A Lesson from the Supreme Court: Understanding ERISA and the Penalties for Non-Compliance
A recent Supreme Court ruling highlighted the importance of understanding the Employee Retirement Income Security Act (ERISA) guidelines. A recent Risk & Insurance article written by Les Williams and Derrick Wong from RCM&D’s strategic partner, Risk Cooperative, highlights the case itself and why it’s imperative for businesses of all sizes to familiarize itself with ERISA.
What Is ERISA?
The Employee Retirement Income Security Act is a federal law that sets minimum standards for retirement and welfare benefit plans. Under ERISA, employers must provide notice to participants about the benefit plan terms. These terms include funding, coverage and costs.
The case involves a former employee of Intel Corp suing the company for a breach of fiduciary duties. The lawsuit alleged the retirement plan fiduciaries violated their obligation to act responsibly by making high-risk investment allocations which resulted in substantial plan losses. According to a report from The Wall Street Journal, the lawsuit was filed more than three years after Intel Corp. disclosed the investments through its website. Intel’s main argument was that the lawsuit was filed outside of ERISA’s three year statute of limitations guideline. As a result, the district court ruled in favor of Intel and dismissed the case.
However, in February 2020, the US Supreme Court reversed the decision. The Supreme Court ruled that “actual knowledge” could not be established by simply making the investment disclosures available to the employee on a website.
A New Safeguard
While this case provides some general background information on why it is important to be ERISA compliant, there are still some additional information to note about the current climate. In October 2019, U.S. Department of Labor (DOL) proposed a new safe harbor for employers who want to publish retirement plan disclosures on a website.
This new standard, as highlighted by SHRM, would require the notice of internet availability to "be written in a manner calculated to be understood by the average plan participant." It also requires that disclosure documents are tracked as to whether or not they are being read. This safe guard would provide organizations with more breathing room with the statute of limitations while also establishing more careful guidelines to ensure customers and employees are reading and understanding the disclosures.
What Does This Mean?
If new safe guards are passed, organizations can save time and money moving away from sending disclosures through standard mail and adopting a standardized electronic way of disclosure. However, it is still important to be paying very close attention. Violations of ERISA can mean investigations, enforcement actions and penalties from the Department of Labor.
If this ruling from The Supreme Court teaches us anything, it’s that businesses must be transparent and thorough regarding disclosure with their employees. ERISA lawsuits aren’t limited to large corporations. Businesses of all sizes can be subject to investigation and penalties if found in violation of ERISA. If you have any questions regarding staying compliant with ERISA, talk to your trusted RCM&D advisor today to protect your business from infractions.