Opinion ID: 3191566
Heading Depth: 2
Heading Rank: 1

Heading: Trust assets are ERISA plan assets

Text: “ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans.” Edwards v. A.H. Cornell & Son, Inc., 610 F.3d 217, 220 (3d Cir. 2010) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983)) (internal quotation marks omitted). ERISA applies to “employee benefit plans,” which may be either employee pension benefit plans or employee welfare benefit plans. 29 U.S.C. § 1002(3). This case involves employee welfare benefit plans, which the statute defines as: [A]ny plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise . . . benefits in the event of . . . death . . . . Id. § 1002(1). The District Court concluded that the master REAL VEBA plan, a multiemployer program, is not a “plan” under ERISA. (App. 26). However, the Court found 6 that individual employer-level plans joining the master REAL VEBA plan are ERISA plans. (Id. at 27). 9 We must decide whether the employer-level plans are ERISA plans in order to determine whether or not Koresko owed fiduciary duties to these plans. ERISA “defines ‘fiduciary’ not in terms of formal trusteeship, but in functional terms of control and authority over the plan.” Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993). The statute provides that “a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets.” 29 U.S.C. § 1002(21)(A)(i). In other words, a person may be a fiduciary with respect to a plan even if the person is not named as a fiduciary in plan documents, “to the extent . . . he . . . exercises any authority or control respecting management or disposition of its assets.” Sec’y of Labor v. Doyle, 675 F.3d 187, 200 (3d Cir. 2012) (alterations in original) (quoting 29 U.S.C. § 1002(21)(A)(i)) (internal quotation marks omitted). We recognize the difference between the two clauses set forth above in 29 U.S.C. § 1002(21)(A)(i), “that discretion is specified as a prerequisite to fiduciary status for a person managing an ERISA plan, but the word ‘discretionary’ is conspicuously absent when the text refers to assets.” Srein v. Frankford Trust Co., 323 F.3d 214, 221 (3d Cir. 2003) (quoting Bd. of Trs. of Bricklayers & Allied Craftsmen Local 6 of N.J. Welfare Fund v. Wettlin Assocs., Inc., 237 F.3d 270, 273 (3d Cir. 2001)) (hereinafter Bricklayers). We have emphasized 9 The Court also found that the plans of adopting employers who joined the SEWBPT were ERISA plans. (App. 252). 7 this distinction, “[n]oting that the ‘statute treats control over the cash differently from control over administration’ . . . [and] that ‘any control over disposition of plan money makes the person who has the control a fiduciary.’” Bricklayers, 237 F.3d at 273 (quoting IT Corp. v. Gen. Am. Life Ins. Co., 107 F.3d 1415, 1421 (9th Cir. 1997)). The Secretary has primarily relied on the second clause of § 1002(21)(A)(i) to argue that Koresko is a fiduciary, even though he lacked discretionary authority or control over management of the plans and he was not named a fiduciary in the plan documents. The District Court found, and the parties do not dispute, that Koresko exercised control over the disposition of the assets of the individual employer-level plans. (App. 61–67, 269–70). As explained above, this basis for attaching fiduciary status is authority or control over “plan assets,” therefore, fiduciary status attaches to Koresko to the extent of the employer-level ERISA plans’ assets. See Doyle, 675 F.3d at 200. In order to find that Koresko violated his fiduciary duties in this case, we must determine that the plans’ assets include the assets in the master trusts.
