Statement of Plan Funding if Business Improved no ERISA Violation

March 30, 2007 ( - The 8th U.S. Circuit Court of Appeals has found that an employer that amended its retirement plan to provide no contributions did not breach its fiduciary duties by telling participants it may resume contributions if business improved.

In its decision, the appellate panel said the employer’s statement about funding the plan once the company was financially stable was not an “unequivocal promise,” but merely “a future hope or goal.” The use of the words “if” and “potentially” in the employer statement further indicated participants could not reasonably rely on it when making benefit decisions, according to the opinion.

The court further found Central Plains Clinic did not breach its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by choosing to merge with Sioux Valley Physician Partners rather than merging with another company that promised retroactive payment of Money Purchase Pension Plan contributions in its merger proposal. “[T]he fiduciary provisions of ERISA are not implicated in the sale of a business merely because the terms of the sale will affect contingent and non-vested future retirement benefits,” the opinion said.

After encountering financial difficulties, Central Plains adopted an amendment to its Money Purchase Pension Plan reducing the amount of annual contributions from 25% of participants’ salaries to 0%. The firm told participants it hoped to resume contributions if it became financially stable. No contributions were made to either the company’s Money Purchase or Profit Sharing plans for three calendar years.

During this time Central Plains began discussions with two other companies regarding financial options, including a sale of merger. While Sioux Valley offered a retention-incentive bonus to Central Plains employees after a certain period of service that was equal to amounts that would have been contributed to the Money Purchase plan, another firm offered retroactive funding of two-years’ worth of Money Purchase contributions.

Central Plains accepted the offer by Sioux Valley. The lawsuit plaintiffs’ employment with Central Plains ended prior to the merger agreement. However, once the merger was completed, the former employees brought claims against Central Plains, claiming its amendment to the Money Purchase plan, statements to resume funding of the retirement plan, and decision to merge with Sioux Valley were breaches of ERISA’s fiduciary duty requirements.

A district court dismissed the claim that the plan amendment violated ERISA and granted summary judgment for the employer on the other claims. The appellate court upheld the lower court’s decisions.

The opinion in Kalda, et. al. v. Sioux Valley Physician Partners, Inc. is here .