A recent report investigated 201 settlements and verdicts since the beginning of 2000 involving corporations in the Fortune 1000, the Fortune Global 500, and the Forbes list of America's Largest Private Companies.
Many more pending actions or settlements were not part of the report, which was assembled by the Corporate Research Project of Good Jobs First as part of the latest expansion of Violation Tracker, which calls itself "a database of corporate crime and misconduct."
The most common ERISA violations include charging excessive fees or offering overly risky investment options in 401(k) plans; improper investment of pension plan assets in company stock, especially during times of instability; inadequate or misleading disclosure of financial information to plan participants; and mishandling conversions of pensions to cash-balance plans.
Of particular interest were the two biggest settlements, one paid in 2017 by Daimler AG on behalf of workers at the German company's U.S. truck manufacturing plants, for $480 million, and a 2015 Bank of New York Mellon settlement of $335 million to resolve allegations by multiple pension funds that it deceptively overcharged them on currency exchange rates relating to the purchase of foreign securities. Note that some of these suits were brought against investment managers or plan trustees rather than against the employer.
Thirteen other large corporations have had total ERISA payouts of $100 million or more, including IBM, Foot Locker, Xerox, Bank of America, AK Steel, AT&T, and JPMorgan Chase. The industry with the most ERISA payouts is banking, with a total of more than $1.3 billion.
In addition to large for-profit corporations, some major nonprofits, especially health care systems, have had to pay out large sums. Most involve lawsuits alleging that religious institutions improperly claimed that their plans were exempt from ERISA. The biggest settlements have involved Providence St. Joseph Health ($351 million) and Bon Secours Mercy Health ($161 million from two suits). "ERISA Litigation Tab: $6.2 Billion" www.napa-net.org (Apr. 16, 2019).
The Employee Retirement Income Security Act (ERISA) was passed in 1974 and was designed to protect the retirement assets of Americans by implementing rules that qualified plans must follow to ensure plan fiduciaries do not misuse plan assets. However, not every retirement plan is subject to the terms of ERISA. In particular, ERISA does not cover retirement plans set up and maintained by government entities and churches. Similarly, if a company sets up a plan outside of the United States for its nonresident alien employees, ERISA does not govern that plan.
ERISA does not require an employer to establish a retirement plan. It only requires that those who do establish plans must meet certain minimum standards. ERISA requires accountability of plan fiduciaries.
A fiduciary is generally defined as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who breach these duties may be held responsible for restoring losses to the plan. These duties include the obligation to act solely in the interest of plan participants and their beneficiaries, and fiduciaries must act with the exclusive purpose of providing benefits to them. Fiduciaries must carry out their duties with skill, prudence, diligence, and follow plan documents, unless those documents are inconsistent with ERISA rules. The fiduciaries must diversify plan investments and pay only reasonable expenses of administering the plan and investing its assets. Above all, fiduciaries must avoid conflicts of interest.
Fiduciaries can be held personally liable if a plan loses value because of a breach of a fiduciary duty. The fiduciary person or entity would have to restore those losses or return any profits made because of that breach of duty. Fiduciaries also can be removed from their positions as fiduciaries if they fail to follow the standards of conduct.
To avoid litigation, consider these best practices for fiduciaries:
- Diversify plan investments to avoid heavy losses. Monitor them and make changes when needed.
- Document your evaluations of investment decisions at the time the investment decisions are made.
- Make sure the fees and expenses are "reasonable." Monitor them. Every few years, seek a request for a proposal on the costs from several organizations to make sure the fees are in line with the overall market.
- Avoid any sales, exchanges, loans, etc. between the plan and any interested party, such as the employer, a fiduciary, or owners.
- Keep plan participants/beneficiaries informed of any plan changes. Make sure they receive summary plan descriptions, material modifications, and individual benefit statements.