“The term ‘plan assets’ is not comprehensively defined in ERISA or in the Secretary’s regulations.” Id. at 203. ERISA provides that “‘plan assets’ means plan assets as defined by such regulations as the Secretary may prescribe.” 29 U.S.C. § 1002(42). These regulations “define the scope of ‘plan assets’ in two specific contexts: (1) where an employee benefit plan invests assets by purchasing shares in a company, 29 C.F.R. § 2510.3–101, and (2) where contributions to a plan are withheld by an employer from employees’ wages, 29 C.F.R. § 2510.3–102.” Doyle, 675 F.3d at 203. The second 8 regulation does not apply in this case, and while the District Court relied primarily on property rights in its analysis, the Court’s conclusion “found support” in the first regulation, discussed infra. (App. 59–60, 264–65). The District Court relied on “ordinary notions of property rights under non-ERISA law” to determine plan assets, an approach we set forth in Secretary of Labor v. Doyle. 675 F.3d at 203; (App. 50, 263); see In Re Luna, 406 F.3d 1192, 1199 (10th Cir. 2005) (approving this approach by explaining that “the definition of ‘asset,’ . . . is that the person or entity holding the asset has an ownership interest in a given thing, whether tangible or intangible”). We explained that this approach is consistent with guidance provided by the Secretary that “the assets of a plan generally are to be identified on the basis of ordinary notions of property rights under non-ERISA law. In general, the assets of a welfare plan would include any property, tangible or intangible, in which the plan has a beneficial ownership interest.” Doyle, 675 F.3d at 203 (quoting Department of Labor, Advisory Op. No. 93–14A, 1993 WL 188473, at  (May 5, 1993)) (internal quotation marks omitted). The Eighth Circuit has expanded on the term “beneficial interest” by approving the Secretary’s explanation set forth in a Department of Labor opinion letter: Whether a plan has acquired a beneficial interest in particular funds depends on “whether the plan sponsor expresses an intent to grant such a beneficial interest or has acted or made representations sufficient to lead participants and beneficiaries of the plan to reasonably believe that such funds separately secure the promised benefits or are otherwise plan assets.” Kalda v. Sioux Valley Physician Partners, Inc., 481 F.3d 639, 647 (8th Cir. 2007) (quoting Department of Labor, Advisory Op. No. 94–31A, 1994 WL 501646, at  (Sept. 9 9, 1994)). We agree with the Eighth Circuit that this agency interpretation is entitled to some deference. See Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). In relying on ordinary notions of property rights to determine whether the plan has acquired a beneficial interest in particular funds, we begin by “consult[ing] the documents establishing and governing the plan.” Doyle, 675 F.3d at 204. “[T]hen, in light of these documents, [we] consult contracts to which the plan is a party or other documents establishing the rights of the plan.” Id. The District Court properly considered the Plan Document, the Master Trust Agreement, and applicable adoption agreements, which established and governed the individual employer-level plans when they joined the trusts. (App. 51–52, 264). These documents make clear that legal title to the trust is vested in the trustee only. For example, the Master Trust Agreement to the REAL VEBA trust provides: Title to the Trust Fund shall be vested in and remain exclusively in the Trustee and neither the Adopting Employer, Advisory Committee Plan Administrator, nor any employee, or his or her decedents or beneficiaries shall have any right, title or interest therein or thereto. Participation in the Plan and this Trust shall not give any employee, beneficiary or any other Person, any right or interest in the Plan or this Trust other than as herein provided. (Id. at 1117). Neither the plans, the employers, nor the beneficiaries may claim legal title over the trust property, which consists of the employer contributions and life insurance contract proceeds. This is where Appellant disagrees with the District Court’s approach, as Appellant contends “the question was—or should have been—answered: the Trustee owns the assets in the Trust and the employer-level plans have no interest therein.” (Appellant’s 10 Br. 16). The Court, however, found that “the inquiry does not end there,” and continued to find that “[a]lthough the documents do not confer legal title to the REAL VEBA trust assets on the Plans, they manifest an intent to confer a beneficial interest on participating plans.” (App. 52). As explained above, welfare plan assets include property in which the plan has a beneficial ownership interest. Doyle, 675 F.3d at 203. The District Court found that “the assets in the REAL VEBA Trust are held in trust for the exclusive benefit of the participating employees and beneficiaries of employers that adopt the REAL VEBA benefit arrangement.” (App. 53–54); see also (id. at 265) (“Because the 419 covered plans have an undivided beneficial interest, that means they have an interest in all of the assets in the REAL VEBA or SEWBP Trust . . . .”). We agree with the District Court and rely on ordinary notions of property and trust law. While trustees have legal title and a non-beneficial interest in trust assets, beneficiaries of a trust have an equitable or beneficial interest. “A