Kerry in a Nutshell
Much has been written on the Kerry case following its release by the Supreme Court in August 2009. The facts of the case are well known by now. But what salient points from the case should pension administrators and their advisors keep in mind? There are several, and in a nutshell, they are:
- No statutory or common law rule requires a plan sponsor to pay administrative expenses; rather, the plan/trust documents will be determinative.
- Silence in the documents does not imply that the sponsor must pay plan expenses. So long as nothing in the documents requires the employer to pay expenses, “reasonable” and “bona fide” expenses can be paid from the fund.
- “Exclusive benefit” language in a pension plan does not prohibit incidental benefits from accruing to others, including the pension plan sponsor.
- The payment of plan expenses ensures the plan can continue; it is therefore for the “exclusive benefit” of members that the expenses be paid from the fund.
- Expenses must be considered on a case-by-case basis in order to determine whether they are appropriately paid from the pension fund, the implication being that expenses incurred more for the benefit of the sponsor should not be paid from the fund.
- Whether the services being paid for out of the pension fund are provided by third parties or by the sponsor is “immaterial” and “artificial”, if the payment of expenses out of the fund is permitted and the expenses are reasonable and legitimate.
- There is no need for the contribution provision in the plan text to explicitly mention an “actuary” in order to permit actuarial discretion (i.e., taking into account the plan’s surplus position) when determining the required funding.
- There is no reason why a single pension plan can’t have DB and DC components whose members are beneficiaries of the same trust.Members have no right to require surplus funding; while a plan is ongoing they have no vested interest in the actuarial surplus which would prohibit the use of surplus to pay expenses or to take contribution holidays.
Kerry left unanswered one important question: if a pension plan funded through a trust requires the employer to pay the plan’s administrative expenses, can it be amended to permit the expenses to be paid from the fund? If so, is a broad power of amendment sufficient, or must the employer have reserved the power to revoke the trust at the time the trust was established? This issue will have to be decided in a future case.
