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.
