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ERISA Federal Law Protects Employees in Private Sector

Retirement Plans and Provides for Lawsuit Option

If you and/or your spouse has a company managed retirement plan, then you may have opened its monthly statements with much trepidation over the last few years. The sagging economy has hit most investment plans hard, and has provided a hard-school lesson to the dangers of investing.

But what if losses in your retirement or pension plan were avoidable and were brought about by the negligent acts of others? Then you and others participating in the plan may have the basis for a class action lawsuit to recoup your losses.

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that is designed to protect individuals enrolled in private industry pension and health plans by establishing standards for such plans. ERISA does not apply to state and local government plans (including public school employees), federal government employee plans, and most church plans.

ERISA Standards for Pension Plans

Generally, ERISA trumps state laws governing employee benefit plans. The standards that pension plans must meet under ERISA include:

  • How long an employee must work to be vested in the pension
  • Who is covered under the plan
  • How much funding is required to meet future pension obligations

The law doesn’t require employers to provide retirement or health plans, but under ERISA, members of employee benefit plans have certain rights and the individuals and businesses that oversee them – called fiduciaries – have certain legal responsibilities. A fiduciary basically is anyone who has control over a plan’s assets. This includes those who provide investment advice.

ERISA applies to a defined benefit plan, which pays an employee a yearly set amount following retirement and is based on the employee’s salary and years of service, and a defined contribution plan, such as a 401(k). With a defined contribution plan, the employer and/or the employee contributes to the plan each year.

Fiduciary Responsibilities for Pension Plans

Under ERISA, fiduciaries have specific guidelines they must follow when overseeing pension and other employee benefit plans. In general, fiduciaries of pension plans must:

  • Regularly provide participants with clear information and reporting on the plan
  • Provide a process for participants to file grievances and appeals, including the right to sue for mismanagement and other negligent acts
  • Act in the best interest of the participants in the plan

The last point is the most broad and the most likely to be the cause for a class action lawsuit. If a fiduciary misuses the assets of a private retirement plan in any way, then by definition it is not acting in the best interests of the plan’s participants.

The first class action ERISA lawsuit was filed in 1998 and the number of lawsuits filed has increased dramatically over the years. Many of the nation’s largest companies have been defendants in ERISA class action lawsuits, with employee plaintiffs receiving billions in compensation.