ERISA – short for the Employee Retirement Income Security Act of 1974 – is a powerful federal law that protects workers who participate in employee pension plans, retirement plans, 401(k)’s and Employee Stock Ownership Plans (ESOPs). Other benefit plans including disability insurance and health insurance may also be covered if offered through the employer. ERISA fraud occurs when the employer improperly denies benefits, retaliates against workers seeking benefits, steals money from these plans or breaches a fiduciary duty owed to workers.
ERISA says that employers owe a fiduciary duty to their employees. That is the highest duty or standard of care recognized by law. Employers owe this duty when it comes to selecting investment plan options and making investment decisions involving pension and 401(k) plans.
Employers commit ERISA fraud or breach their fiduciary duty to employees when:
- Reducing benefits without proper notice
- Charging excessive fees in 401(k) plans
- Stealing assets from benefit plans
- Making risky investments with plan assets
- Making unsuitable investments
- Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor,
- Failing to properly value plan assets at their current fair market value
- Taking kickbacks from fund administrators
- Receiving excessive compensation for managing the plan (includes third party plan administrators)
- Using 401(k) plans as a piggy bank for use by the employer
- Purchasing company stock at above market prices
MahanyLaw and its ERISA fraud partners pride themselves at being at the forefront of protecting workers’ rights and holding companies accountable for their misdeeds. We prosecute companies for ERISA fraud wherever it occurs.
Investing in Company Stock
Many pension plans invest heavily in company stock. Problems occur when companies that do this engage in accounting shenanigans, overpay for stock or use pension assets for illegal purposes. Unfortunately, some companies fail to appreciate that pension plans and 401(k) monies are held for the benefit of employees and can’t be used for other purposes.
Employers are required by law to put their employees’ best interests first. When companies are desperate, however, pension plans and 401(k) plans are often the first target companies look to for cash.
An MSN Money study on reverse 401(k) theft found that “CEOs routinely steal money from their employees’ accounts. Some even keep 10 percent or more of profits for themselves instead of using it to boost share prices of the stocks their employees hold.”
Many think of ENRON as an accounting scandal but it was one of the largest ERISA frauds in U.S. history as well. Employees not only lost their jobs when ENRON collapsed, they also learned that their retirement plans had been drained and their severance packages were virtually worthless.
What went wrong? Senior officers took millions for themselves. They stole not only from investors, but they also robbed almost every dollar that their employees had saved.
Other Types of Retirement Plan Fraud
Not all fraud involves excessive fees, stealing retirement monies or poor investments. Sometimes losses occur because the plan administrator and employer are simply careless, lazy or negligent. Whether the fraud is intentional such as theft or merely negligent, the result is the same for employees. Their money is gone.
We are beginning to see cases now in which companies and administrators failed to take adequate cybersecurity measures. Identity theft is an international problem and growing by the day. Pensions and 401(k) plans are not immune from these attacks.
Luckily, because ERISA imposes a fiduciary duty on both employers and plan administrators, good lawyers can often get back money lost to cyber hacking attacks.
A common example of ERISA fraud occurs when the employer or a third-party manager takes too much compensation. Fees are often hidden and hard to spot by employees. Remember, however, that the employer still owes its employees the highest duty of care.
Even if the employer is not receiving kickbacks or sharing in those fees, it is still responsible when third parties charge too much.
No one can guarantee investment returns. There is a certain amount of risk within the market. Employers have a duty, however, to fully communicate the risks inherent in their retirement or 401(k) plan options. Although it is common for companies to require workers to invest 401(k) assets in the employer’s stock, sometimes even that can be too risky, especially without adequate disclosures.
ERISA Whistleblower Retaliation
What happens if you discover or think you have uncovered ERISA fraud? Most employees discuss possible problems with their employer first. And unfortunately, some desperate companies retaliate. Congress anticipated this. That is why ERISA has powerful whistleblower protections and anti-retaliation provisions.
The ERISA anti retaliation protections are found in 29 U.S. Code Section 1140. That section protects workers from being fired before they can qualify for certain benefits for which they are eligible.
