Corporate officers can wear two hats under ERISA: the
corporate officer hat or the ERISA fiduciary hat. Actions taken wearing the
corporate officer hat are traditionally not fiduciary functions. The courts
recognize that ERISA’s protections were not intended to apply to business
decisions such as whether to adopt, merge or terminate plans or set the level
of benefits. However, a recent decision from Florida, Perez v. Geopharma,
Inc., crafted an interesting but flawed argument that mere authorization
to sign on a corporate bank account could make an officer a fiduciary. It
followed that the officer could be liable for fiduciary breach for not
transmitting employee contributions from the account to the Geopharma Group
This decision could have a chilling effect on corporate
officers routinely doing their jobs.
A major problem with this decision is that as a policy
matter, officers need to know when they are assuming a fiduciary role and
risking possible personal liability for their actions. There should be bright
lines and officers shouldn’t learn only after the fact that they were
A second problem is that this officer had nothing to do with
running the plan, and ERISA contemplates that a fiduciary (other than an
investment adviser) is someone with discretion or control over plan
administration or plan assets. This officer had neither in the common
understanding of those terms simply because he was a signer on a corporate
account, though the court accepted the Department of Labor’s argument that the
unpaid employee contributions were plan assets. In fact, since it required two
signatures to act for the account, this officer was unable to unilaterally even
direct the contributions.
Basis for the Lower
The lower court rejected a motion to dismiss, claiming that
the unpaid contributions were plan assets in the corporate bank account, and
that those with signatory authority over the account were co-fiduciaries with
control over plan assets because they controlled the account. The court claimed
to be following an earlier 11th Circuit decision, but in fact its decision was
not required by the 11th Circuit decision and conflicts with decisions in other
circuits on unpaid plan contributions.
This lower court’s decision should not be applied to
employer contributions. Most authority holds that employer contributions are
not plan assets until contributed to the plan unless an agreement between an
employer and the plan indicates otherwise (which would be unusual).
Are Other Remedies
With respect to employee contributions, if there is no plan
committee but the plan says simply that “the Company” is the administrator, it
may be reasonable to hold Board members or officers who have the most
connection with the plan responsible, rather than to assign fiduciary status
simply on the basis of co-signing authority.
The better analysis seems to be that the plan has a breach
of contract claim against the company for unpaid employer contributions. In the
case of multi-employer plan contributions, Section 515 of ERISA even
establishes a specific cause of action for unpaid contributions. These alternatives
may have influenced the many decisions declining to find corporate officers
liable for unpaid contributions under ERISA’s general fiduciary liability
It remains to be seen whether the Geopharma decision will be
appealed or other courts will follow it, but if they appreciate the risk the
Geopharma decision imposes on ordinary corporate officers, they will not do so.
here to access the full article on JD Supra Business Advisor.