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ERISA Overview
ERISA is a federal law that stands for the Employee Retirement Income Security Act. This law is meant to safeguard certain types of retirement and pension plans, as well as insurance and disability plans.
In a nutshell, ERISA protects employees who pay into employer-sponsored retirement accounts, such as 401(k) and 403(b) accounts. The Act also covers some welfare benefit plans, such as long term disability insurance (LTD).
Those who administer these accounts and plans are required to work in the best interest of the beneficiaries of the accounts. As such, ERISA-covered plan administrators must ensure that the investments they manage benefit the account holders and beneficiaries. Additionally, adhere to certain record-keeping and notification standards.
How Does ERISA Work?
ERISA is a federal law that was enacted in 1974 to protect peoples’ retirement and pension plans, as well as certain types of disability and other insurance plans. The U.S. Department of Labor, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation all administer ERISA.
The idea behind the law was to protect beneficiaries from excessive risk in their retirement or disability insurance plans.
To lower the risk to plan participants, ERISA-protected plans must meet certain federal regulatory standards, including, minimum standards for participation, vesting, funding and benefit accrual. Plan participants must also be provided with information about their benefits.
Further, those who administer ERISA covered retirement and pension plans, also known as plan fiduciaries, are subject to rules that protect plan participants. Plan fiduciaries must be develop, provide, and enforce a code of conduct. Under ERISA, plan participants have the right to hold fiduciaries accountable. In addition to administrative procedures, plan participants can file a lawsuit against the plan fiduciaries if they violate ERISA rules.
One drawback of ERISA is that the Act limits damages that must be paid to successful claimants in an ERISA lawsuit. In addition, ERISA-covered LTD insurance plans are limited in ways that individual coverage is not.
While ERISA covers most employer-sponsored retirement, pension, and disability insurance plans, certain organizations, such as churches, are exempt. It is important to note, however, that religiously-based health care systems have been subject to ERISA lawsuits over claims that they wrongly claimed this exemption from the federal law. Some of these health care systems have had to pay out millions of dollars in settlements for mistakenly claiming an exemption from ERISA and underfunding their retirement plans.
ERISA Violations
ERISA-covered plan beneficiaries have been subject to violations of the law, unfortunately. In addition to wrongly claiming an exemption from the law, plan administrators may not always work in the best interest of and other ERISA-covered plan beneficiaries.
ERISA-covered retirement plans, like 401(k)s, can be susceptible to mismanagement and even fraud because most employees must use their employer’s retirement plan.
In addition, long term disability (LTD) insurance plans require that insurers manage claims in the best interest of the policyholder. In some cases, plan administrators wrongly deny LTD insurance claims or stop benefits.
In sum, ERISA violations can include:
- Bad faith denials of LTD insurance claims
- Charging high administrative fees
- Providing expensive or bad investment options
- Excessive record keeping fees
- Embezzlement of retirement or pension account funds
- Providing misleading or incorrect information
It may take some investigation to determine whether an ERISA violation has occurred. Some tip-offs of potential problems include:
- Late account statements
- Inaccurate statements
- A large decline in the account balance that does not match up with market trends
- Retirement account contributions are not included on paystubs
- Frequent changes in investment managers
- Payments not sent to retired employees on time or at all
ERISA Lawsuits
ERISA-covered retirement, pension, and insurance plans all provide an administrative hearings process for claims that the plan fiduciary violated the law. The administrative appeals process can be quite extensive and take a long time, especially for those who may be waiting on LTD insurance claims or retirement benefits.
An experienced ERISA attorney can help those concerned about an ERISA violation or a LTD insurance claim, even at the initial administrative process. Generally, claimants will have to exhaust the administrative procedures before they can proceed with an ERISA claim in court.
