ERISA Violations: Penalties and Punishments

ERISA, which is short for the Employee Retirement Income Security Act of 1974, is a set of federal laws designed to protect employees of private-sector employers who provide retirement plans. This includes pension plans, profit-sharing plans, and health insurance coverage.

ERISA establishes certain minimum standards for employee benefit plans. It also grants certain rights to employees covered by these plans. It authorizes a range of penalties and punishments for employers and plans failing to comply with these standards.

It's important to make sure that your employer is the kind of entity ERISA covers before determining whether your employer has violated an ERISA provision. ERISA only covers plans provided by private, for-profit employers. Pension or health insurance plans provided by the government or religious institutions don't fall under ERISA protection.

ERISA also preempts any state law that may apply to such plans. This means that if a particular state has a law covering a pension or insurance plan, and that state law conflicts with ERISA, then the applicable law will be the federal ERISA law, not the state law.

Employer Obligations Under ERISA

ERISA also imposes certain requirements on employers. Some obligations that ERISA puts on employers toward their employees include:

• Providing plan participants with important plan information, such as a summary plan description, description of plan assets, and plan documents
• Fiduciary duties for those who manage assets covered by a plan
• Setting up procedures for employee grievances about the plan, as well as an appeals process for those grievances

ERISA also empowers plan participants to sue their employers or plan administrators for withholding benefits or breaches of their fiduciary duties.

Typical ERISA Violations

Violations of ERISA happen when a party with certain obligations imposed under the law fails to live up to those obligations. Some of the most common ERISA violations include:

• Improper denial of benefits to current or former employees
• Breach of fiduciary duty toward employees covered by plans
• Interference with the rights of employees covered by plans

ERISA Penalties and Punishments

Employers committing ERISA violations can be punished in two ways. The first is if someone covered by a plan, or a plan beneficiary, files a complaint against the violator. Such a person would first need to exhaust certain administrative procedures to seek corrective action before filing a lawsuit. The second way is through an action initiated by the Employee Benefits Security Administration (EBSA). EBSA is part of the U.S. Department of Labor (DOL). It enforces federal laws related to retirement plans and health insurance policies.

ERISA violations can result in two types of penalties. The first is civil penalties. Civil penalties usually involve fines or making a payment to a plan member or beneficiary. The second is criminal punishments. If a person is convicted of violating an ERISA requirement, they may face prison time. Let's have a closer look at these penalties and punishments for ERISA violations.

Civil Penalties

Civil penalties for ERISA violations are assessed on a case-by-case basis. This is because the law doesn't prescribe specific penalties for given violations. But ERISA allows an impacted party to recover the following:

• Benefits that were denied improperly
• Interest accrued while benefits were withheld or denied
• Any attorneys' fees the plaintiffs may owe

When the EBSA assesses a fine on an employer, the amount of the fine generally depends on the degree of willfulness with which the violations were committed. You should refer to the DOL's fact sheets on the penalty amounts, which include penalties for failure to file Form 5500, with a maximum penalty increase from $2,400 to $2,586 per day that the filing is late.

Criminal Punishments

As with civil penalties, criminal punishments imposed for ERISA violations depend on the nature of the violation and the corresponding provision in the federal law. For example, a person might be convicted of backdating paperwork relating to a plan. This means they altered the dates to make it appear that a transaction happened before it really did. Such a person can face fines up to $10,000 per person affected by the fraudulent backdating for each year that the backdating occurred.

In 2002, with the passage of the Sarbanes-Oxley Act, maximum criminal penalties for ERISA violations were increased dramatically. Under the Act, individuals may now be fined up to $100,000 and jailed for up to 10 years, and companies may face up to $500,000 in fines for ERISA violations.

Get Legal Help With Your ERISA Violation Questions

You may have questions about your employer's obligations under ERISA after reading this article. If so, it's a good idea to contact a local ERISA attorney who can explain how ERISA laws apply to your specific situation and help ensure that your rights are protected.