During the Pension Benefit Guaranty Corporation’s (PBGC) audit of the Idaho Hyberbarics Inc. (IHI) defined benefit (DB) plan, it was determined that a full distribution of plan assets to plan participants was not made in a timely manner. Further, it was also determined that IHI did not pay participants the full value of their annuity contracts. In following, the PBGC ordered that IHI calculate the underpayments in accordance with PBGC’s methodology, adding a reasonable rate of interest to the additional amounts. The PBGC ordered the submission of such calculations for its review, following with the payments of the amounts due to participants. IHI did not follow any aspect of the order, and the PBGC responded by filing a lawsuit.
IHI argued that CJA & Associates, a firm it hired to assist with the establishment and administration of its DB plan, is responsible for any improper plan administration. As such, IHI asserted that, through its service agreement with CJA, liability for administration should transfer to CJA. Further, IHI contended that the company would likely have to file for bankruptcy if the court denied its motion to sue CJA, and filing for bankruptcy would not be in the best interest of plan participants, according to ERISA’s general principles.
PBGC’s lawsuit against IHI is based on Title IV of ERISA, which holds the plan administrator – not a third-party adviser – responsible for proper termination of a plan. Accordingly, “IHI cannot delegate fully its statutory responsibilities under ERISA.” The judge also ruled that IHI’s financial health is independent of the Plan and its administration, and therefore not an ERISA concern.
www.planadviser.com; December 6, 2017.