Merger Is Not a Permissible Form of Plan Termination Under ERISA

In Beck v. Pace International Union, No. 05-1448 (June 2007), the United States Supreme Court held that an employer who is a plan administrator and plan sponsor for a single-employer plan does not have a fiduciary obligation when considering whether to terminate an employee benefits plan governed by ERISA to consider merger into another plan unless the plan documents require it to do so. 

The employer, which was going through bankruptcy, realized that it could recoup $5 million dollars for the benefit of its creditors if it terminated the plan and purchased annuities to cover the plan's obligations to the participants.  The Supreme Court said that the employer's purchase of annuities comported with the provision of ERISA setting forth permissible methods of terminating a single-employer plan and distributing assets, 29 U.S.C. section 1341(b)(3)(A).

The court made another useful point concerning ERISA fiduciary duties when it noted that although the employer acted as the plan sponsor and plan administrator, ERISA fiduciary duties are implicated only when the employer acts as the plan administrator.  When the employer acts as a plan sponsor, it is acting as a settlor, which is immune from ERISA's fiduciary obligations.