As the Employee Retirement Income Security Act of 1974 turns 50, the federal statute known as ERISA—and its attendant litigation—continues to play a vital role in improving plan management and reshaping how employers help their employees save for retirement.
ERISA finds its genesis in 1963, when workers of the failed Studebaker auto plant in South Bend, Indiana, learned that their pension plan did not have enough assets to pay benefits, leaving many without any retirement benefits. Congressional investigations, hearings and prolonged debate of pension issues followed. Over the next decade, Congress and the public learned not only that many plans were underfunded, but that a few were administered in a dishonest, incompetent, or irresponsible way.
ERISA established minimum standards for 401(k) fiduciaries
ERISA was enacted to protect the retirement well-being of participants in employee retirement plans. ERISA requires those individuals who manage plans – also known as fiduciaries – to meet certain standards of conduct, derived from the common-law duties of loyalty and prudence, and prohibits self-dealing with plan assets.
Under ERISA, fiduciaries whose failure to meet these standards causes losses to the plan must make the plan whole. Equally important is that ERISA empowers workers to sue fiduciaries to recover on behalf of a plan all losses caused by the fiduciary’s failures. These types of failures happen more often than many may realize.
Sanford Heisler Sharp believes that fiduciaries who follow a loyal and prudent process and offer good investment options should not have any trouble. At our firm, we try to elevate awareness and encourage fiduciaries to take practices to a higher level of care and attention. We have also brought numerous ERISA cases against large companies—including Transamerica, the Walgreen Company, and UnitedHealth Group—for disloyal conduct, offering imprudent investments and using plan assets for their own gain. We have successfully settled numerous cases—most recently, a $61 million settlement against GE, the largest-ever involving a plan that offered in-house funds.
Arbitration agreements could imperil your rights under ERISA
As ERISA turns 50, there is a movement by powerful forces to gut the law. These efforts include inserting agreements into plan documents that foreclose employees’ rights to bring their ERISA statutory claims to recover losses to the whole plan. In these agreements, employees must bring individual claims in arbitration. For a large plan with 200,000 participants victimized by looting, making the plan whole would require the filing of 200,000 individual claims.
As outrageous as these agreements are, participants are fighting back and challenging their validity. To date, appellate courts in the 3rd, 7th and 10th circuits have invalidated these agreements on the grounds that they violate the rights of participants to bring claims to recover losses to the plan as a whole. Yet a few lower courts, mostly in unpublished opinions, have upheld the validity of these agreements. It is almost certain that the issue will land before the U.S. Supreme Court.
Charles Field is Managing Partner of the San Diego Office of Sanford Heisler Sharp. As Chair of the firm’s Financial Services Practice Group, Charles specializes in holding large employers accountable for failing to fulfill their fiduciary duties as managers of their employee 401(k) plans. Through successful litigation, Charles has recovered hundreds of millions in retirement savings for employees of such companies as the Transamerica Corporation, General Electric, and the Walgreen Company (Walgreens).