ERISA

ERISA is short for the "Employee Retirement Income Security Act of 1974." It is a law designed to federalize and unify the field of employee benefits by sweeping aside state laws in favor of complicated federal rules and regulations. Retirement benefits offered by employers to employees, including pension plans, profit-sharing plans, and 401(k) plans, generally fall within the coverage of ERISA.

Business owners and managers, acting as trustees or otherwise administering a retirement plan or controlling its assets, are ERISA fiduciaries and have obligations under the statute to (a) discharge their duties solely in the interest of the plan participants and beneficiaries; (b) act as a prudent person would in investigating, evaluating, and making investment recommendations; and (c) diversify the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is prudent not to do so. Many professionals and small business owners who offer plans recognize that they lack the investment expertise needed to fulfill these duties. Consequently, they retain the services of investment advisers or stockbrokers to recommend investments and strategies appropriate for the participants.

Brokerage firms fear having their employees becoming plan fiduciaries because they know that they and their representatives are virtually incapable of discharging their duties solely in the interest of the plan participants and beneficiaries. Self-interest is built into their business model and their first loyalty is generally to themselves. Thus, brokerage firms typically disclaim any intention to act as fiduciaries when their brokers provide investment services to an ERISA plan. But a person’s state of mind about whether he or she is a fiduciary is not determinative of whether fiduciary status actually exists under ERISA.

The statute imposes fiduciary status on an individual who regularly gives investment advice to a plan if that individual does so pursuant to any agreement -- whether written or not -- to the effect that such advice will be the primary basis for the plan investments. Thus, if the parties’ course of conduct toward each other establishes that the plan on the one hand, and the broker on the other, share a mutual understanding that advice offered by the broker would serve as the primary basis for plan investment decisions, the broker is a plan fiduciary with respect to the investment of plan funds.

Many ERISA retirement plans and their participants incur serious losses when a stockbroker or investment adviser engages in unsuitable trading, misrepresentations and omissions, churning, over-concentration, or any of the other types of wrongdoing described throughout this site. ERISA may offer statutory remedies that can enable the plan to recover those losses. If you are a plan participant or a business owner who offered a plan, and you believe the plan suffered from the misconduct of an investment professional, please contact one of our investment misconduct lawyers today.