trust may be defined as a fiduciary relationship in which one person holds a property interest, subject to an equitable obligation to keep or use that interest for the benefit of another.” Amy Morris Hess, George Gleason Bogert & George Taylor Bogert, Bogert’s Trusts and Trustees, The Law Of Trusts and Trustees § 1 (2015); see In re Columbia Gas Sys. Inc., 997 F.2d 1039, 1059 (3d Cir. 1993) (“[T]he classic definition of a trust [is that] the beneficiary has an equitable interest in the trust property while legal title is vested in the trustee.”); Restatement (Third) of Trusts § 42 (explaining that the trustee has a “non-beneficial interest” in the trust assets). The governing documents make clear that employees as plan participants are to be considered beneficiaries under the master plan. The Master Trust 11 Agreement for the REAL VEBA trust provides that “[t]he Trustee will hold the funds contributed to it by the League in a fiduciary capacity for the benefit of all Employees covered under the Plan.” (App. 1113); see (id. at 1127) (similar language in the Master Trust Agreement for the SEWBPT). The Master Trust Agreement continues: This trust is established . . . for the purpose of receiving contributions of the Adopting Employers and their employees to provide . . . benefits to the employees and beneficiaries hereunder or payment of insurance premiums or making such other similar payments pursuant to the terms of the Plan. All contributions, and all assets and earnings of the Trust are solely the net earnings of the Trust and shall not in any manner whatsoever inure to the benefit of any person other than a Person designated as an employee or beneficiary of an Adopting Employer under the terms of the Plan. (Id. at 1115); see (id. at 1128) (similar language in the Master Trust Agreement of the SEWBPT); see also (id. at 54) (providing other examples in the plan documents “that the trust corpus and income shall be used for the exclusive benefit of participating employees and their beneficiaries”). Furthermore, the qualification in the Master Trust Agreement for the REAL VEBA Trust, that “[p]articipation in the Plan . . . shall not give any employee, beneficiary or any other Person, any right or interest in the Plan . . . other than as herein provided” allows these interests to exist. (Id. at 1117) (emphasis added). Therefore, we agree that the employees and plan participants have a beneficial interest in the trusts. Appellant argues that while employer-plan participants may be beneficiaries under the trust, the employer-level plans themselves are distinct from plan participants and have no interest, beneficial or otherwise, in the trust. (Appellant’s Br. 17–18); (quoting Merrimon v. Unum Life Ins. Co. of Am., 758 F.3d 46, 56 (1st Cir. 2014)) (“It is the 12 beneficiary, not the plan itself, who has acquired an ownership interest in the assets . . . .”). Appellant’s argument that employer-level plans do not have a beneficial interest in the trusts’ assets directly contradicts guidance from the Department of Labor. The Secretary has issued opinion letters discussing the extent to which trust assets may be considered ERISA plan assets: In the Department's view, a plan obtains a beneficial interest in particular property if, under common law principles, the property is held in trust for the benefit of the plan or its participants and beneficiaries, or if the plan otherwise has an interest in such property on the basis of ordinary notions of property rights. Further, whether a plan has acquired a beneficial interest in definable assets depends, largely, on whether the plan sponsor has expressed the intent to grant such a beneficial interest or has acted or made representations sufficient to lead participants and beneficiaries of the plan reasonably to believe that such funds separately secure the promised benefits or are otherwise plan assets. The identification of plan assets therefore requires consideration of any contract or other legal instrument involving the plan, as well as the actions and representations of the parties involved. Department of Labor, Advisory Op. No. 99-08A, 1999 WL 343509, at  (May 20, 1999) (footnote omitted). The first sentence in the paragraph above from this opinion letter is particularly applicable: “a plan obtains a beneficial interest in particular property”—that is, the employer-level employee welfare plans obtain a beneficial interest in the trust property—“if, under common law principles, the property is held in trust for the benefit of the plan or its participants and beneficiaries.” Id. (emphasis added). It is clear based on the governing documents that the property in the trusts is for the benefit of the plans’ participants and beneficiaries. Therefore, the plans have a beneficial interest in trust property. The Secretary did not distinguish property held in trust for the benefit of the plan itself from property held in trust for the plans’ participants and beneficiaries. 13 Appellant’s proffered distinction reads as a rather transparent attempt to evade ERISA liability. Such liability would also seem applicable here considering Appellant has previously represented that ERISA governs the trust.10 Because the employees have a beneficial interest in the trust, we believe the employer-level plans, in which employees are plan participants, also have a beneficial interest in the trust property.
