Court: No Itemization Needed on Aggregated Plan Expenses

June 20, 2003 ( - Multiemployer pension fund trustees didn't have to disclose an itemized break down of expenses that are reported to the Internal Revenue Service (IRS) as an aggregated number on form 5500s, a federal appeals court ruled.

>The US 9 th Circuit Court of Appeals decided that ERISA carries no obligation for pension plans to disclose to participants and beneficiaries the details of expenses they lump together on the 5500 report, according to Washington-based legal publisher BNA.

>According to the court, line one of part one of form 5500 allows plans to aggregate, rather than itemize, certain fund expenses. The aggregated expenses must be less than $5,000 individually, the court noted. In the case of the Operating Engineers Local 428 Pension Trust Fund, in just over a decade the fund trustees listed more than $1.6 million in aggregated expenses.

>While the appeals judges agreed with the lower court that the fund trustees did not breach their fiduciary duties by not giving fund participants an explanation of the aggregated expenses, a majority of the court found that the trustees might nonetheless have violated their fiduciary duties by not keeping adequate expense records.   With this portion of the ruling, the majority made a distinction between ERISA’s disclosure requirements, which do not call for disclosure of the aggregated expenses, and ERISA’s recordkeeping obligations, which would require such disclosure.

>Dissenting from a portion of the decision, Circuit Judge Johnnie Rawlinson said he disagreed with the majority’s conclusion that the trustees had a fiduciary duty to keep adequate records that would contain an explanation of the aggregated expenses. The majority “plucks from thin air a freestanding fiduciary duty outside the confines of the statutory disclosure requirements,” Rawlinson wrote.

Case History

>After learning about the $1.6 million in undisclosed aggregated expenses on the fund’s annual filings with the IRS, William Shaver, a fund participant, and William Dereschuk, a fund beneficiary, asked the trustees to itemize those expenses.   When the trustees refused, Shaver and Dereschuk filed suit, alleging the trustees violated their ERISA disclosure obligations, as well as their ERISA fiduciary duties, by not supplying them with the requested information.

>A judge in the US District Court for the District of Arizona ruled in favor of the fund, finding that ERISA does not require disclosure of such aggregated expenses. The district court also found that the fund trustees did not breach their fiduciary duties by failing to provide an itemization of the expenses or by failing to keep adequate plan records.

>First dealing with ERISA’s disclosure requirements, the appeals court agreed with the lower court that the aggregated expenses listed on the plan’s 5500 filings were not subject to ERISA Section 104’s disclosure mandate. According to the court, ERISA Section 104 requires disclosure of plan documents or “other instruments” under which a plan is established or operated. ERISA “mentions only legal documents that describe the terms of the plan, its financial status, and other documents that restrict or govern the plan’s operation. The records that Messrs. Shaver and Dereschuk seek, itemized lists of expenditures, at most relate only to the manner in which the plan is operated,” the appeals court said in an opinion written by Circuit Judge Richard Arnold of the US 8 th Circuit Court of Appeals, sitting by designation.

>If the court were to adopt a more expansive definition of “other instruments,” the result “would be to force the plan administrators to turn over every receipt they have any time a participant or beneficiary requests that the administrators do so,” the court added.

>Two of the three appellate judges went on to find that while the trustees did not breach their fiduciary duty by failing to disclose the itemized expenditures, the trustees might have done so by keeping inadequate plan records. In reaching this decision, the majority noted that ERISA forced trustees to prepare annual reports that must be made available to participants.

>A failure to keep records sufficient to verify the plan’s annual reports “would be a breach of both the duty to keep records imposed by Section [107] of ERISA and the common-law fiduciary duty to keep records,” the majority said.

>The case is Shaver v. Operating Engineers Local 428 Pension Trust Fund, 9th Cir., No. 01-16922, 6/18/03.