Providing plan administrative services results in potential liability.

AuthorLindbloom, John W.

In Coldesina v. Est. of Simper, 10th Cir., 5/19/05, a plan accountant providing administrative services was held potentially liable for the theft of plan assets.

Facts

David P. Coldesina, a dentist, served as trustee of his practice's long-established profit-sharing plan. In 1992, his friend Gregg Simper became the plan's investment adviser. Simper was also a general agent for Kansas City Life Insurance Company (KCL) and a broker-dealer for Sunset Financial Services, Inc., a KCL affiliate. He also operated his own company, Greystone Marketing, Inc. (GMI).

Simper recommended that Ted Madsen, sole owner of Flexible Benefits Administrators, Inc. (FB), replace the plan's third-party administrator. FB prepared the plan's returns, tracked participant loans, accepted plan contributions and remitted them on the plan's behalf as directed.

Initially, Coldesina wrote checks from the plan payable to FB, which deposited them into an account for which Madsen was the sole signatory. This was done to make it easier for FB to track plan contributions. The dentist had little contact with Madsen; rather, Simper issued directions to FB.

Madsen remitted checks from FB's account payable to KCL, to purchase insurance products. Later, Simper directed Madsen to write the checks payable to GMI, which would remit the funds to KCL. Simper maintained that this was to allow him to track his commissions earned. Coldesina never authorized writing plan checks to Simper or GMI, and was not aware of this change. Further, Madsen relied on Simper for the information needed to prepare the plan's returns and annual participant statements, and never verified the information Simper provided.

In 1999, Coldesina decided to redirect the plan's assets and asked Simper for the appropriate papers to effect the change. Simper committed suicide and left a note stating that he had misappropriated plan assets. It was later determined that Simper had stolen more than $600,000 from the plan. The plan filed suit against all the parties involved.

District Court

A district court dismissed the plan's claim against FB and Madsen. The plan appealed to the Tenth Circuit. Although there were many parties involved, the discussion below focuses only on FB and Madsen, its sole owner.

Tenth Circuit

The court first looked at whether FB had discretionary authority or control over plan administration as a fiduciary, under Employee Retirement Income...

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