October 2024 ERISA Litigation Update: 

The following is a summary of cases for which courts have provided rulings, since last month’s edition of The Speed Reader was published.   

Walsh vs. Bicallis LLC (decided on September 25 by the U.S. District Court for the District of Maryland):  During a 401(k) plan audit, the U.S. Department of Labor (the “DOL”) found that the plan sponsor’s owner failed to forward employees’ payroll deductions for the company’s 401(k) plan and to collect company matching and safe harbor contributions owed to the plan from October 2017 to December 2019. Subsequently:

• On May 6, 2022, the DOL obtained a consent judgment requiring the defendant owner to pay $151,942 to the plan by December 2022. That amount represented missing  contributions and interest, as well as costs to appoint an independent fiduciary.
• The defendant defaulted on that judgment and the DOL filed a motion to hold him in contempt, which the court granted on June 27, 2023. In its contempt finding, the court ordered the defendant to pay a fine of $100 per day until the amount at issue was paid in full.
• On September 3, 2024, the court set a deadline of September 20, 2024 for the defendant to either remit all restitution due to the plan or to surrender himself for confinement. On September 25, 2024, the court found the defendant in contempt for not complying with that deadline.

As of September 25, the defendant had not paid the money to the plan or remitted the money to the plan’s court-appointed independent fiduciary. Therefore, on September 25, the court issued a warrant for the defendant’s arrest. 

Dimou v. Thermo Fisher Scientific Inc. (dismissed on September 19 by the U.S. District Court for the Southern District of California):  This case is part of a new wave of ERISA litigation, in which the plaintiffs (retirement plan participants) allege that plan fiduciaries violated ERISA by using plan forfeitures to fund matching contributions instead of using forfeitures to pay plan expenses.

The plan document in this case provided that forfeitures were to be used “either to pay reasonable expenses of the Plan (to the extent not paid by the Employer) or to reduce its Discretionary Contributions, Special Contributions, Matching Contributions and/or other contributions payable under the Plan…” In granting the defendant’s motion to dismiss the case, the court reasoned as follows:

• Based on that plan document language and on ERISA’s language, ERISA’s “fiduciary duty provisions do not create an unqualified duty to pay administrative expenses, especially when the plan document does not create an entitlement to such benefits.”
• For many years, the IRS’s position has been that forfeitures in defined contribution plans can be reallocated to participants under a nondiscriminatory formula, used to reduce future employer contributions, or used to offset plan administrative expenses. (The IRS recently reiterated that position in 2023 proposed regulations, which the March 2023 edition of The Speed Reader summarized.)
• The plaintiff failed to allege the removal of plan assets for the benefit of anyone other than plan participants. Therefore, the plaintiff fails to state a plausible ERISA anti-inurement claim (which involves plan assets being used to benefit an employer, instead of being used for the exclusive purposes of providing benefits to participants and defraying reasonable expenses of plan administration).

Su v. Dierkes (decided on September 12 by the U.S. District Court for the District of Minnesota):  The DOL alleged that the defendant retirement plan fiduciaries retained employees’ salary deferral contributions improperly in the company’s corporate bank account for up to 354 days before remitting those contributions to the plan. The DOL also contended that the defendants used contributions not remitted to the plan to pay the plan sponsor’s general operating expenses.

In this stage of the litigation, the DOL obtained a judgment ordering the defendants to restore to the plan losses related to the unremitted and untimely remitted employee contributions, plus lost earnings. That amount can come solely from the plan sponsor’s owner’s plan account, the court noted.