04.08.2011 Court’s Remedial Power Under ERISA Includes Grant to the Substitute Fiduciary to Terminate Pension Plan Solis v. Clark Consulting v. Malkani, et al., No. 09-1383(L) (4th Cir. Mar. 16, 2011)

A recent decision of the U.S. Court of Appeals for the Fourth Circuit has confirmed the breadth of the district court’s equitable powers over a retirement benefit plan when enforcing fiduciary duties and providing “appropriate relief” for fiduciary breach.  In Solis v. Clark Consulting v. Malkani, et al., No. 09-1383(L) (4th Cir. Mar. 16, 2011), the Fourth Circuit affirmed the district court’s grant of authority for the substitute fiduciary to terminate a pension plan.

The case began as an enforcement action by the Secretary of Labor under ERISA's Section 502(a) (29 U.S.C. § 1132(a)).  The Secretary commenced the action in 2000 against Information Systems and Networks Corporation and its corporate president (collectively “ISN”).  ISN was the sponsor and plan administrator of a defined contribution pension and profit sharing plan (“the Plan”), and the action was instituted on behalf of the Plan’s beneficiaries.  The Secretary successfully argued that ISN had violated its fiduciary duty to administer the Plan properly, including violations of the duties of loyalty and care.  

The district court ordered that ISN be removed as the Plan’s administrative fiduciary and asked the Secretary to name a substitute fiduciary.  The Secretary initially selected Clark Consulting in 2003; after Clark Consulting withdrew, the Secretary selected Nicholas Saakvitne in 2009.  Both substitute fiduciaries were offered to the district court for approval, which the district court granted.  

Each of the substitute fiduciaries encountered ongoing difficulties in enforcing the district court’s order for ISN to pay the fees of the substitute fiduciary.  The Plan eventually became “almost completely dormant”; the court found that “only seven of the original 309 participants remain[ed] active.”  Upon request, the district court granted the substitute fiduciary the authority to terminate the Plan.  ISN appealed.

The Fourth Circuit held that the “broad equitable powers” that ERISA gave to district courts “necessarily include the power to order the termination of a plan.”  Under ERISA’s 29 U.S.C., § 1132(a), the court, in cases initiated by the Secretary of Labor, was granted the authority to provide “appropriate relief” to a plan for injuries caused by fiduciary breach.  The Fourth Circuit found the power of termination granted in this case to be appropriate “in light of the deteriorating state of the pension plan.”

Among other issues on appeal, ISN contested the district court’s delegation of the termination power on the ground that 29 U.S.C. § 1341 provided the exclusive method for terminating the Plan.  Section 1341 pertains to termination of single employer defined benefit plans.  The Fourth Circuit rejected that argument, noting that Section 1341 did not apply to the defined contribution plan in Solis, and saying further that, if Section 1341 had applied, Section 1341(b) would permit a fiduciary to terminate a plan so long as proper procedures were followed. 

Solis therefore confirms the broad remedial powers of a district court under ERISA.  Where fiduciary duties are breached, a civil action under ERISA can result, as in Solis, in the substitution of the plan administrator and appropriate equitable relief, even plan termination.  Notably, the Fourth Circuit’s decision originally was unpublished, but was published subsequently at the request of the Secretary of Labor.  The Secretary’s request for publication suggests that the Secretary has a broad view of the remedial provisions of ERISA. 

For more information about this topic, please contact the authors or any member of the Williams Mullen ERISA Litigation Team.