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Beneficiary Rights Under ERISA Plans

An ERISA (Employee Retirement Income Security Act) retirement plan is a type of employer-sponsored retirement plan that is regulated by the federal government and contains certain beneficiary rights. The administration of an ERISA plan typically involves the following steps:
  1. Plan establishment: The employer establishes the plan and adopts a written plan document that outlines the terms and conditions of the plan.

  2. Plan funding: The employer contributes funds to the plan on behalf of eligible employees.

  3. Plan administration: The employer hires a plan administrator, who is responsible for managing the day-to-day operations of the plan and ensuring compliance with ERISA regulations.

  4. Investment management: The plan's assets are invested by a trustee or other fiduciary who is responsible for managing the plan's investments and ensuring they are in the best interest of the plan's beneficiaries.

  5. Benefit payments: Benefits are paid to eligible plan beneficiaries upon their retirement or other qualifying event, such as termination of employment or death.
As a plan beneficiary, you have several rights under ERISA, including:
  1. The right to receive plan information: You have the right to receive a summary plan description (SPD) that explains the plan's terms and conditions, as well as regular reports on the plan's financial status.

  2. The right to sue for benefits: If your benefits are denied, you have the right to sue for benefits in federal court.

  3. The right to file a complaint: You have the right to file a complaint with the Department of Labor if you believe your rights under the plan have been violated.

  4. The right to an independent review: If your benefits are denied, you have the right to an independent review of the decision.

  5. The right to receive benefits: You have the right to receive the benefits that you are entitled to under the plan, as long as you meet the plan's eligibility requirements.
A fiduciary is a person or entity that has a legal duty to act in the best interest of plan beneficiaries when managing an ERISA plan. Under ERISA, plan sponsors and other individuals who exercise discretionary control or authority over the management of a plan, or who provide investment advice for a fee, are considered fiduciaries.

The role of a fiduciary in the administration of an ERISA plan includes the following responsibilities:
  1. Prudent investment: Fiduciaries have a duty to invest the plan's assets prudently, which means they must act with the care, skill, prudence, and diligence under the circumstances then prevailing 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 and with like aims.

  2. Diversification: Fiduciaries must diversify the plan's investments in order to minimize the risk of large losses and to ensure that the plan's assets are not concentrated in a single investment.

  3. Monitoring investments: Fiduciaries must monitor the plan's investments on a regular basis and take any necessary steps to protect the plan's assets.

  4. Disclosure: Fiduciaries must provide plan participants with the necessary information regarding plan benefits, funding, and investments.

  5. Avoiding conflicts of interest: Fiduciaries must avoid any conflicts of interest that could compromise their ability to act in the best interest of plan beneficiaries.

  6. Compliance with ERISA: Fiduciaries must ensure that the plan is in compliance with all applicable ERISA regulations, including those related to plan administration, funding, and benefit payments.
Fiduciaries who breach their duty to act in the best interest of plan beneficiaries can be held personally liable for any losses that result from their actions. As such, it is important for fiduciaries to understand their responsibilities and to act in accordance with the applicable laws and regulations.

The administration of an ERISA retirement plan can involve both ordinary and extraordinary expenses.

Ordinary expenses are those that are typically incurred in the day-to-day operations of the plan, such as:
  • employee salaries and benefits for plan administrators and other staff

  • legal and accounting fees for plan compliance and reporting

  • costs associated with producing and distributing plan documents and communications to plan participants

  • costs associated with maintaining and updating plan records

  • costs associated with providing participant education and enrollment services

  • insurance costs

  • audit fees
Extraordinary expenses are those that are not typically incurred in the day-to-day operations of the plan, such as:
  • legal fees associated with a lawsuit or claim

  • costs associated with a plan merger or termination

  • costs associated with a plan amendment or restatement

  • costs associated with a change in plan service providers

  • costs associated with a plan audit or investigation by regulatory authorities

It is important for plan sponsors and fiduciaries to understand the costs associated with the plan's administration and to ensure that the plan's assets are sufficient to cover these expenses. Tucker Cheadle has acted as an ERISA expert witness in the past, he is knowledgeable about all facets of running ERISA plans. In some cases, plan sponsors may decide to allocate a portion of the plan's assets to a separate account to pay for extraordinary expenses.

It's also important to note that, according to ERISA, plan fiduciaries are required to pay only reasonable plan expenses, and not to pay any expenses that are not reasonable.

There are a variety of issues that can arise during or after the administration of ERISA retirement plans, and many of these issues have been addressed in federal court cases. Some of the most common issues include:
  1. Fiduciary breaches: Fiduciaries have a legal duty to act in the best interest of plan beneficiaries and to manage the plan's assets prudently. In cases such as Hecker v. Deere & Co., a court found that the fiduciary had breached their duty by investing the plan's assets in the employer's stock, which resulted in significant losses to the plan.

  2. Benefit disputes: Disputes can arise over the calculation or payment of benefits, particularly in cases where the plan's terms are ambiguous or unclear. For example, in the case of Firestone Tire & Rubber Co. v. Bruch, the court held that plan administrators had improperly calculated the benefits owed to the plan participant.

  3. Claims procedures: Claims for benefits under an ERISA plan must be processed in accordance with certain procedures and timeframes. In cases such as Metropolitan Life Ins. Co. v. Glenn, a court found that the plan administrator had failed to provide a full and fair review of the claim and ordered the administrator to provide the participant with an additional appeal.

  4. Plan amendment and termination: Issues can arise in the context of plan amendment and termination, such as in the case of Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., where the court found that the plan sponsor had improperly amended the plan and ordered it to restore the benefits that had been reduced.

  5. Misrepresentation and fraud: Misrepresentation and fraud can also be issues in the administration of ERISA plans. For example, in the case of SEC v. Tambone, the court found that the plan sponsor had made false statements and omissions in connection with the sale of securities to the plan, and imposed civil penalties.
It's worth noting that these are just a few examples of the types of issues that can arise during or after the administration of ERISA plans, and that the outcome of each case may depend on the specific facts and circumstances of the situation. For these reasons and many more, it is highly advised that consultation with an experienced and qualified ERISA expert witness like Tucker Cheadle takes place.

A review of any materials on this web page, any preliminary comments or an introductory meeting does not constitute legal, income tax or accounting advice upon which reliance can be placed. The attorney client relationship can only be created by a written retainer agreement following a check of potential and actual conflicts of interest with other clients.
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