Understanding Your ERISA Benefits Plan

Washington, DCWhen it comes to ERISA plans and other retirement plans or employee stock options benefits, it can be easy for an employee to let the experts take charge and trust they will do the right thing. After all, that is what plan administrators and fiduciaries are for: to oversee ERISA benefits plans and ensure they are run properly.

Unfortunately, this does not always happen the way ERISA (Employee Retirement Income Security Act) laws designate. Sometimes the issue is an honest misunderstanding by the employer or plan overseer of what can be complex laws and regulations. Other times, the issue is that the fiduciary purposely makes decisions that are not best for the plan, such as investments that have unreasonably high fees or keeping employee plan assets in company stock when it is not prudent to do so.

In either case, the plan participants and beneficiaries are the ones who suffer, because their plans lose value, in some cases drastically. Consider that even a few dollars a month spread over the course of a person's career can add up to thousands of dollars. An extra fee of one percent might decrease the final value of a participant's account by up to 30 percent over his or her career.

Employee benefits plans pay fees to service providers for services such as investment management and recordkeeping. Under ERISA, plan fiduciaries must make decisions based solely on the interest of the plan's participants and beneficiaries. Failure to do so can be considered a breach of fiduciary duty. Furthermore, a fiduciary has a duty to keep the costs associated with administering a plan to a reasonable amount. Decisions made for the plan must be made in line with the decisions a prudent person in a similar situation would make.

Fiduciaries also have a duty to inform plan participants of the fees associated with managing the plan.

As of April 1, 2012, service providers are required to fully describe their services and their fees, to help plan fiduciaries make more informed decisions about which service providers they would use for their plan management. As of May 31, 2012, fiduciaries are required to inform plan participants about all fees charged by service providers.

Even with those regulations, it is up to plan participants and beneficiaries to be sure they understand how their ERISA plan is being managed and what sort of fees are charged. That way, if mismanagement is occurring, they can contact an attorney to file a lawsuit.