Retirement programs in America are held to rigid standards at the state and federal levels. Whether you’re a plan administrator or a trustee, know where you stand.
What Is ERISA?
The Employee Retirement Income Security Act (ERISA) went into effect in 1974. This federal law protects any employee who voluntarily enrolls in a retirement plan sponsored by his or her employer. It safeguards all contributions over the life of each account. The ERISA governs much of the private sector and mandates the following employer requirements.
- Each employee participant must be provided with information about the specific features of his or her plan.
- Employers must establish standards for eligibility, vesting, benefits accrual and funding.
- Each plan must offer clear guidelines for filing a claim or appeal.
- Every plan must have at least one fiduciary.
- Terminated plans are protected under the Pension Benefit Guaranty Corporation.
As an employer, it’s important to understand what entity governs your retirement plan. For example, the ERISA does not regulate pension and health insurance programs for government employees. Public schools teachers and religious officials fall under a different umbrella. Moreover, ERISA trumps any conflicting law or regulation at the state level.
The Employee Benefits Security Administration (EBSA) enforces penalties for the following violations against pensions, the 401(k) program and low-income retirement plans.
- Failure to operate a plan for the sole purpose of benefiting participants
- The use of assets to benefit the administrator, sponsor or any party or person who is not a plan participant
- Securing plan assets in a trust account
- Failure to value assets at fair market value
- Any breach in the terms of a plan
• Failure to assign and regulate service providers
- Discriminating against any participant because he or she files for legal claim or appeal
- Unfairly denying benefits to former or current employees
Criminal violations usually occur at the administrator or executive level, and the chosen course of action is based on the magnitude of each case. The EBSA investigates the following related crimes.
- Embezzlement or theft from an employee benefit plan
- Backdating paperwork
- Bribes, kickbacks, offers or any solicitation that affects a plan’s function
- False statements to participants, administrators, the government or the publicInvestigators also consider the efficacy of potential deterrents and punishments and whether or not the accused violator is a repeat offender.
Fines and Penalties
Corrective action may involve restoring individual losses and plan assets, reprocessing claims, charging penalties and realigning profits. The goal is to give plan fiduciaries every chance to take corrective action and avoid a civil suit. The EBSA will refer unresolved cases to the Department of Labor. In cases of civil violation, the penalty depends largely on motive. Fines generally do not exceed $1,000 per day. The Sarbanes-Oxley Act (SOX) of 2002 increased the maximum penalties for criminal ERISA violations. Individual offenders may incur fines of up to $100,000 and a prison sentence of up to 10 years. Companies may be required to pay up to $500,000 in fines.
It Pays to Comply
The following real cases were settled in favor of participants of employee-sponsored benefits plans.
- Fisher v. Aetna, 1998: The Alaska State Court awarded $8,692,000 in punitive damages for a bad-faith claim denial.
- Mullins v. AT&T Corporation, 2011: The employer was ordered to pay $18,400 in penalties for not providing a Summary Plan Description upon request.
- Slipchenko v. Brunel Energy Inc., 2014: This class-action suit settled for $375,000 in violation fees on top of the $625,000 in attorney’s fees. ERISA compliance is not optional, and employers can save a lot of trouble by following the law. A compliance claim can result in multiple state and federal trials and may force you to pay both denied benefits and punitive damages. Consult an attorney for specific questions.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.