We agree with the District Court’s analysis that this regulation supports the conclusion that the employer-level plans include trust assets. The regulation provides: When a plan acquires or holds an interest in any entity (other than an insurance company licensed to do business in a State) which is established or maintained for the purpose of offering or providing any benefit described in section 3(1) or section 3(2) of the Act to participants or beneficiaries of the investing plan, its assets will include its investment and an undivided interest in the underlying assets of that entity. 29 C.F.R. § 2510.3–101(h)(2). Comments to this regulation state that “assets of entities . . . that are established for the purpose of providing benefits to participants of investing plans would include plan assets. This provision was intended to apply primarily 10 The District Court noted that while it did not base its decision on judicial estoppel, Koresko has successfully argued before the U.S. District Court for the Eastern District of Pennsylvania that a “similar or identical employee benefit arrangement” was a welfare benefit plan governed by ERISA. (App. 35 n.15); see REAL VEBA Trust v. Sidney Charles Mkts., Inc., No. 01-4693, 2006 WL 2086761, at –3,  (E.D. Pa. July 21, 2006). Although Koresko argued in this case to the District Court that the REAL VEBA trust is distinguishable, the Court did “not see how the issue of ERISA coverage differs between the two cases.” (App. 35 n.15). In addition, the record includes a summary plan description which a participating employer gave to employee participants that states: “This Plan is covered by the Employee Retirement Income Security Act of 1974 (“ERISA”) which was designed to protect employees’ rights under benefit plans.” (App. 1157). These representations suggest that Koresko originally understood that these plans were properly governed by ERISA. 14 to so-called ‘multiple employer trusts.’” Final Regulation Relating to the Definition of Plan Assets, 51 Fed. Reg. 41262-01, 41263 (Nov. 13, 1986). This regulation is not directly on point, as there is no indication that employers joined the trust or established employer-level plans for the purpose of investing assets. See Doyle, 675 F.3d at 203 (describing this regulation as “where an employee benefit plan invests assets by purchasing shares in a company”) (citing 29 C.F.R. § 2510.3–101). The purpose behind the regulation and the provided example of its application, discussed below, are relevant and insightful to our analysis. The regulation appears concerned with complex arrangements, usually investments, in which the manager of a welfare plan would no longer owe fiduciary duties to the plan because the investment structure positions him to be in an indirect relationship to the plan. Final Regulation Relating to the Definition of Plan Assets, 51 Fed. Reg. at 41263. It would frustrate the “broad functional definition of ‘fiduciary’ in ERISA if persons who provide services that would cause them to be fiduciaries if the services were provided directly to plans are able to circumvent the fiduciary responsibility rules of the Act by the interposition of a separate legal entity between themselves and the plans.” Id. The regulation itself provides the following example: A medical benefit plan, P, acquires a beneficial interest in a trust, Z, that is not an insurance company licensed to do business in a State. Under this arrangement, Z will provide the benefits to the participants and beneficiaries of P that are promised under the terms of the plan. Under paragraph (h)(2), P's assets include its beneficial interest in Z and an undivided interest in each of its underlying assets. Thus, persons with discretionary authority or control over the assets of Z would be fiduciaries of P. 15 29 C.F.R. § 2510.3–101(j)(12). Despite the fact that this example presupposes that the plan acquires a beneficial interest in a trust, the explanation is unmistakably clear that where a trust provides benefits to participants and beneficiaries of a plan, “persons with discretionary authority or control over the assets of [the trust] would be fiduciaries of [the plan].” Id. Koresko had control over the disposition of plan assets, and undoubtedly the trust provides benefits to participants and beneficiaries of the employer-level plans. The interposition of a multi-employer trust, in which legal title is held by the trustee, does not serve to divest Koresko of his fiduciary responsibilities to beneficiaries of the trust. This Court has established that if an ERISA plan has a beneficial interest in property, this interest is sufficient to render the property “plan assets” under ERISA. Doyle, 675 F.3d at 200. The distinction Koresko advances between the plan itself and its beneficiaries contradicts persuasive authority from the Secretary and frustrates the broad functional definition of “fiduciary.” See Edmonson v. Lincoln Nat’l Life Ins. Co., 725 F.3d 406, 413 (3d Cir. 2013) (“The definition of a fiduciary under ERISA is to be broadly construed.”). For the foregoing reasons we agree with the District Court that the individual employer-level employee welfare benefit plans have a beneficial interest in the trusts, and therefore the assets of the trusts are “plan assets” within the meaning of ERISA.