The Employee Retirement Income Security Act (ERISA) is the general rule of law that applies to both pension plans and retirement plans offered in the private sector. Under ERISA, employees may have grounds to sue the manager responsible for maintaining their retirement or pension plans.
A fiduciary is any individual who oversees or actively plays a role in managing an employee’s retirement investment and has a legal duty to behave ethically regarding the employee’s financial interests.
Lawsuits under ERISA usually involve a claim that an employer or third-party money manager violated a fiduciary duty they owed to the plaintiff-employee.
ERISA only applies to private sector employers, excluding governmental agencies (federal, state, or local) and church-provided plans. Employees cannot file a lawsuit under ERISA against these exempt employers.
What Fiduciary Duties May Be Raised in a Lawsuit?
Private employers or related third-party money managers, as fiduciaries, are responsible for various duties. Fiduciaries can be held personally liable for violating any of these duties.
Duty to Diversify
Employers or third-party money managers must ensure that employees’ retirement funds are not concentrated in a single investment or a small group of investments.
For example, if a fiduciary invests all of an employee’s retirement savings in a single company’s stock, they are violating the duty to diversify. Instead, they should spread the investments across various asset classes, such as stocks, bonds, and real estate, as well as different sectors and industries, to minimize potential losses.
Duty of Loyalty
Under the duty of loyalty, fiduciaries must prioritize the best interests of employees and prospective retirees over their own interests or those of the company.
For instance, a fiduciary should not invest an employee’s retirement funds in a high-risk investment to earn higher fees for themselves or the company. Instead, they should choose investments that are appropriate for the employee’s risk tolerance, financial goals, and time horizon.
Duty of Obedience
Fiduciaries must adhere to the rules set forth by ERISA and any relevant guidelines established by the retirement plan type. For example, if a 401(k) plan has specific rules regarding investment options and contribution limits, the fiduciary must follow those rules. Failure to comply with such regulations could result in penalties, fines, or even disqualification of the plan.
Duty of Care
Fiduciaries must exercise the same level of care, skill, prudence, and diligence that a similarly situated professional would use when managing employees’ invested contributions.
For instance, if a fiduciary fails to monitor the performance of the investments in an employee’s retirement plan and make necessary adjustments, they may be violating the duty of care. A responsible fiduciary would regularly review the investments, assess their performance, and make changes as needed to protect the employee’s interests.
Exclusive Purpose Rule
Retirement plans must serve the sole purpose of providing benefits to participating employees, not generating additional profit for the employers or the fiduciaries themselves. For example, a fiduciary cannot use an employee’s retirement funds to invest in a business venture that would primarily benefit the fiduciary or the employer. The focus should always be on making decisions that promote the employees’ financial well-being and help them achieve their retirement goals.
What Claims May Apply to Retirement Plan Administrators?
Employees may sue their plan manager and/or employer based on the following legal claims.
Failure to Execute Employees’ Purchase and Sale Decisions in a Timely Manner
Suppose an employee submits a request to sell a particular investment within their retirement plan, but the plan administrator fails to act on this request promptly. As a result, the investment’s value drops significantly before it is finally sold, causing the employee to incur substantial losses.
This delay and the subsequent financial loss could be grounds for a legal claim against the plan administrator.
Failure to Disclose Material Information About the Plans
For example, a plan administrator might fail to inform employees about the fees and expenses associated with specific investment options within the retirement plan. This lack of transparency could lead employees to make uninformed decisions that negatively impact their retirement savings, potentially resulting in a legal claim.
Failure to Offer Proper Investment Strategies
Suppose a plan administrator offers only high-risk investment options within a retirement plan without providing more conservative choices suitable for employees nearing retirement. This lack of appropriate investment strategies could put employees’ retirement savings at risk, potentially leading to a legal claim against the plan administrator for not fulfilling their fiduciary duty.
Failure to Distribute Benefits Associated with the Plan for Unjust Reasons
An example of this failure might involve a plan administrator denying an employee’s valid request for a retirement plan loan or hardship withdrawal without any legitimate reason. This unjust refusal could cause the employee financial hardship and lead to a legal claim against the plan administrator.
Other Scenarios Leading to ERISA Violations
There are numerous ways a plan administrator could violate ERISA regulations. One such example might be the improper allocation of plan assets.
Suppose a plan administrator uses plan assets to pay for expenses unrelated to the administration of the plan, such as personal expenses or unrelated business expenses. This misappropriation of plan assets is a violation of ERISA and could result in a legal claim against the plan administrator.
Since anyone managing an employee’s retirement plan is considered a fiduciary, liability may extend to employers, plan managers, and other professionals responsible for maintaining retirement assets.
Can I Bring a Class Action Lawsuit Against a Retirement Plan Administrator?
Lawsuits involving retirement plan mismanagement can pose challenges due to potential defenses raised by employers or managers. Filing a class action lawsuit may be a more effective legal strategy.
Examples of class action claims related to fiduciary duty violations include the following:
- Dropping Stock Claims: Mismanaged investments associated with the plans;
- Fees Claims: Excessive fees paid to retirement plan fiduciaries for overseeing plan assets;
- Improper Transactions: Improper usage of investments related to retirement plans, such as using investment money for personal purchases; and
- Anti-cut Back Claims: Managers or employers retracting promised or vested benefits from plans.
Do I Need to Hire a Lawyer for Help With a Retirement and Pension Plan Lawsuit?
ERISA violation lawsuits can be highly complex, regardless of whether an employee or employer files the claim. In these cases, it is strongly recommended to hire an experienced employment lawyer.
A qualified attorney can determine the validity of an employee’s claim regarding retirement fund management and help protect their rights and recover proper benefits.
Alternatively, if an employer is concerned about ERISA compliance, an employment law attorney can assist in dispute resolution and creating a benefits plan that protects both the employer and employees.
LegalMatch is an online legal matching service connecting you with qualified attorneys who handle ERISA and retirement plan lawsuits.
Through LegalMatch, you can fill out a brief online form describing your legal issue, and you will be matched with attorneys in your area who have experience in that particular area of law. You can then review each attorney’s qualifications, rates, and reviews from past clients to find the best match for your needs.
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