ERISA Plan Violations Don't Always Generate Massive Headlines

Boston, MAThe potential for wrongdoing inside an ERISA plan, where workers take part in an employee savings plan, does not always culminate in massive headlines and millions of dollars. Sometimes it is the conduct of a smaller employer, who may own the company and also serves as the ERISA benefits fiduciary, taking liberties to try to get through the recession that results in wrongdoing.

And there is no real watchdog, save for a diligent employee tracking his pay stubs and account balances, to ensure employee 401(k) contributions wind up where they're supposed to, and not somewhere else.

The Pittsburg Tribune Review reported this week that the Labor Department launched a lawsuit on July 1st against Explore General Inc. and its officers for allegedly failing to forward both employee and employer contributions to the requisite 401(k) savings plan over about a three-year period from January 2002, through March 2005.

The amounts are not massive, but significant—especially for employees of a small company. The lawsuit alleged that Explore General, Paul Gong and Jaime Gonzalez (the owner and president of the enterprise at the time), failed to forward $70,000 in contributions from employees and more than $100,000 in owed employer contributions to the retirement plans.

Instead, the allegation is that the defendants used the employee contributions for general operating expenses.

Not only is the alleged offense a clear violation of ERISA, but also the failure to inject more than $170,000 in combined plan assets has robbed Explore General employees of any cumulative interest earnings over the past eight years.

There are various ways in which an employee enrolled in an employee stock plan or ERISA investment vehicle can monitor the status quo, according to the experts.

Mike Alfred, of the 401(k) rating company Brightscope, told the Pittsburg Tribune Review that an employer is required to deposit employee contributions into a 401(k) account within seven days of payroll. Alfred said any delay in that deposit beyond seven days and especially 15 days, should be immediately reported to the Labor Department.

Tom Kmak, the chief executive officer of Fiduciary Benchmarks, agrees there are several ways in which employees can keep tabs on the activity in their 401k accounts to ensure proper contributions are made. Kmak notes that it's possible to obtain account balances via the Internet, a toll-free number and in hard copy once each quarter.

Kmak advocates checking all three sources to make sure they are in sync. It's also advisable, even if contributions appear to be made in a timely manner, to compare totals withheld from paychecks against the total reflected on the corresponding statement.

"Participants need to monitor their account statements to ensure that their contributions are being timely deposited and invested in the right funds," advocated David Wray, head of the Profit Sharing/401(k) Council of America.

At the end of the day, employers found to have violated ERISA and their fiduciary duties in that regard would be held accountable for not only the missing contributions, but also lost earnings in an ERISA plan.