Labor & Employment – ERISA – Replacement Independent Fiduciary – Plan Termination

Solis, Sec’y of Labor v. Malkani. (Lawyers Weekly No. 001-057-11, 13 pp.) (Gregory, J.) No. 09-1383, Feb. 4, 2011(Published March 16, 2011) USDC at Greenbelt, Md. (Quarles, J.) 4th Cir.

Holding: In this appeal of a successful ERISA enforcement action by the Secretary of Labor against a company and its president, the 4th Circuit upholds a district court’s decision to grant a replacement independent fiduciary authority to terminate the plan, in light of the company’s repeated efforts to misappropriate pension funds.

The company, Information Systems and Networks Inc., and its president, Roma Malkani, were the target of the enforcement action. ISN waived its right to full district court review of the magistrate judge’s recommendations on fees for the independent fiduciary by failing to file its objections with the district court within 10 days of their issuance by the magistrate judge.

The law at the time was clear: ISN had only 10 days to request further review. The court was under no obligation to warn ISN. There was no error when the district court found that ISN had only 10 days to raise its objections and had waived its right to further review.

Here, in light of the deteriorating state of the pension plan, the district court did not err in using its equitable powers to extend to the replacement fiduciary the authority to terminate the plan. Importantly, the pension plan is now almost completely dormant, as only seven of its original 309 participants remain active.

In the event the pension plan is formally terminated, the statute requires that participants have their contributions returned, with any surplus assets allocated by the independent fiduciary to the appropriate participants. Given the unfortunate history of ISN’s mismanagement of the plan and repeated attempts to misappropriate its funds, further continuation of the plan would likely only perversely benefit ISN.

The court acted within its discretion when it allowed the replacement fiduciary to terminate the plan.

Because ISN has already paid the replacement fiduciary and ISN did not appeal the district court’s denial of its request for a stay under Fed.R.App.P. 8(a)(2), ISN’s appeal of the earlier December 2009 order is now moot. 

Judgment affirmed.