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more_legal_areas erisaERISA, or Employee Retirement Income Security Act of 1974, is the federal statutory framework that governs the administration of employee benefit plans and the rights of the beneficiaries under the plan. ERISA can apply to any employee benefits plan if it has been established or maintained by an employer engaged in commerce or by an employee organization representing employees engaged in commerce or in any industry or activity affecting commerce.
Litigation involving ERISA continues to make headlines. Under ERISA, a section allows for the recovery of benefits by the beneficiary or participant, as well as providing civil action for a breach of fiduciary duties. Corporate fraud resulting in plummeting stock prices in recent years has resulted in affected employees taking legal action for breach of fiduciary duties to recover damage for the decline in market prices of company issued securities.
Recent ERISA cases have been against plan administrators and other fiduciaries for breach of fiduciary duties to the plans or beneficiaries themselves. Under ERISA, a fiduciary is a person that exercises discretion over the management of plan assets or exercises discretionary control over the administration of the plan.
Breach of duties of loyalty and care may have occurred if the fiduciaries failed to carefully manage the plan''s assets by offering the company''s stock as a plan investment option, or requiring participants to invest in the stock and invest and hold matching contributions in the stock at the time the stock was not a fitting investment option. A breach may have also occurred if the fiduciaries withheld or concealed material information from the plans'' participants regarding company business, financial results and operations that prevented participants and beneficiaries to make informed decisions about making and maintaining substantial investments of company stock in the plans.
A fiduciary has a duty to act “solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries.” Unfortunately, it is rarely the top executives that are hit the hardest when corporations engage in scandal, but the ordinary employees. When New York attorney general accused Marsh & McLennan in the form of a lawsuit in October 2004 of rigging bids to keep insurance costs high, the company''s stock plummeted, leaving investors with trying to determine what the probe will mean for the long-term.
For the 60,000 Marsh workers around the world whose retirement funds have been nearly wiped out, it reflects the extent of the devastating losses suffered by employees on account of corporate misbehavior. Until 2003, Marsh stock was the only investment option available to participants in the defined contribution plan, except for those near retirement.
When Marsh added mutual fund alternatives, the company said its employees could switch out only one-third of their Marsh stock holdings during a year. Because fiduciaries of 401(k) plans are charged with making decisions in the best interests of the participants in the plan, yet Marsh is also employees of a money management company that gets hired by the plan, there is a conflict of interest, especially when the money manager is high-cost with weak outcomes.
As yet another instance of ERISA stock fraud makes news, employees want answers. In September 2003, Marsh''s company unit Putnam was under investigation and when its big insurance brokerage operation came under scrutiny that previous April, the executives charged with overseeing the stock plan had to fulfill their duty to answer the question if the concentration of stock was appropriate. A Marsh spokeswoman declined to say if the people in charge of overseeing the plan did discuss the matter, though she did say the company has not advised employees against investing in Marsh stock.
Plaintiffs are now alleging fiduciaries of the plans breached their duties to participants in the plan, in violation of ERISA. Marsh''s alleged bid rigging schemes were in direct conflict of interest with Marsh customers, opening up massive civil and criminal liability that can tarnish the company''s reputation, create lost revenues and the potential inability to borrow, as well as a potential loss of customers, according to the suits. Claims on behalf of investors and others that may have been victims of ERISA violations are being investigated.
Not just Marsh & McLennan Companies have been accused of securities fraud in recent days, but Merck & Co., AON and American International Group . Any persons holding any of the companies'' investment plans or profit sharing retirement plans purchased or held during certain periods may have a claim.
•Merck & Co. Inc.
October 30, 2003 - September 29, 2004•Marsh & McLennan Companies|
November 7, 2001 - October 13, 2004•AON
May 5, 2003 - October 13, 2004•American International Group
April 27, 2000 - October 13, 2004
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U.S. Department of Labor - Provides publications and other materials to assist employers and employee benefit plan practitioners in understanding and complying with the requirements of ERISA.