Follow the Rules: A Lesson from Tussey
In the past few years, there has been a bit of litigation relating to ERISA plan administration. In many of these cases, plan management has been found to be appropriate. However, in a recent case (Tussey v. ABB, Inc. (2012, WD MO) 2012 WL 1113291), a significant penalty ($36.9 million) has been assessed against the plan sponsor and others due to the finding of certain errors.
Two important lessons can be gleaned from the Tussey case:
- For both ERISA retirement and health benefit plans, the first message is, follow the terms of the plans and all related documents. Part of the penalty assessed in the Tussey case was due to a failure, on the part of the plan, to follow the terms of the plan documents.
- The second point to remember, again, for both retirement and health benefit plans, is that there is an ERISA rule known as the “exclusive benefit rule”. This rule requires that plan assets be used for the exclusive benefit of the individuals covered by that particular plan. Plan assets cannot be used for the benefit of the plan sponsor, nor can they be used for participants in another plan.
Let the above case serve as a reminder that those plan documents must be used as the playbook. They should not remain pristinely perched on the shelf. Second, only use plan funds exclusively for the participants and beneficiaries of that plan, and no one else.
The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.
As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.