And Then ERISA Was Born

Posted on August 24, 2015

Protecting The Employer – Part 1

In 1974, in an effort to reform an increasingly unreliable pension system, Congress enacted the Employee Retirement Income Security Act of 1974 (“ERISA”). The goal of ERISA was to protect employees in an era of underfunded defined benefit plans. Over the years the retirement plan industry has evolved a great deal. Defined benefit plans have gone by the wayside, and defined contribution plans are now often an employee’s biggest asset. The underlying framework of ERISA, however, and the often overlooked settlor/fiduciary distinction, is as important today as it was in 1974.

ERISA has its roots in trust law. This results in certain concepts and terminology that are similar between the common law of trusts and ERISA. A key example of this parallel between trust law and ERISA is the term “settlor.” The settlor of a trust creates the trust, and transfers property to the trustee who has certain fiduciary duties. These fiduciary duties of a trustee have many similarities to the fiduciary duties established in ERISA. As is the case in trust law, under ERISA, the distinction between the settlor of a plan and the fiduciaries of a plan is very important.

In order to better understand the distinction between the role of the settlor of a retirement plan and the role of a fiduciary of a retirement plan, it is important to first answer the following question:

Who is the Settlor of the Plan?
On its face, this question may seem simple. Clearly the Settlor, or the entity that started the Plan, is the Employer. This question, however, gets more complicated when you ask, who is the Employer? Is it the Board of Directors? What about Officers of the company like the CEO and CFO? Are these individuals considered the “Employer,” and thus the Settlor of the retirement plan? The answer unsurprisingly is not totally clear.

Under ERISA, “the term ‘employer’ means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.”1 This definition on its face is very broad. However, it has been narrowed over time. For example, in United Paperworkers Int’l Union v. Arlington Sample Book Co.2, the court held that “the mere status as owner or officer of an employer-corporation does not also transform that individual into an employer under ERISA.” This decision helps to draw the line between the Board of Directors and the officers of a corporation, and to make clear that the Board is considered the “Employer,” while individual officers may not be depending on the facts and circumstances. Given ERISA’s definition of “employer,” it appears that some action (whether direct or indirect) relating to the retirement plan is necessary for an individual officer to be considered the “employer.”

This is Part 1 of a series on the subject of Protecting the Employer. Through this series it will become clear why it is important to understand what individual or group of individuals is the Settlor of your Plan, what their role is as the Settlor, and perhaps most importantly what their role is not.

If you have questions about identifying the settlor of your Plan, or the ongoing role that the Settlor plays after the creation of a Plan, contact our ERISA Services Team today.

Read Part 2 >

1 29 U.S.C. § 1002(5)
2 United Paperworkers Int’l Union v. Arlington Sample Book Co., No. 83-2828, slip op. (E.D. Pa. May 23, 1984)

PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.

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