Employer Settles Federal Lawsuit Alleging Unlawful Withholding of Employee Retirement Contributions

13856166954_b7d76371fe_z.jpgEmployees often rely on their employers for more than just a regular paycheck. While employers are not necessarily required to provide benefits for their employees, such as health insurance and retirement plans, those that do must follow certain requirements intended to protect employees’ interests. The federal Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., for example, sets minimum standards for private employee pension plans. These include the establishment of a fiduciary relationship between the employer, which administers the plan, and the employees, who are its beneficiaries. The U.S. Department of Labor (DOL) recently settled a claim against a New York-based employer, in which the department alleged unlawful withholding of employee retirement contributions in violation of ERISA. Perez v. Herring, No. 1:15-cv-10034, consent judgment and order (D. Mass., Jan. 12, 2015).

According to the DOL’s complaint, the defendant was the sole member and manager of a limited liability company (LLC) that operated a weight-loss business through a Jenny Craig franchise. The LLC, which was organized in Massachusetts, operated eight locations in New York state. It established a retirement savings plan for its employees in May 2012, with the LLC as the plan’s sponsor and the defendant acting as the plan’s named fiduciary and trustee. Funding for the plan came from employee salary deferrals, which the defendant remitted to participating employees’ plan accounts. Under ERISA, amounts withheld from employees’ paychecks automatically became assets of the retirement plan.

The defendant, according to the DOL, failed to remit employee contributions to the plan for five pay periods in 2012 and 2013, in the total amount of $8,646.00. This allegedly breached his fiduciary duty to participating employees under ERISA. In May 2014, the defendant individually filed for Chapter 7 bankruptcy. The DOL filed an adversary proceeding in bankruptcy court, seeking a judgment finding any debts resulting from the defendant’s ERISA violations to be non-dischargeable because of “defalcation while acting in a fiduciary capacity.” 11 U.S.C. § 523(a)(4). The defendant and the DOL filed a stipulation with the bankruptcy court in November 2014, in which the defendant stipulated that his actions constituted defalcation under the Bankruptcy Code. The DOL filed its ERISA civil suit in January 2015.

The parties’ settlement agreement, filed at the same time as the complaint on January 8 and approved by the court four days later, identified the recovery amount under ERISA as $8,646.00, and assessed a penalty equal to 20 percent of that amount. The defendant is permanently enjoined from violating ERISA’s provisions regarding fiduciary duties, 29 U.S.C. §§ 1104, 1106, and is ordered to pay the recovery amount to the plan in 24 monthly installments. The first installment of $250 was due on or before January 15, 2015. That amount increases by $10 each month for the first 12 months, reaching $360 in the 12th month. The amount for the 13th month onward is $415.50. The defendant must submit monthly written reports to the DOL showing the allotment of the payments to the employees’ plan accounts.

If you are involved in an employment law dispute in New Jersey or New York, you should consult with an experienced and knowledgeable employment law attorney. Contact the Resnick Law Group online, at 973-781-1204, or at 646-867-7997 to schedule a confidential consultation to discuss your case.

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Photo credit: American Advisors Group [CC BY-SA 2.0], via Flickr.

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