The Employee Retirement Income Security Act of 1974 (ERISA)

The Employee Retirement Income Security Act of 1974, commonly known as ERISA, gives a right to bring a suit in federal court for certain types of federal benefits. These benefits include pension plans, health insurance, short term disability policies, long term disability policies and more.

How is ERISA unique?

ERISA is unique in a few ways. First, it overrides state law claims on the same subject matter. This means that typical state-law “breach of contract” and “breach of fiduciary duty” claims are not permitted on the subject matter covered by ERISA. The Congress wanted ERISA to be the exclusive remedy nationwide.

Second, ERISA does not generally create “substantive” rights. That is, ERISA does not tell employers what types of benefits they have to offer employees. It doesn’t mandate that your employer provide you with health care, with time off, with a pension or with a 401k. What it provides is that if your employer does provide such a plan in your employment benefits package, it must generally follow through with what it has contractually promised, and sets penalties if the employer does not.

Third, ERISA requires you to “exhaust your administrative remedies” before you file a lawsuit. This means you must deal with your employer’s in-house administrative team, file all required appeals, and go through the process they have set up. Only after getting a final “no” from which there is no appeal can you turn to federal court for relief.

Fourth, ERISA suits are often not actually against an employer. Most employers will outsource these benefit plans to an insurance company or other “third party administrator.” Doing so allows them to leverage the expertise of a company or agency that offers nothing but that plan.

What types of lawsuits are brought under ERISA? Here are a few common types of suits.

1. ERISA mandates that employers pay out promised health care benefits.

When your employer engages a company to provide a health insurance plan, the plan that you’re given is a sort of contract. It provides information on what the plan will cover, what won’t be covered, and various procedures for challenging determinations on coverage that you think are wrong.

So what happens if the employer fails to abide by the terms of the health insurance plan? What happens if a third party adjuster wrongly says your treatment or surgery is not covered, when the plan says it should be? And how to do you challenge that?

First, you’ll need to bring the appeals to the coverage denial through all layers of review. Most policies have an internal review process followed by an appeal to a “disinterested” or “neutral” reviewer. Of course, these neutral reviewers often rubber-stamp what you’ve already been told. Nonetheless, you have to go through this process before you are eligible to bring suit.

Once this file is built, then you can bring the suit to insist on the payment of the health care benefits you’re entitled to. A federal judge will review the claims file and any relevant material in determining whether the third party administrator abided by the plan.

2. Disability policies.

When employers create Short Term Disability policies or Long Term Disability policies for their employees, these are governed by ERISA. If an employer’s third-party administrator decides you’re not disabled, their judgment is usually reviewed by a federal court under an “abuse of discretion” standard. In other words, the federal court won’t review this decision and replace the administrator’s decision with his own opinion; rather, the judge will decide whether the decision of the administrator is based upon the records presented or is a pretext for denial.

As with other ERISA matters, it is vital that you “exhaust your remedies.” You must show that you took all internal appeals, even if you believe these will be futile. You need to demonstrate to the Court that you have carefully presented your evidence. You may need to submit medical records, provide functional capacity exams or expert reports that demonstrate your disability, and otherwise present to the administrator everything you will want a court to consider eventually.

3. Mismanagement of Pension or 401k.

In cases where a “fiduciary” has failed to keep funds separate or has mismanaged a pension fund or 401k funds, that fiduciary may be liable under ERISA for damages. A fiduciary (in this context) is someone who manages someone else’s money for their benefit, and includes those who run retirement funds. A fiduciary is generally protected by a “presumption of good faith.” This means that, absent something outside the “ordinary scope of investment,” investments are considered to be sound.

But a fiduciary should invest like an “ordinary prudent investor” and ensure that all investments are proper. Where a fiduciary invests poorly, they are not protected by the presumption of good faith. Furthermore, where theft or intentional misconduct has occurred, those wronged have rights for the funds stolen and for the interest or gains they could have expected.

4. Union dues.

If you’re an employer, you’re more likely to run into this one. Union pension funds sometimes claim that an employer is not properly paying union dues or pension draws over a period of time, or claim that an employer’s characterization of their employees is improper under the pension rules. After these claims have accrued for some time, the plan sues for the dues, plus attorney’s fees, interest, and other costs.

Unions are aggressive in pursuing these cases and in some instances will bring suits against both the company and the individual owners of the company. For companies that have fallen behind on their dues, and have other costs, this can be a particularly distressing situation.

In this situation, it is important to get a forensic audit by an expert you can trust on the amount of dues that are actually owed. Unions sometimes overcalculate the amount of money they are owed and sometimes dramatically overstate the case. If finding some amount of error, sometimes they assume that everything that they find was an underpayment rather than mistake or accounting error on their end.

Another thing you should do is carefully examine the original contract that you signed when you became a union member. Those contracts do change from time to time and there are rules about when and how they can change it. Accordingly, making sure that you are being governed by the contract that they claim you are being governed by is an important part of defending an ERISA lawsuit. Third, it is important to get an attorney and begin negotiating for a payment plan or repayment options right away. The longer you take, the more interest that accrues, and the unions are typically not very forgiving when it comes to actual mistakes or underpayments that they are able to prove. They can also trigger attorney’s fees where you must pay their attorneys fees in making your life miserable.

What damages does an ERISA suit provide?

ERISA provides that the wrongdoer must pay damages and reimburse attorneys’ fees. This statute provides powerful tools to address wrongdoing by employers or third party administrators, and also gives them the tools to force compliance with the law.

If you believe you have an ERISA suit, or if you’re being sued for violations of ERISA, call our office to discuss your case. It is important that you contact attorneys who are experienced with this type of claim right away. At Cornerstone Law Firm, our attorneys can help you through this process. Call us today to discuss your options.