ERISA Violations: Punishments and Penalties

The Employee Retirement Income Security Act (ERISA) exists to protect employees who participate in benefit plans along with their beneficiaries. ERISA is the main protection law that ensures employees who participate in a retirement benefit program receive those benefits even if the company ends up going bankrupt. Violations of ERISA can come with heavy penalties, including large fines of up to six figures and up to 10 years in prison.

What Does ERISA Protect?

ERISA protects anyone currently benefiting from or who will one day benefit from retirement and welfare plans. Roughly 141 million workers and their beneficiaries are covered by these plans. ERISA has been on the books for nearly 50 years providing protections to about half of the country. Under ERISA, multiple employer welfare arrangements MEWA are subject to specific regulations to ensure the security and proper administration of these plans. MEWAs offer an alternative for smaller employers to provide health and welfare benefits to their employees, pooling resources and leveraging economies of scale to enhance coverage options and cost-effectiveness.

ERISA protects employees from mismanagement or abuse of their retirement savings plans. ERISA promotes transparency and accountability when it comes to retirement portfolios. It requires that participants have access to information about their retirement plan and how their money is being managed by their employer. Fund managers are held to a high standard, and failing to live up to that standard can come with strict penalties.

ERISA falls under the administration of three different government bodies:

• The Internal Revenue Service
• The Labor Department’s Employee Benefits Security Administration
• The Pension Benefit Guaranty Corporation

There is plenty of more information about ERISA- Employee Retirement Income Security Act available. Stay informed of how this important program protects your money and follow any changes made to the legislation as worker protections evolve.

Civil Penalties for Violations

The types of violations that can occur in regards to ERISA are many and varied. Some violations are deliberate and outrageous (like embezzlement from a retirement plan), while others are due more to incompetence and negligent behavior (like investing retirement funds into an unstable area of the market not meeting the requirements under the law). The latter violation is more likely to lead to civil charges against the offender than criminal charges.

A civil penalty will most likely come in the form of a fine for the individual who committed the offense and/or the company at fault. Inquiry into a civil violation may also involve a forced change in procedure. 

If the company told the individual to commit the violation, then the company is more likely to face the brunt of the penalties. However, if the individual committed the offense on their own, then they will almost certainly lose their employment, on top of any penalties imposed by the government.

Criminal Penalty Violations

When an individual commits an offense of a more sinister nature, like embezzlement or fraud, they will be facing criminal penalties instead. Criminal penalties for individuals violating ERISA can be as severe as fines up to $100,000 and 10 years in prison. Companies can face fines as high as $500,000. In addition to these penalties, other charges may be brought as well for these criminal actions.

Companies should always be very careful in choosing who to hire to manage retirement funds. They also need to follow up with the fund managers to make sure everything is running smoothly and check through all of the documents that the fund manager is required to provide under ERISA concerning how the money is being invested.

A company is not innocent in this type of case simply because they did not know what was going on. When it comes to protecting employees, a company needs to stay on the ball and ensure everything is running as it should be. 

Will I Still Receive Retirement Benefits if My Company Goes Bankrupt?

One of the great items in ERISA is protection in the event that a company goes bankrupt. ERISA ensures that funds in the retirement plan are protected from bankruptcy and that all eligible participants will receive their retirement benefits, no matter the fate of the company.

The money from retirement plans is an important part of how many people plan to not only survive but enjoy their post-work life. Knowing that this money is safe is vital in ensuring peace of mind for millions of Americans.