ERISA Violations: Penalties and Punishments
ERISA, which is short for the Employee Retirement Income Security Act, is a set of federal laws designed to protect employees of private employers who provide pension, retirement, or profit-sharing plans or health insurance coverage. In essence, ERISA establishes certain minimum standards for these plans as well as grants certain rights to employees covered by those plans. In addition, ERISA authorizes a range of penalties or punishments for individuals or plans that fail to comply with those standards.
It's important to remember that ERISA doesn't cover all such plans, only those that are provided by private, for-profit employers. Pension or health insurance plans provided by federal, state, or local governments or religious institutions, for example, don't fall under the protections of ERISA. Accordingly, it's important to make sure that your employer is the kind of entity ERISA covers before determining whether a company or individual has violated an ERISA provision. Moreover, ERISA preempts any state law that may apply to such plans. This means that if a particular state has a law that covers a pension or insurance plan, and that state law in any way 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 that administer their pension, retirement, or health insurance plans. Some obligations that ERISA imposes on employers toward their employees include:
- Providing plan participants with important information such as the major features of the plan and how the plan is financed
- 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 for those grievances.
In addition, ERISA empowers plan participants to sue their employers or plan administrators for withholding benefits that employers are entitled to or for breaches of their fiduciary duties.
Typical ERISA Violations
In general, violations of ERISA happen when a party that has certain obligations imposed under the law fails to live up to those obligations. Some of the most common ERISA violations include:
- Improperly denying benefits to current or former employees
- Breach of fiduciary duty toward employees covered by plan
- Interference with the rights of employees covered by plans
Penalties and Punishments for ERISA Violations
There are two ways that those who commit ERISA violations can be punished. The first of these is if someone who is covered by a plan, or a plan beneficiary, files a complaint against the violator. Generally, such a person would first need to exhaust certain administrative procedures to seek corrective action before filing any lawsuit. The second way is through an action initiated by the Employee Benefits Security Administration, or EBSA, which is a part of the Department of Labor that enforces federal laws related to retirement plans and health insurance policies.
Under ERISA, violations of provisions of the law can result in two types of penalties. The first are civil penalties such as fines, being required to change certain procedures or practices, or to make a payment to a plan member or beneficiary. The second are criminal punishments, which can mean not only that a party may need to pay a fine but that a person convicted of violating an ERISA requirement may be imprisoned. Let's have a closer look at these penalties and punishments for ERISA violations more closely.
Civil penalties for ERISA violations are assessed on a case-by-case basis since the applicable law doesn't prescribe specific penalties for given violations. However, some the of things that ERISA allows an impacted party to recover are:
- Benefits that were denied improperly
- Interest accrued while benefits were withheld or denied
- Any attorneys' fees the plaintiffs may owe
When ESBA assesses civil penalties for ERISA violations, the amount of the fine generally depends on the degree of willfulness with which the violations were committed. See the DOL's fact sheet on the penalty amounts, which were significantly increased in 2016.
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 who is convicted of backdating paperwork relating to a plan -- meaning that dates were altered to make it appear that a transaction happened before it really did -- can face fines up to $10,000 per individual that was 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 up to 10 years, and companies may face up to $500,000 in fines for ERISA violations.
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