The 4 th US Circuit Court of Appeals upheld a lower court ruling by US District Judge Henry Herlong Jr., of the US District Court for the District of South Carolina in favor of the employer. The appellate court asserted that the company had actually submitted amounts greater than the employee health contributions within the required 90 days.
Even if the employer failed to segregate the employee contributions from other company funds, it wasn’t required to because the regulations do not require that such contributions to cafeteria plans be held in trust, the court said.
The appeals court noted, however, that even though the plan was not subject to the trust requirement, the company had a fiduciary duty to make sure employee contributions were not siphoned off for other corporate purposes.
But the appellate judges also sided with the employer’s contention that the undisputed evidence showed that all employee contributions were transferred to the benefits plan within 90 days, and that there was no evidence that the contributions had been used for general operating expenses.
According to the ruling, Saco Lowell Inc. established a self-funded health plan for its employees in April 1999. The plan relied on a combination of funds from Saco Lowell and contributions made by the employees. Kanawha Benefits Solutions Inc. was named as the plan’s claims administrator.
Saco Lowell was acquired by CT Enterprises Inc. in July 2000 and CT Enterprises became the administrator of the plan. According to the court, after CT Enterprises took over the plan, it did not provide Kanawha enough money to pay in a timely manner all outstanding claims allegedly due under the terms of the plan. CT Enterprises dropped the plan in November 2000.
Twenty-two employees of CT Enterprises sued the company, its officers and Saco Lowell, alleging they breached their Employee Retirement Income Security Act (ERISA) fiduciary duties by failing to properly fund the plan.
The ruling is here .