust), but because, by virtue of the Trustee’s control over ERISA-plan funds, ERISA confers the Trustee with additional duties and powers,” the court wrote in its opinion, adding that, “ERISA not only permits—but requires—a fiduciary to remedy the known wrongs of a cofiduciary.”    

However, the court noted the custodian of the retirement plan assets, Regions Bank, maintained accounts for third-party administrator (TPA) 1Point Solutions, received deposits to those accounts, and permitted 1Point and its CEO Barry Stokes to transfer and withdraw money from these accounts.  Stokes and 1Point maintained the accounts and directed all account activity.  Regions merely held the funds on deposit.  “Custody of plan assets alone cannot establish control sufficient to confer fiduciary status,” the court ruled.  

The appellate court also said Regions’ advising 1Point and Stokes as to how it ought to structure the banking aspects of its business and regularly withdrawing its fees and analysis charges from the trust funds it held did not mean it had control of assets and was an ERISA fiduciary.  

1Point Solutions, a Nashville-area benefits management firm, faced multiple client lawsuits alleging the loss of funds in employee benefit programs the firm was running. Former 1Point CEO Barry Stokes pled guilty to 29 counts of embezzlement of retirement funds, in addition to several counts of wire fraud, mail fraud, money laundering, and criminal contempt (see “Rogue Plan Administrator to Get 14 Years Under Plea Deal”).  

Bankruptcy-appointed trustee John C. McLemore received support for his lawsuit from the U.S. Department of Labor (see “DoL: Bankruptcy-Appointed Trustee Can Bring ERISA Action”).  

The appellate court’s opinion is at http://www.ca6.uscourts.gov/opinions.pdf/12a0172p-06.pdf