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Funding: To: Employers & Plans Having Trouble Fully Funding their ERISA Employee Benefit Plan

This, nor anything from SPBA, should ever be considered to be legal advice. Only a qualified attorney, familiar with all the areas of law raised by ERISA, taxes, and bankruptcy and who has access to all your facts can render a legal opinion. This memo is just insights to help guide you away from serious trouble.

This discussion for plan sponsors/Trustees is to guide you away from making some huge mistakes. First of all, your ERISA responsibilities are far different than what is due to other creditors. The U.S. Department of Labor (DOL) just doesn't take "no" for an answer when it comes to funding plan responsibilities. You do NOT want to go down that path!!! They can prosecute as a civil and/or criminal (jail time) situation. Also, there is no corporate veil. If you are the person(s) named in the plan as the official plan sponsor or trustee or "Administrator" (not to be confused with the TPA, who is simply a service-provider doing the duties the plan sponsor delegated, and the TPA is not considered the official "Administrator"), DOL will come after YOU personally (your bank account, car, home, etc.) if they feel you did not do your utmost to avoid the problem and notify the plan participants and anyone else in order to avoid or minimize the damage. So, if there are only a few dollars to go around, take care of the employee benefit plan first, because the other creditors can't do to you what DOL can.

Below are some of the situations you may face. Your TPA is an invaluable resource of experience, but the main initiative must come from you . You may not like what your TPA tells you...but your TPA doesn't want your situation to grow worse.

(1). The DOL sees your role as a benevolent parent responsible for the well-being of the plan participants (workers & dependents), so if you abandon the plan or leave some patients hanging with unpaid bills, it is treated as if you had abandoned a child. Your responsibility to pay remains until the plan participants are clearly notified that the plan is terminated as of X date (in the future). If a patient goes to the doctor or hospital with the reasonable understanding that the bill is to be covered under the conditions of the plan...then it is your responsibility. Therefore immediately, as soon as you feel that you will not be able to meet the plan responsibilities in the future....be totally open with the plan participants...usually in some written or other traceable format (and/or medical providers, if that's who is owed). Avoid the human nature tendency to keep things secret or quiet. You'll need as much lead time as possible to notify and stop your period of ongoing responsibility. Then, find some way to pay what's owed. Don't short-change and definitely don't pick-&-choose whose bills are paid. It is in your personal interest not to have anyone associated with the plan unhappy with you at the end of this process.

(2). The plan money is in no way your money (or the company's money)! That mistake gets you into trouble with both the DOL and the IRS. First of all, money coming in from co-pay and other employee contributions...as well as money being paid in by COBRA beneficiaries...is obviously their money dedicated for use in providing that coverage under the plan. If you try to play God with that money, it is as if you stole it. Meanwhile, money the company contributed earlier was taken as a tax deduction by the company as a contribution to the plan. So, it's not "yours" either. Anything not yet paid, as mentioned before, is considered by DOL as being owed to the plan as part of your solemn duty to the plan participants.

(3). I hope you have had a separate independent trust fund for the plan assets. Otherwise, you better be twice as sure that you get the plan's needs covered before you declare bankruptcy or pull the plug. An independent trust is insulated from the firm's bankruptcy and creditors. If you have had a dedicated account to hold the plan monies (but still technically under the umbrella of the company's assets), the bankruptcy court & creditors will freeze that to help offset those debts. (Don't forget: DOL expects the plan's responsibilities to be paid 100 cents on the dollar, so if the money goes somewhere else...that's your problem.)

(4). Alert your local DOL office (usually in the govt. section of your phone book) is a corollary to alerting the plan participants so that no one is caught by surprise if you think that all the responsibilities of the plan will not be able to be covered. It goes much better on you if you are the one to notify DOL (or to ask the TPA to notify them for you)...than if they hear about it elsewhere. DOL requires anyone else who knows or should have known about the problem to notify DOL if you don't (not to mention angry patients and medical providers unpaid). So, DOL will hear...and they better hear from you.

So, please take this seriously. Too often embarrassment, a desire to protect the image of the company or to avoid a panic among employees causes people in your position to be secretive or drag this out. As noted, failure to meet the fiduciary responsibilities can lead you to be prosecuted in a civil offense. However, if (by coincidence or design) you emerge unscathed from the company's despair; or, if DOL feels that you could have acted earlier to avoid leaving the plan hanging...or if they feel you were somehow less than honest with everyone...criminal (jail time) charges can be brought against you. So, be sure that any ending to your plan is smooth & gradual with no surprises. Forewarned is forearmed.

Good luck.