ERISA, Pension Funds & 401(k) s: The Basics

Some of the most common questions regarding ERISA (Employee Retirement Income Security Act), pension funds and 401(k) s have to do with what responsibilities companies have to correctly manage those funds – and what happens when they don’t. For answers to these questions, we interviewed Ron Dean, a California attorney who has been practicing ERISA (Employee Retirement Income Security Act) law for over 35 years. Here’s what he told us:

Employer responsibilities

What responsibilities does a company have to correctly manage pension funds/401(k) s? According to Dean, “If the company is the plan ‘fiduciary,’ either because it is named as the fiduciary or because it is responsible for managing the funds, it has the highest duty known in the law. It must put aside its own personal interests and manage the funds solely in the interests of the plan participants and beneficiaries. This does not mean that it must bend over [backwards] for each person’s claim because that would take away money from the other participants. Rather, it must act neutrally and not favor one person’s interests over another and must be prudent in investing the fund assets.”

Mismanagement of funds

In what ways do companies mismanage these funds? According to Dean, it’s like watching a soap opera – everything that can go wrong does go wrong. He explained, “I had a case of a doctor who became addicted to day trading the plan’s assets. He lost everything – all nine million dollars. Sometimes we’ll see someone actually running off with the money. Frequently, a company is in financial trouble and will ‘borrow’ money from the plan (a big no-no) or will not contribute the employee contributions it withheld from paychecks.”

Discovering mismanagement of funds

How would I know if my pension funds/401(k) is not being managed correctly? According to Dean, Sometimes it’s easy – if something doesn’t smell right, it’s probably not right. He says, “You should get a ‘summary annual report’ every year (if you don’t, something doesn’t smell right), that will say how much money came in, how much the plan’s earnings were (significant negative numbers are an alarm bell), how much the expenses were – in a pension plan, generally these should only be a few percent of assets at most – and how much is left over.”

Dean says that if something doesn’t look right, you should write to the plan administrator and ask for a copy of Form 5500. This form has all the information you need. If you can’t get a straight answer, call your U.S. Department of Labor and file a complaint.

If you’ve been denied valid benefits under ERISA, consult with an experienced ERISA attorney to discuss your situation and evaluate your options. Consultations are free, without obligation and strictly confidential.

Ron Dean
Contributing Author: Attorney Ron Dean Erisa Law Attorney

Ronald Dean has been engaged in employee benefits litigation primarily on behalf of participants for over 37 years. He is currently a member of the Board of Senior Editors of the ABA/BNA text, Employee Benefits Law, on the Advisory Board of BNA Pension and Benefits Reporter, and on the Advisory Board for ALI-ABA’s Employee Benefits Programs. He is a Fellow of the College of Labor and Employment Lawyers, a Charter Fellow of the American College of Employee Benefits Counsel, and a member of its Board of Directors from 2001 to 2007. He was named by the National Law Journal as one of the top forty benefits lawyers in the country, and by Southern California Super Lawyers as one of 12 Employee Benefits “Super” lawyers in Southern California. Mr. Dean was trial and appellate counsel in 15 published Ninth Circuit Court of Appeals opinions involving ERISA issues. He is a frequent lecturer for the American Bar Association's CLE programs as well as those of ALI-ABA, Glasser LegalWorks, the Law Education Institute and the Western Pension & Benefits Conference.

Article last updated or revieewed on August 5, 2019