Fiduciaries Rebuffed in 401(k) Forfeiture Account Usage

May 25, 2007 (PLANSPONSOR.COM) - A federal judge in Virginia has rebuffed efforts by two executives and admitted fiduciaries of a 401(k) plan to apply a $39,000 plan forfeiture account balance to their overall liability for admittedly breaching their plan responsibilities.

U.S. District Judge James C. Cacheris of the U.S. District Court for the District of Virginia issued the ruling in a U.S. Department of Labor Civil suit filed against defendants Emmet R. Anderson and Michelle A. Marks – both executives of the Columbia Services Group Inc., and admitted fiduciaries of the Columbia Services Group Inc. Profit Sharing/401K Plan.

After Anderson and Marks admitted they were responsible for the plan’s shortfall of $54,158.24 in contributions and $10,009.93 in interest, the DoL litigation then focused on whether Cacheris would allow the defendants to apply the forfeiture account balance against their total liability. The two executives admitted they delayed depositing some plan assets and failed to deposit others.

Cacheris asserted in a written order that doing so would violate the spirit of the Employee Retirement Income Security Act (ERISA)

In denying the defendants’ request, Cacheris ruled that:

  • allowing such an offset would violate ERISA’s anti-inurement provision that “the assets of a Plan shall never inure to the benefit of any employer.” Cacheris observed: “Such a distribution, however, would still inure to the benefit of Defendants, albeit in the form of debt-relief. “
  • Such a move would contravene ERISA’s intent to “deter the mismanagement of funds accumulated to finance employee benefits.”

The case is Chao v. Anderson,   No. E.D. Va. 2007.