>The US 10 th Circuit Court of Appeals ruled that the unpaid benefit plan contributions from Luna Steel Erectors Inc., are “plan assets” under the Employee Retirement Income Security Act (ERISA), but that owners of the company were not ERISA fiduciaries because they did not exercise authority or control with respect to the management or disposition of the plan assets.
Ruling in the first case of its kind within the 10 th Circuit’s six-state region, the appeals judges decided that the funds owed to the benefit plans could be dischargeable in Luna’s bankruptcy case.
Trustees of the benefit plans had asked a US Bankruptcy judge to rule that Joyce and Mark Luna should continue to be held liable for the $120,000 still owed to the plans, because the two continued to take a salary and expense reimbursement when any assets should have been used to cover the unpaid benefit contributions.
Both a US Bankruptcy Court judge and a US District Judge later rejected the trustees’ claims and the trustees appealed the matter.
One issue arising in the case was the point at which contributions owed to an ERISA-governed plan actually become plan assets. Although the appeals court ultimately affirmed the bankruptcy and district courts’s rulings, it disagreed with the lower courts’ conclusion that the unpaid contributions were not plan assets.
Instead, the appeals court found that the unpaid contributions were plan assets because, although the benefit funds did not have a “present interest” in the contributions at the time they became delinquent, the funds held a “future interest” in the contractually-owed contributions. “Under ordinary notions of property rights, although the plan did not own the contributions themselves, it did own a contractual right to collect them,” Circuit Judge Timothy Tymkovich wrote for the appeals court.
However, the owners did not qualify as ERISA fiduciaries because they did not exercise authority or control over the management or disposition of the plan assets, Tymkovich wrote.
“ERISA’s definition of ‘fiduciary’ is broad but not all-encompassing. Every employer in some sense has discretion in meeting its obligations. But discretion alone does not confer fiduciary status under ERISA. If it did, any obligor to an employee benefit plan could become an ERISA fiduciary,” Tymkovich ruled.
The appeals judges, noting that ERISA deems someone a plan fiduciary to the extent he or she “exercises authority or control respecting management or disposition of its assets,” argued that the Luna’s failure to make the required contributions did not constitute such control. Tymkovich pointed out that other courts had held that the “management or disposition” language “refers to the common transactions in dealing with a pool of assets: selecting investment, exchange on instrument or asset for another, and so on.”
Not only that, but company officials are not necessarily fiduciaries because they have made business decisions on how to run their companies, the appeals court said. “Because virtually every business decision an employer makes can have an adverse impact on an employee benefit plan, courts must ‘examine the conduct at issue to determine whether it constitutes management or administration of the plan, giving rise to fiduciary concerns, or is merely a business decision that has an effect on an ERISA plan not subject to fiduciary duties.'”
The opinion in can be Navarre v. Luna (In re Luna), 10th Cir., No. 03-7060, 5/3/05 is here .