THE FIDUCIARY CORNER: Misleading Participants About Contributions Is a Bad Idea
Gregory L. Ash, Tuesday, February 10, 2009 | Filed under: Fiduciary Duties, Participant Communications
Tough financial times may tempt struggling employers to fudge a little when it comes to making contributions to their retirement plans. A construction company owner in Michigan recently learned the hard way, however, that leading participants to believe that contributions have been made, when in fact they haven’t, is a bad idea. (Safran v. Donagrandi, E.D. Mich. 1/30/09).
When the owner’s company folded, participants learned that contributions to their profit sharing plan had not been made for the past four years. During that time, however, the participants received misleading individual account statements showing that those contributions had been made. Participants sued the owner, who was found to be a fiduciary as a result of his decision-making role with respect to the plan. The court had no trouble finding that the owner had violated his duties under ERISA by issuing the misleading statements, and held him personally liable for the missed contributions, as well as the participants’ attorneys’ fees.
Two obvious fiduciary lessons arise from this decision: (1) Pay the plan first, even in tough financial times; and (2) if you don’t pay the plan first, don’t tell participants that you did.