Business owners, entrepreneurs, and investors often create business entities as a means of protecting themselves from liability, as well as protecting their business or investment from their own liability. If an individual debtor has some form of individual liability for unlawful business activity, however, those activities may be considered a factor in the bankruptcy proceeding. This was the case in a claim brought by the U.S. Department of Labor (DOL) against a business owner accused of withholding employee retirement contributions in violation of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq.
The debtor was the sole member and manager of a limited liability company (LLC) organized in Massachusetts. The LLC operated a weight loss business through a Jenny Craig franchise at eight locations around New York state. It established a retirement plan and trust for its employees in 2012, with the debtor named as the plan’s fiduciary and trustee. Employees funded the plan through contributions withheld from their paychecks. The debtor was responsible for transferring the withheld amounts to the employees’ retirement plan accounts.
The DOL claimed that the debtor failed to transfer a total of $8,646.00 to the plan during pay periods in 2012 and 2013. Under ERISA, funds withheld from an employee’s paycheck for the purpose of contributing to a retirement plan automatically become an asset of that plan, and the plan’s trustee has a fiduciary duty to remit those funds to the plan promptly. The debtor, according to the DOL, violated ERISA by failing to transfer those funds to the retirement plan. Continue reading