When to Hire an ERISA/Employee Benefits Attorney
Employee benefit plan sponsors have always faced challenges. The laws governing tax qualified plans, including the Employee Retirement Income Security Act of 1974 (ERISA) hold the sponsors of these plans to very high standards of conduct. They and the plans they operate are subject to scrutiny from participants, and from the agencies that regulate the plans. In recent years, the landscape around employee benefit plans has become even more challenging:
- Participants in employee benefit plans are demanding more information, as are company directors and officers;
- In response, new regulations were enacted requiring individual account plan service providers to disclose amounts they receive in connection with their services to plans (ERISA Section 408(b)(2)), and for plan sponsors to disclose that information to participants (ERISA Section 404(a)(5));
- Government agencies that oversee benefit plans, the Internal Revenue Service and Department of Labor, are increasing enforcement of existing regulations, and have substantially increased staffing to accommodate the increase;
- More frequently, fiduciaries and companies are sued over actions (or inactions) connected with their employee benefit plans.
By late summer of 2012, participants who read their 401k plan statements will – possibly for the first time – clearly see that there is a cost associated with investing in the plan. The impact of these disclosures may mean not only an increase in the number of participant inquiries to the company HR representative, but perhaps a corresponding increase in the number of calls to the regulatory agencies.
In light of these challenges, sponsors might be tempted to bring in an ERISA attorney to handle every aspect of the plan, from the complex to the mundane. But as is true with most situations, there is a time and place for legal counsel on an employee benefit plan. The intention of this article is to provide some guidelines for understanding when it is necessary, or even just advisable, for a plan sponsor to seek the advice of an ERISA/employee benefits attorney. It covers the legal framework involving employee benefits, the issues to be aware of, and some specific situations where the use of an attorney is appropriate and helpful.
With all of this increased awareness among the parties involved in employee benefit plans, plan sponsors are wise to take great care in complying with the law. ERISA governs both retirement plans (e.g. 401k Plans) and welfare benefit plans (e.g. group health plans, cafeteria plans). It is designed to encourage employers to offer employee benefit plans, and to minimize the financial and administrative burdens of doing so. ERISA acts to protect the interests of employees as well as provide tax incentives to businesses providing employee benefit plans. The enactment of ERISA led to an explosion in employee benefit plans and created an often complex and confusing legal and administrative environment.
The Choice of Advisor is Important
Hiring an advisor to help navigate this environment is an important decision, one requiring a prudent choice. This means that any advisor hired to work on behalf of the plan has the right background and expertise to assist in the particular facts of that plan and situation. Most importantly, it is imperative to find an advisor who cares about the plan, the participants, and the efficient professional resolution of the situation.
The two seminal issues facing the retirement industry today are “fiduciary liability” and “plan disqualification.” Both phrases should send shudders down the spine of anyone associated with retirement plans. Unfortunately, many associated with the retirement industry go about their business uneducated about these frightening realities because they do not know the proper time to involve an ERISA/employee benefits attorney.
As a plan sponsor, it is imperative that you weigh the costs and the benefits of hiring any service for the plan – legal counsel included. It is important to make sure that the expense of hiring an ERISA attorney, rather than another kind of professional, is justified. In part, that’s because plan sponsors are most often included among the plan’s fiduciaries, and fiduciaries are charged by ERISA with individual responsibility for decisions that impact participants. They must put the interests of the plan’s participants and beneficiaries first in any and all situations, including in deciding which professionals they contract for providing services in their behalf.
At the same time, plan sponsors and fiduciaries should not hesitate to spend the money on an ERISA attorney when that expense is justified. ERISA/employee benefits attorneys provide a valuable service to limit the liability of plan sponsors and help protect employees. In some situations, it is always advisable to involve a qualified attorney. For example:
- When there is a merger, acquisition or divestiture involving benefit plans;
- When a company enacts an employee benefit plan;
- When a legal review of a company’s employee benefit plan implementation has not been performed, and documents have not been reviewed by counsel; and
- When the plan is facing any fiduciary decision or a decision that could affect plan qualification.
One of the responsibilities of a plan sponsor is to evaluate the cost of engaging the services of any professional, including an ERISA/employee benefits attorney, against the potential benefit of doing so. Plan documents, advice and other consulting services pursuant to employee benefit plan implementation and ongoing administration services are readily available, in a low-cost, bundled format. Adding a legal review of the services by a qualified ERISA attorney, though, can avoid costly mistakes. Legal counsel can assist a Trustee and/or company officer or director in meeting their fiduciary duties in several areas, for instance, determining whether or not the plan’s investments are prudent; evaluating potential advisor conflicts of interest; and ensuring the plan includes provisions to avoid disqualification (and the resulting loss of associated tax benefits, such as deferred taxation). In fact, almost every contract or document you sign with a “benefits consultant” or “third party administrator” will contain a disclosure telling you, as Plan Sponsor, to hire independent ERISA counsel.
In most cases, it would be appropriate to retain an ERISA/employee benefits attorney for:
- Mergers and acquisitions, and corporate divestiture due diligence
- Substantial work force reduction: outsourcing or layoffs
- Qualified Domestic Relations Orders (“QDROs”)
- Designing plan documents, including Summary Plan Descriptions and Notices
- Impact of new legislation
Consider involving an experienced ERISA attorney if your qualified retirement plan is facing any of these issues:
- PPA safe harbor plan compliance review and planning;
- Determining fiduciary liability issues;
- Sarbanes-Oxley Act planning for blackout periods, company stock and audit oversight;
- Providing investment advice to participants;
- 401k plan fee disclosures;
- Adoption of a Multiple Employer Plan;
- Plan termination or freezing of a plan; and
- Withdrawal liability from multi-employer pension plans.
An experienced ERISA attorney should also be involved in any of these areas involving your welfare benefit plan:
- Understanding ERISA compliance for companies with a third-party insurance agent or administrator;
- COBRA issues;
- HIPAA Compliance;
- Fiduciary insurance and bond review.
Remember that upfront maintenance is generally much more cost-effective than correcting long-term damage. The most common mistake companies make in seeking advice and counsel is waiting until the Internal Revenue Service, Department of Labor, or a lawsuit forces them to hire experienced ERISA/employee benefits counsel. With proper planning, many crises can be avoided – as can much of the expense of hiring qualified legal counsel to represent you in court or in a regulatory audit.
Hiring the services of an ERISA/employee benefits attorney should be a decision made with great care, skill and prudence. The risks of fiduciary liability and the benefits your company and its employees receive from employee benefit plans make that decision an essential decision.
Jeff Robertson, an attorney with Barran Liebman LLP, represents plan sponsors and retirement plan services providers in all areas of benefit planning. We spoke with him recently to find out when it is – and is not – appropriate to hire an attorney to work with your plan; following are some of his comments. If you’d like more information, you can contact Jeff at 503.276.2140 or jrobertson AT barran.com.
Edited by Lisa A. Higgins, writer and content creator specializing in employee benefits. You can reach her at lhiggins AT expresswrittencommunications.com.