A retirement plan is an arrangement that individuals set up to provide themselves with an income after retirement. The two most common private retirement plans are IRA and 401(k).
One of the main reasons an individual will have an IRA or a 401(k) is to reduce their tax liability and taxable income. This process allows the individual to save more money in the long run.
Certain companies provide their employees with pensions. After an employee retires, the business will pay them a monthly amount depending upon the length of their employment.
What are Employee Benefit Plan Fiduciaries?
If an employer establishes an employee benefit plan, the Employment Retirement Income Security Act (ERISA) will regulate the resulting arrangement. The employer is called the plan sponsor.
The employees are referred to as the plan participants. In the context of an employee benefit plan, a fiduciary is an individual or an entity that does any of the following:
- Has discretion in administering the benefits plan;
- Has some control over the plan’s assets; or
- Provides and charges for financial advice.
Many parties may, in effect, act as benefit plan fiduciaries. These parties may include:
- An internal administrative committee at work;
- An employer’s human resources department;
- A company’s board of directors; or
- Parties who monitor other fiduciaries.
The following parties are not typically considered to be fiduciaries of retirement plans:
- Attorneys;
- Accountants; and
- Actuaries.
What is ERISA?
An employer is not required to provide a pension plan. If the employer chooses to do so, the Employee Retirement Income Security Act (ERISA) provides rules that private employers must follow.
ERISA regulates the vesting of employees’ rights to their retirement benefits in all employer-sponsored plans. For example, ERISA provides standards related to the following:
- When an employee begins participating in the retirement plan;
- When an employee acquires non-forfeitable rights to their benefits; and
- When their benefits may be affected by events such as termination of employment.
What are the Responsibilities of a Fiduciary?
A fiduciary acts on behalf of employees participating in the retirement plan. Fiduciaries have certain responsibilities, including:
- Avoiding a conflict of interests and acting in the best interests of the participants in the benefit plan;
- Keeping track of the plan’s administration fees;
- Providing appropriate diversification, or variety, for the investments of the benefits plan;
- Overseeing the administration of the plan professionally and prudently;
- Acting consistently with the plan’s documentation and standards, as well as with ERISA rules; and
- Monitoring the performance of other fiduciaries concerning the plan.
What Happens if a Fiduciary Fails to Carry Out its Responsibilities?
If a fiduciary fails to carry out one or more of their duties, they may face serious consequences. For example, a fiduciary may be held personally liable for the misconduct and may be required to restore any losses to the benefit plan resulting from their conduct.
A fiduciary may also be sued by a participating employee or a group of participating employees.
Is it Possible for a Fiduciary to Limit its Liability?
When faced with potential liabilities, a fiduciary may attempt to limit them to some extent by the following:
- Allowing employees who are participating to be involved in making the investments;
- Outsourcing to other fiduciaries, for example, the plan’s service providers;
- Keeping good records of all steps they follow to carry out their duties;
- Abstaining from prohibited transactions, for example, self-dealing;
- Informing participating employees about their plans; and
- Submitting appropriate reports to government agencies.
Can You Sue a Retirement or Pension Plan Manager?
Under the terms provided by ERISA, employees may sue the manager responsible for maintaining either their retirement plan or their pension plan.
An individual who oversees or actively manages employees’ retirement investments is considered a fiduciary. A fiduciary is an individual who has a legal duty to behave ethically concerning another individual’s financial interests.
Lawsuits brought under ERISA typically involve claims that an employer or a third-party money manager violated a fiduciary duty that they owed to the plaintiff or the employee. It is important to note that because ERISA applies only to private sector employers, employees may only file lawsuits against private employers.
There are two categories of employers that are exempt from ERISA guidelines:
- Governmental agencies, including:
- federal;
- state; and
- local; and
- Plans provided to employees by churches.
If an individual’s employer falls into these two categories, an employee will not be able to bring a lawsuit against them under ERISA.
What are Some Fiduciary Duties that May be Raised in a Lawsuit?
As a fiduciary, a private employer or a related third-party money manager has the following duties:
- Duty to diversify: An employer or a third-party money manager is required to minimize any investment risks by ensuring that the employee’s retirement funds are sufficiently spread out between several different investments;
- Duty of loyalty: A fiduciary is required to act in the best interest of the employees as well as any prospective retirees;
- Duty of obedience: The fiduciary is required to adhere to the rules provided by ERISA and any relevant guidelines laid out by the type of retirement plan;
- Duty of care: Fiduciaries must also manage their employees’ invested contributions per the level of care that would reasonably be expected from similarly situated professionals; and
- Exclusive purpose rule: The Exclusive Purpose Rule basically states that these retirement plans exist to benefit the participating employees, not to make extra money for the employers.
A fiduciary in charge of an employee’s retirement plan may be held personally liable for violating any of the duties listed above.
Can I Bring a Class Action Lawsuit Against a Retirement Plan Administrator?
A lawsuit involving mismanagement of an employee’s retirement plan may pose serious challenges that may make it difficult for the plaintiff to obtain a favorable outcome. This is because of the number of defenses a manager or an employer may raise.
Because of this, it may be better for a lawsuit based on these issues to be filed as a class action lawsuit. There are several examples of types of class action claims that are related to fiduciary duty violations, including:
- Dropping stock claims: This claim means that the investments associated with the plans were likely mismanaged;
- Fees claims: Fee claims arise when the retirement plan fiduciaries are paid too much for the task of overseeing the plan’s assets;
- Improper transactions: This type of claim involves the improper use of investments related to a retirement plan. For example, if the manager used the investment money to purchase a personal item rather than for the benefit of the contributing employees; and
- Anti-cutback claims: This happens when the employer or manager takes back benefits that were promised or already vested in the plans.
When Should I Seek Legal Help?
If you believe that your employer or another fiduciary of your retirement plan is not acting in your best interests, it may be helpful to consult with an experienced workers’ compensation lawyer in your area for assistance.
It is important to remember that, as discussed above, several individuals may be held liable for ERISA violations, fiduciary duties violations, and other laws. An attorney on your case will give you the best chance to protect your retirement funds.
