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Karlson v. ConAgra Brands Inc. and 401(k) Plan Compensation

In Karlson v. ConAgra Brands Inc., Bart Karlson (who, prior to his own termination of employment in 2016, was the Senior Director of Global Benefits and a member of the Administrative Committee for ConAgra Brands Inc.) filed a complaint on December 19, 2018, against ConAgra Brands, Inc. (ConAgra), the Administrative Committee, and William Ryan Egan, VP of Human Resources. A point of emphasis, and the reason for this article, is that the complaint also included the VP of Human Resources personally. If you have worked with McKonly & Asbury in the past, you have likely heard us talk about fiduciary responsibility. While these circumstances may be extreme, this case demonstrates that plan fiduciaries can be held personally liable for plan operational failures.

In simple terms, the defendant alleged that he (and others) missed an opportunity to defer retirement savings and he did not receive correct matching employer contributions due to an incorrect calculation of plan compensation.

According to the plan document, participants could defer from their compensation and the employer would match those deferrals. Further, the plan defined “compensation” to include certain post-termination payments. The plaintiff alleged that the plan fiduciaries re-interpreted the plan to exclude the bonuses in 2016 and, therefore, failed to take elective deferrals from the bonuses and match the deferrals. It was, the plaintiff argued, a failure to follow the terms of the plan in not permitting contributions on the former participants’ bonuses and, therefore, a breach of fiduciary responsibility, potentially affecting several thousand participants.

Plan Operational Errors

Operational errors relating to the definition of plan compensation are among the most common failures corrected via the Internal Revenue Service’s Voluntary Compliance Program. As most plan administrators are aware, it is not uncommon for plans to have complicated definitions of compensation for benefit purposes that are different from the definitions used for the 415 limits or nondiscrimination testing. The various definitions may include or exclude certain types of compensation other than base salary for different purposes, and a company’s compensation or payroll practices and vendors may change from time to time in ways that impact the definitions. Most of these errors are unintentional but common. Common examples of plan compensation errors that we have observed include bonuses, auto allowances, mobile phone allowances, and overtime compensation.

Need to Review Plan Documents

Plan sponsors and fiduciaries should take note of this case and take the time to review their plan document against actual administrative practices, particularly the definition of compensation. Make sure plan language is clear, up-to-date with current payroll practices, and consistent with what is actually applied. If any part of your definition of plan compensation is unclear or you think you may not be operating in accordance with your plan document, we recommend that you work with your service providers, including an ERISA attorney, to take appropriate corrective action.

For more information about McKonly & Asbury’s Employee Benefit Plan services, or for questions regarding this article, please contact Stephanie Kramer, Supervisor with McKonly & Asbury, at skramer@macpas.com.


About the Author

Steph Kramer

Steph joined McKonly & Asbury in 2016 and is currently a Manager in the firm’s Audit & Assurance Segment. Steph audits a broad spectrum of employee benefit plans, including 401(k), 403(b), retirement, profit sharing, health and… Read more

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