Know Your Retirement Plan Rights and Fight Against Violations of ERISA
After retirement, some employees receive a pension, which comes through their employer but is governed by the Employee Retirement Income Security Act (ERISA). ERISA ensures that employers who provide pensions for employees meet certain requirements, such as designating how long an employee must work before you have “non-forfeitable” interest in the pension. ERISA doesn’t demand businesses to have pension plans nor does it impose an amount of money to be put into the plan.
ERISA outlines the minimum rules for employers who offer pensions to employees. Otherwise, it’s up to employers to be consistent in their own policies. When an employer fails to follow through on its policies due to your legally protected class, consult a lawyer for available legal options.
The Basics of Pensions
Pensions usually are categorized into two main camps: defined benefit plan and defined contribution plan. Both offer different benefits to employees. Often times, employers who provide the option of retirement plans give employees the choice of pensions or 401k plans that best fit their lives and goals.
Defined Benefit Plans
Operating on a specific dollar amount to be paid upon retirement to an employee, the defined benefit plan can be based upon a pre-defined dollar amount of an amount based on salary and service. Since monies saved for retirement must fund living in the future, the employer’s contribution will be calculated by an actuary.
Defined Contribution Plans
Not based on a specific dollar amount, the defined contribution plan allows both employee and employer to contribute to your pension plan. Upon retirement, an employee receives the total of contributions to the vested account and any accumulated gains from investing. However, invested funds are also subject to loss from poor investment.
Types of Defined Contribution Plans
- Profit-sharing plans
- 401(k) plans
- 403(b) plans
- employee stock ownership plans
Know Your Retirement Plan Rights
Never depend on oral promises about a retirement plan and be sure seek written documents outlining what your retirement plan includes. You need to understand the plan, your participation in the plan, the current state of your retirement plan, and how termination influences your plan. Take the time to understand your plan.
Documents to Have
- Summary plan description
- Individual benefit statement
- explains if you are vested
- lists accrued benefits
What Does Vesting Mean?
Vesting is the term that denotes when the funds in a retirement plan become non-forfeitable. This occurs once an employee has satisfied the requirements of working a set amount of time within the company. Federal law sets minimum standards, requiring that employees work for five years without vesting before receiving it or using a three-to-seven year schedule, where a percentage becomes vested each year until the full 100% is vested after the seventh year.
It’s important to note that funds that are employee contributed are 100% vested. Once an employee is 100% vested, that employee will receive the full retirement amount gained before termination or by the age of 65. Someone terminated before age 65 cannot expect to receive all the funds if they didn’t work until age 65.
What Does Termination or Quitting Do to my Retirement Plan?
When your employment relationship ends, your employer ceases contributing to your retirement plan, and you will be unable to do so as well. If you aren’t vested, you’ll likely lose any accumulated funds. After leaving a job and being vested, you can choose to receive your pension as a lump sum or receive regular payments. Choosing the right option can be difficult, but it’s important to consider your age, the amount of years until retirement, and the depreciation of money.
Sue the Retirement and Pension Plan Manager
When retirement plans are mismanaged, an employee might want to file a lawsuit against the manager under ERISA. Those who manage retirement investments are a fiduciary and have specific duties to the employee and retirement plans. When those fiduciary duties are violated, an employee has the right to sue for damages.
What are Fiduciary Duties?
Managers of retirement plans are obligated under ERISA to certain fiduciary duties. These duties include diversifying, loyalty, obedience, care, and exclusive purpose rule. When one of these fiduciary duties are violated, the employer and manager could face lawsuits. A fiduciary is held personally liable for violating any of the below duties.
- Diversify: minimize investment risks by dispersing retirement funds among a number of investments
- Loyalty: act in best interest of employees and future retirees
- Obedience: submit to employer retirement plan and ERISA guidelines
- Care: manage invested contributions with a professional level of care
- Exclusive Purpose Rule: the retirement plan is meant to benefit employees not make more money for employers
What Claims Can Be Brought Against a Retirement Plan Manager?
Although a lawyer might recognize specific claims that might be made in an individual circumstances, three main claims are usually grounds for lawsuit. The mismanagement of retirement plans is a grievous offense. Consult a lawyer if you suspect your retirement plan manager has done any of the below.
- Not offering appropriate investment strategies
- Failed to share material information
- No timely execution of purchase and sale decisions
Can a Class Actions Lawsuit Help Me?
Suing an employer for mismanagement of a retirement plan means facing a number of legal defenses. It can be difficult to have a successful lawsuit. However, employees who band together to reveal that the mismanagement has not been an isolated incident experience more success. Employees can sue when their vested benefits are taken back, improper transactions occur, managers are overpaid for supervising plans, and investments are mismanaged.
Recognizing exactly what is not being handled legally can be difficult. Although an employee might understand that something is not right, a lawyer will be able to determine exactly where the illegal action is occurring. If you believe that your retirement plan has been mismanaged or that ERISA has been violated, you may want to consult a lawyer.
Contact an employment lawyer who will know how to navigate your case and your rights under the law.