Judge Holds Employer Liable for Missing Plan Contributions

February 3, 2009 (PLANSPONSOR.com) - A federal judge has ruled that the owner of a now-defunct Michigan construction firm is personally liable for $24,900 in unpaid retirement savings contributions for the four years before the company folded.

U.S. District Judge Patrick J. Duggan of the U.S. District Court for the Eastern District of Michigan made the ruling in a participant lawsuit against LDS Contractors Inc., owned by Frank Donagrandi, who agreed to contribute 10% of plaintiff Paul Safran’s salary to a defined contribution plan.

Duggan ruled for Safran, after finding that Donagrandi misled participants into thinking LDS was making its required annual contributions despite his responsibilities as a plan fiduciary.

By not giving Safran complete and accurate information about his plan account when Safran inquired, Donagrandi breached his Employee Retirement Income Security Act (ERISA) fiduciary duties and was, therefore, liable for the unpaid contributions.

According to the opinion, LDS’s business began to decline and no contributions were made to the plan between 2002 and 2006. The court noted that Donagrandi used funds from the plan in his own individual account to pay LDS debts, and that the unpaid contributions were listed as unfunded liabilities on LDS’s books. LDS went out of business in 2006 and the plan was liquidated.

In addition to finding Donagrandi liable to the missing plan contributions from 2002 to 2006, Duggan granted Safran’s request for attorneys’ fees, finding that Donagrandi acted in bad faith.

The case is Safran v. Donagrandi, E.D. Mich., No. 08-12366.