In Pantoja v. Edward Zengel & Son Express Inc., Case No. 12-10036 (11th Cir. Dec. 12, 2012), the United States Court of Appeals for the Eleventh Circuit ruled that a section 401(k) plan participant's claim that his employer committed a fiduciary breach under ERISA by failing to forward certain employer contributions to the plan failed because the contributions in question did not constitute "plan assets" under ERISA. The court held that employer contributions to Section 401(k) plans do not become "plan assets" prior to being remitted to the plan absent “specific and clear” plan language providing otherwise.
By way of background, the defendant, Edward Zengel & Son Express Inc. ("EZS"), contracted with the U.S. Postal Service to haul mail in its trucks. The contract required EZS to provide fringe benefits to its employees either by paying them as wages or depositing them into a Section 401(k) plan. To satisfy its fringe benefit obligation, EZS elected the latter method and established a Section 401(k) plan for its employees. The plaintiff, Manuel Pantoja, worked for EZS for about six months in 2009. During that time, EZS withheld fringe benefits totaling $3,472 and failed to remit most of the money due the Plan on Pantoja's behalf, instead using the money to pay its employer payroll taxes. After receiving a benefit statement indicating that his Section 401(k) account balance was less than $300, Pantoja filed suit against EZS and three of its corporate officers. EZS subsequently paid into the plan the funds attributable to Pantoja plus interest. At the district court level, the court granted partial summary judgment to EZS on the issue of liability under ERISA. The district court found that the fringe benefits withheld did not constitute “plan assets” and that EZS therefore did not breach a fiduciary duty as a matter of law. Pantoja appealed to the Eleventh Circuit.
On appeal, the Eleventh Circuit first noted that, while Department of Labor regulations make clear that an employee's elective contributions to an ERISA plan constitute plan assets, those regulations do not address the status of employer contributions to a plan. Thus, the Eleventh Circuit looked to its own precedent, finding it had “held that unpaid employer contributions are not ‘plan assets' unless specific and clear language in the plan documents or other evidence so indicates." The Eleventh Circuit continued on to say that this reliance on clear plan language was justified by the “unfairness in imposing strict fiduciary responsibilities—and personal liability—upon corporate officers who are not clearly aware of their status as fiduciaries.” Pantoja argued that his case was “distinguishable” because EZS's obligation to contribute to the plan stemmed from a written contract with the Postal Service and was therefore “mandatory.” The Eleventh Circuit rejecting this argumentstating that, in every case Pantoja cited in which the court found employer contributions to be plan assets, the plan documents “clearly indicated contributions became assets when ‘due' or ‘owing,' rather than when they were actually remitted to the plan.” In the instant case, the Eleventh Circuit found “no clear and specific language indicating the fringe benefits are ‘plan assets' before they are actually remitted to the Plan.” Accordingly, EZS did not breach a fiduciary duty “as a matter of law" and the Eleventh Circuit affirmed the decision of the district court.