The Law Offices of Kevin J. Dolley counsels and represents clients in a variety of matters implicating or involving questions or disputes about employee benefits. Such questions arise in many different contexts, from preventative counseling to employers about how to structure and administer benefit plans to litigating questions or claims about the handling, provision, or denial of benefits under a plan. These matters range greatly in terms of their complexity, as several different laws apply to and govern the establishment and administration of employee benefit plans. Our Firm can help you navigate and address your questions or concerns about employee benefits.
Federal law—that is, the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (“IRC”)—largely governs the rules and requirements applicable to employee benefit plans. ERISA generally applies to private employers who maintain employee benefit plans for their employees, regardless of the size of the employer. ERISA sets minimum standards for “employee benefit plans” maintained by private employers. “Employee benefit plans” include both retirement plans and welfare benefit plans.
Retirement Plans: Entitlement to Benefits
As a benefit of employment with a company, employees commonly receive some form of retirement plan benefits to which they are entitled upon retirement or reaching a certain age. Retirement plans take on a variety of different forms, each of which implicates a variety of different legal- and tax-related issues and considerations.
ERISA governs two types of retirement plans: defined benefit plans and defined contribution plans. A defined benefit plan promises a monthly benefit amount at retirement that is set by the plan, often through a formula. These are often funded solely by the employer and are commonly known or referred to as “pensions.” These plans typically involve some eligibility requirements, such as length of service, for an employee to be fully vested in the plan. Some pensions, however, are not portable if an employee leaves a company prior to the retirement age. Further, benefits under the plan may be reduced when an employee leaves prior to retirement. Each pension plan will have its own terms and conditions. Nonetheless, the Internal Revenue Service (“IRS”) has established specific rules and requirements for employers to set up such plans. Failing to follow such rules may result in substantial taxes and other penalties.
Unlike a defined benefit plan, a defined contribution plan does not promise a monthly benefit amount at retirement. Instead, an employee and/or an employer typically contribute together to the employee’s retirement account at a set rate, such as a percentage of earnings, on a regular basis. These contributions are then invested on the employee’s behalf. Unlike defined benefit plans, employees assume investment risks with these plans. The employee will receive the balance of their account, including the contribution amount and any investment gains or losses, upon reaching a certain age. Examples of defined contribution plans include 401(k)’s, 403(b)’s, employee stock ownership plans, and profit-sharing plans. The IRS has also established specific rules and requirements applicable to defined contribution plans.
Welfare Plans: Entitlement to Benefits
In addition to retirement plans, ERISA governs welfare benefit plans. Welfare benefit plans generally include, but are not limited, to:
Medical, surgical, or hospital benefits (e.g., health care insurance);
- Dental and vision benefits;
- Prescription drug benefits;
- Group life insurance;
- Disability benefits, both short-term and long-term, if insured or funded other than as a payroll practice.
See 29 U.S.C. § 1002. These types of plans are generally subject to ERISA regardless of whether the employer is insured or self-funds its insurance. Once an employer establishes such a plan, ERISA’s reporting and disclosure requirements will apply. However, other benefits-like arrangements in the workplace, like tuition reimbursement plans, are generally not covered by ERISA. The most significant difference between welfare benefits and retirement or pension benefits is that ERISA contains many specific requirements for the substance of retirement or pension plans (e.g., vesting rules, minimum funding requirements, alienability, etc.), but not for welfare plans.
Determining Entitlement to Benefits
Even though ERISA plans are subject to regulation, the terms and conditions of employee benefit plans are important to understand and address questions of, or disputes about, entitlement to benefits. Plans often entail qualifications, limitations, exemptions and exceptions that may impact how, when, and why benefits are, or are not, paid out to an employee. A company’s benefits department or administrator will likely be able to provide more information relating to the terms and conditions for benefits. This information is also likely provided or summarized in a document frequently called a “Summary Plan Description,” which provides information on, among other things, entitlement benefits and future payment calculations. Nonetheless, it is critical to obtain legal counsel to review such plans to ensure they comply with ERISA’s various requirements.
Protection and Enforcement of Rights to Benefits
Federal law provides certain protections for employees of employers who maintain employee benefit plans. Section 510 of ERISA provides, among other things, that it is “unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan” or “for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.” 29 U.S.C. § 1140. Section 502(a) of ERISA creates a private right of action for a participant or beneficiary claiming violation(s) of Section 510. 29 U.S.C. § 1132(a). However, substantial questions and disputes continue to exist regarding the nature and extent of remedies and damages that are available under ERISA. While most recognize that remedies under ERISA are largely limited to “equitable” remedies, many litigants and courts (including the United States Supreme Court) continue to dispute and elaborate on the question as to which remedies are “equitable” and which are not. For example, while many litigants have argued that equitable remedies do not include backpay or frontpay, some courts have nonetheless awarded such relief. Many courts continue to conclude that ERISA does not allow recovery of compensatory or punitive damages in cases under Section 510, under the principle that neither category of damages are “equitable.” Finally, most courts find that, while recovery of attorneys’ fees may be available, there is no right to a jury trial on a claim of interference or discrimination under Section 510.
ERISA Fiduciary Duty Litigation
There has been substantial litigation involving individual and class action claims based on alleged breach(es) of fiduciary duty under ERISA. In general, because ERISA has its roots in trust law, employers or plan administrators who maintain or manage employee benefit plans owe their employees or beneficiaries many fiduciary duties to act in their best interests, including but not limited to a duty of loyalty, a duty to communicate truthfully and accurately, and a duty of care or prudence in managing plan investments. See also Breach of Fiduciary Duty Litigation. Under ERISA, a person or entity can become a fiduciary if: (1) he or she is named or designated fiduciary in the plan documents; or (2) he or she functions as a fiduciary by exercising discretionary authority or control over the management or operation of the plan. 29 U.S.C. § 1102(a)(2); 29 U.S.C. § 1002(21)(A).
ERISA Sections 502(a)(2) and (a)(3) authorize causes of action for breaches of fiduciary duty. 29 U.S.C. § 1132(a)(2)-(3). These types of cases often involve a wide variety of allegations against fiduciaries, such as an employer or service provider charging excessive 401(k) asset management fees or imprudently managing investments and causing substantial losses. However, the potential rights, duties, and liabilities under these two sections vary in important respects. It is critical to hire knowledgeable counsel to understand what duties and issues are at stake in any case or circumstance that raises questions or concerns about employee benefit plans and how they or their underlying assets have been handled on behalf of the employees or beneficiaries.
ERISA presents a vast and complicated legal framework for addressing issues related to employee benefits and their management. To set up a consultation to discuss issues related to such matters, please contact the Law Offices of Kevin J. Dolley at (314) 645-4100 or by email at firstname.lastname@example.org. All legal consultations are held strictly confidential.