What Is a Breach of Fiduciary Duty Under ERISA?
Have you experienced a breach of fiduciary duty under ERISA? If you've seen irregularities in your 401(k) you should speak to an ERISA lawyer with extensive experience. Contact John Peace at the Peace Law Firm today: (864) 298-0500
A breach of fiduciary duty under the Employee Retirement Income Security Act, better known as ERISA, is a serious breach of the relationship between a fiduciary and their client.
If a fiduciary violates their duties under ERISA, you may be entitled to compensation, and your fiduciary may be subject to discipline.
Before you claim a breach of fiduciary duty under ERISA, however, it’s critical to know a bit more about fiduciaries, fiduciary duties, ERISA, and how the government protects the fiduciary relationship.
What Is ERISA?
ERISA is a piece of federal legislation meant to protect retirees’ financial interests by ensuring that they have the secure retirement income that they were promised and are entitled to.
Enacted in 1974, ERISA sets minimum standards, enforcement procedures, and guidelines governing fiduciaries who control or otherwise direct the investment of assets used in retirement plans like pensions and 401(k)s.
Fiduciaries may include trustees, managers, and members of investment committees that play a role in managing or administering employee retirement funds.
Through ERISA, plan holders can sue a fiduciary for a breach of duty and obtain compensation for misused funds and their prospective profits.
One of the primary goals of ERISA and responsibilities of those it governs is to avoid any potential conflicts of interest.
After all, a fiduciary is supposed to work for plan holders, so if they are directing investment for their own benefit, there is a problem.
Who Is a Fiduciary under ERISA?
A fiduciary is any person or entity who takes on a responsibility to act on another person’s behalf and for their benefit.
In the context of ERISA, a fiduciary may be someone who directs, plans, or invests retirement funds on behalf of a retirement plan holder.
A person’s actions or responsibilities can make them a fiduciary under Section 2510.3-21 of ERISA. ERISA considers anyone a fiduciary if they:
- Have discretionary control over the management or administration of the plan; or
- Have discretionary authority or control with respect to purchasing and selling securities or other property for the plan; or
- Render any investment advice regarding the plan’s assets for direct or indirect compensation.
This definition covers an extensive range of people involved with your benefits plan. An attorney can help you determine who is a fiduciary under ERISA.
Your own fiduciaries could include in-house fiduciaries that work within your company on behalf of plan holders or outside parties that control investment assets.
Strictly speaking, a fiduciary works to benefit a retirement plan holder and no one else.
What Are an ERISA Fiduciary’s Duties?
An ERISA fiduciary’s primary responsibility is to act for the benefit of a retirement plan holder.
A fiduciary must put their act solely in the interests of participants and beneficiaries in order to provide benefits and pay plan expenses.. If the fiduciary stands to benefit personally from their client’s retirement plans or related accounts, this may create a conflict of interest.
According to the U.S. Department of Labor, ERISA fiduciary responsibility includes several specific duties. First, a fiduciary must act prudently. Second, they must diversify the plan’s investments to minimize the chances that it will face large losses. Finally, they must follow the terms in the plan’s documents and avoid any conflicts of interest.
Furthermore, a fiduciary has a duty to act at the direction of a plan holder. If a client tells their fiduciary to invest 50% of each paycheck in low-yield bonds, the fiduciary is responsible to make that happen.
Essentially, a fiduciary’s duty is to manage their client’s retirement plan in a manner that benefits the client.
How Can I Tell If My Fiduciary Is Misusing ERISA Funds?
An anti-fraud investigation into fiduciaries by the United States Department of Labor (DOL) exposed how fiduciaries sometimes violate their ERISA duties.
After its investigation, the DOL came out with the following list of ten warning signs that your fiduciary is misusing 401(k) funds:
- Your 401(k) or account statements are often late or come at irregular intervals;
- Investments listed on your statement are not congruent with what you authorized;
- Your 401(k) statement does not show a contribution that was taken from your paycheck;
- Your account balance appears inaccurate;
- Your account statement shows a significant drop in value that is not congruent with normal market trends;
- Your employer fails to transmit your contribution to the 401(k) on a normal timely basis;
- There are unexplained changes in investment consultants or managers on a regular basis;
- Former employees are having a hard time getting their 401(k) distributions on time;
- Unexplained and unusual transactions appear on your account statements, such as a loan to a plan trustee or corporate officer; or
- Your employer recently experienced a period of financial hardship.
While this list is a lot to keep in mind, the most important thing to remember and look for is irregularities. Be sure to check each statement you get against your paychecks to ensure funds are getting where they are supposed to go.
It’s important to remember that one irregularity does not necessarily mean a breach of ERISA fiduciary duty. Nevertheless, one irregularity could be a warning sign, and consistent irregularities are a major red flag.
What Damages Are Available for a Breach of Fiduciary Duty?
The consequences for breaking one’s fiduciary duty include removal from their position, civil penalties, and criminal prosecution.
Fiduciaries who fail to live up to their duties are also personally liable to the plan for any losses the plan suffered. Further, fiduciaries who breach their duty must give the plan all profits the fiduciary made from their breach.
Neither compensatory nor punitive damages are recoverable in an ERISA lawsuit. Remedies for an ERISA breach of fiduciary are generally limited to the benefit that was lost. An ERISA attorney can help determine what compensation you might be entitled to recover.
Contact Peace Law Firm Today
If you see irregularities in your 401(k) or other retirement accounts, contact Peace Law Firm today! You want to hire a lawyer with experience advocating for others who have found themselves in similar situations, and John Peace has that experience.
John Peace of Peace Law Firm brings extensive experience to the table in advocating for anyone whose hard-earned money was taken by their fiduciary in breach of their fiduciary duty under ERISA.