By Mark Johnson, Ph.D., J.D.
The Employee Retirement Income Security Act of 1974 (ERISA)
is a federal law that establishes legal and operational guidelines for
private pension and employee benefit plans. The law requires that plan
sponsors must provide participants with specific information about plan
features and funding. ERISA also establishes certain fiduciary responsibilities
for those who manage the plan.
ERISA § 404(a) (1) provides that fiduciaries must
carry out their duties in accordance with the following rules:
• Solely in the interest of participants and beneficiaries
(duty of undivided loyalty);
• For the exclusive purpose of providing plan benefits,
or defraying reasonable expenses of plan administration (the exclusive
benefit rule, which with the prudence concept the DOL requires be expressed
in the summary plan description, 29 CFR § 2520.102-3(2));
• With the care, skill, prudence and diligence that
a prudent person acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character with like
aims (the “prudent expert” rule, under which the DOL emphasizes
“procedural prudence”, i.e. the focus is the decision making
process, not the result);
• By diversifying the plan’s investments to
minimize the risk of large losses (the duty to diversify investments);
and in accordance with the documents and the instruments governing the
plan, insofar as those instruments are consistent with ERISA.
As indicated above, fiduciaries have very strict legal
requirements under ERISA. It is possible that some individuals may be
acting in a fiduciary capacity without being fully aware of their responsibilities,
thereby exposing themselves to unanticipated liabilities. Fiduciaries
can be held personally liable for breaching their duties.
If you are involved in the management of a pension or
employee benefits plan, it is imperative that you fully understand the
many complexities stipulated by ERISA.
ABOUT THE AUTHOR
Dr. Mark Johnson is a highly experienced ERISA expert.
As a former ERISA Plan Managing Director and plan fiduciary for a Fortune
500 company, Dr. Johnson has practical knowledge of plan documents as
well as an in-depth understanding of ERISA obligations. He works on assignments
including 401(k), ESOP and pension fiduciary liability; retiree medical
benefit coverage; third party administrator disputes; individual benefit
claims; pension benefits in bankruptcy; long term disability benefits;
and cash conversion balances.
Contact ERISA Expert Dr. Mark Johnson
You can reach Dr. Johnson via email or by phone at 817-909-0778. He is available to confidentially discuss a benefits matter.
Click on the link to read about his representative ERISA cases.