That same section of the law also protects whistleblowers. ERISA whistleblowers are employees who report violations, so the wrongdoing can be stopped. The law says it “shall be unlawful for any person to discharge, fire, suspend, expel, or discriminate against any person because he has given information or is about to testify in any inquiry or proceeding related to ERISA.”
The general rule is that an employee must report outside the company to be entitled to protections. A few courts disagree. This means that you should speak with an experienced ERISA whistleblower lawyer before reporting internally. Telling your boss or HR might not be enough!
ERISA and pension fraud whistleblowers are heroes. By speaking up about wrongdoing they are protecting not only their benefits but everyone else in the company. If everyone waited, it might be too late to recover the missing funds. (Just ask the former ENRON folks.)
I Have a Government Pension And My Benefits Are Not Covered By ERISA
ERISA covers most employee benefit programs but there are exceptions. Most notably are government pensions. Even if ERISA does not apply, our Employee Benefits lawyers can still help.
Stealing pension funds, mismanagement of benefit plans and breach of fiduciary duty is illegal no matter what law applies. Often we can create a RICO (Racketeer Influenced and Corrupt Organizations Act) or class action case if a mismanaged union pension plan is involved.
Why Is ERISA Fraud Often Handled as a Class Action?
Finding a lawyer to take a single ERISA fraud can be difficult. Suppose, for example, you learn that your employer is taking too much in fees to administer their 401(k) program. For any single employee, those losses may only amount to a couple hundred dollars. While important, it isn’t practical to find a lawyer willing to take a case where the losses are $200.
In a class action case, many individual plaintiffs join their cases to form one big claim. The class becomes all employees who were invested in the company’s 401(k) or pension plan. Before a class can proceed, a judge must certify a class action lawsuit and all plaintiffs (employees) must have suffered a similar loss or harm.
Once certified, the court generally orders that all known potential class members be notified. They then can either “opt in” and join the lawsuit, individually pursue their ERISA fraud case or do nothing. By doing nothing, they likely won’t receive any money.
So why report ERISA and retirement theft if a class is likely to be created anyway? The first people to report are generally selected to be representatives of the class (“class reps”) and have more say in the litigation and often receive a little extra from the court for serving as a class rep.
Key to any recovery is selecting an experienced ERISA fraud lawyer to file the lawsuit and serve as lead class counsel.
Protect Yourself and Family Today
The ERISA fraud and employee benefits team at MahanyLaw and our partner firms are ready to protect your rights. You worked hard for your retirement and benefits. There is no reason why you risk those monies because of fraud or mismanagement.
To learn more about our services, contact us online, by email or by phone at 202-800-9791. We consider cases across the United States.
Worried about legal fees? Most ERISA fraud cases are accepted on a contingent fee (success fee) basis meaning you never owe us fees or costs unless there is a recovery. All inquiries are confidential too!
Bonus Materials – 10 Red Flags That Your 401(k) Is in Danger!
The U.S. Department of Labor, Employee Benefits Security Administration has published the ten warning signs that your 401(k) contributions are being misused.
- Your 401(k) or individual account statement is consistently late or comes at irregular intervals
- Your account balance does not appear to be accurate
- Your employer failed to transmit your contribution to the plan on a timely basis
- A significant drop in account balance that cannot be explained by normal market ups and downs
- 401(k) or individual account statement shows your contribution from your paycheck was not made
- Investments listed on your statement are not what you authorized
- Former employees are having trouble getting their benefits paid on time or in the correct amount
- Unusual transactions, such as a loan to the employer, a corporate officer, or one of the plan trustees
- Frequent and unexplained changes in investment managers or consultants
- Your employer has recently experienced severe financial difficulty
If you think there is a problem, take action immediately. If your employer is stealing pension fund assets, your savings could soon be gone. Remember that it is illegal to retaliate against workers who report ERISA fraud but many courts do NOT protect workers who only report internally. To be safe, contact us immediately.
Have questions? We will get your answers. Please contact us online, by email or by phone at 202-800-9791. We consider cases across the United States.