Monday, September 8, 2014

When is a signature more than just a signature?


In Perez v. Geopharma, decided on July 25, 2014, Geopharma’s CEO, Mihir Taneja, brought a motion to dismiss an ERISA breach of fiduciary duty claim under the company’s health and welfare plan brought against him by the DOL. In its suit, the DOL alleged that because Taneja had signature authority on Geopharma’s bank accounts – which included the plan’s participant contributions – he was a plan fiduciary. The claim arose from findings that the company: (1) withheld employee premium contributions over a two-month and ten-month period in 2009 and 2010 respectively; (2) failed to segregate the contributions from company assets as soon reasonably possible; and (3) failed to use the funds to pay claims. The DOL alleged that the company also failed to segregate COBRA contributions from general assets and to use the funds to pay claims.

The DOL sought to hold Taneja, the company and two other company officers jointly liable for fiduciary breaches under ERISA including:(1) participating knowingly in an act of another fiduciary, knowing the act was a breach, in violation of 29 U.S.C. § 1105(a)(1); (2) failing to monitor or supervise another fiduciary and thereby enabling a breach in violation of 29 U.S.C. § 1105(a)(2); or (3) having knowledge of a breach by another fiduciary and failing to make reasonable efforts under the circumstances to remedy the breach in violation of 29 U.S.C. § 1105(a)(3). The DOL argued that, as CEO, Director, Secretary, and signatory to the company’s bank accounts, Taneja had a fiduciary duty to monitor the plan’s other fiduciaries, as well as the company’s management and administration of the plan.

Taneja countered that he was not a plan fiduciary because there was no proof that he performed any function or exercised any authority related to the “particular activity” of the payment of employee premium contributions. Further, the fact that he had general signature authority over the company’s bank accounts was not enough to trigger ERISA’s fiduciary responsibilities, as this would make every company officer an ERISA fiduciary. Finally, Taneja argued that he could only become a plan fiduciary if he were named a fiduciary under the plan or exercised discretionary control or authority over the plan or the management of its assets.

In denying the motion, the court held that Taneja’s signature authority made him a plan fiduciary because, among other things, ERISA provides that a person can become a plan fiduciary by exercising any authority or control over the management or disposition of plan assets, even without discretion. The Court declined to decide whether discretion was an ERISA fiduciary requirement at this stage, but noted that at least one Circuit (the Eleventh) has suggested that discretion is a necessary prerequisite for ERISA fiduciary status.

Lesson Learned: Although the ERISA discretion requirement is still in limbo, CEOs and other company officers responsible for ERISA-governed plans who do not want to be plan fiduciaries should consider segregating plan assets and having only plan fiduciaries serve as signatories on the plan’s bank accounts to avoid potential fiduciary liability under ERISA.

Friday, September 5, 2014

Our sister blog, Start-Up Bryan Cave, recently posted about when and why to use the an 83(b) election.  The post has a good discussion of the advantages and disadvantages. One item it does not mention is the company’s deduction, which […]

Thursday, September 4, 2014

We hope you enjoyed our “40 Years of ERISA” word find!  The solution to the Word Find is after the jump. 

Wednesday, September 3, 2014

Forty years ago yesterday, September 2, 1974, Congress passed the Employees Retirement Income Security Act of 1974.  Most, maybe all, of the people reading this blog owe their careers to a single piece of legislation that has spawned growth industries […]

Tuesday, September 2, 2014

ERISA has been modified by many pieces of legislation since it was signed into law on this day in 1974. In honor of ERISA’s “Big 4-0” we invite you to (1) find all of the abbreviations below for different acts […]

Friday, August 29, 2014

Tatum v. RJR Nabisco Investment Committee, decided by the Fourth Circuit on August 4, involved the divestiture of the Nabisco stock funds following spin off of Nabisco.  Some 14 years after Nabisco and RJ Reynolds merged to form RJR Nabisco, […]

Thursday, August 28, 2014

This recent Reuters article paints a rosy picture of the phased retirement offering that the federal government is extending to its employees.  It sounds like a great win-win.  The government saves money; employees get to continue to save for retirement, […]

Wednesday, August 27, 2014

The so-called “contraceptive mandate” saga continues.  Since the passage of the ACA in Spring 2010, its preventive care requirement mandating coverage of all FDA-approved contraceptive drugs, devices, and related services – and at no cost to women – has been […]

Friday, August 22, 2014

According to the Investment Company Institute, approximately 18%% of all mutual fund assets are invested in money market mutual funds.  An even higher percentage reflects the investment in money market mutual funds held by participant-directed defined contribution plans.  Many of […]

Thursday, August 21, 2014

Institutional Shareholder Services, or ISS, invites U.S. companies to verify the data it uses to evaluate proxy statement equity plan proposals.  ISS previously announced a move to a “balanced scorecard” approach for its evaluation of equity plan proposals.  Data verification […]