Ultimate Guide to ERISA Section 502 (28 U.S.C. Section 1132)

ERISA Statute 28 U.S.C. Section 1132 (also known as ERISA Section 502) imposes civil penalties for statutory violations. This guide covers everything employers and plan managers need to know about avoiding (and defending against) ERISA Section 502 penalties.

The Employee Retirement Income Security Act (ERISA) is a federal law that establishes standards for retirement and health plans offered by private employers. These standards are designed to protect employees’ savings; and, as such, they are subject to rigorous enforcement by the U.S. Department of Labor (DOL) and other federal authorities.

In many cases, employees can pursue private civil litigation against their employers and plan managers as well. As a result, along with federal enforcement actions, private lawsuits—including class actions—are also common. The DOL’s and employees’ right to pursue claims for enforcement of employers’ and plan managers’ responsibilities comes from 28 U.S.C. Section 1132, which is also known as ERISA Section 502.

Put our highly experienced team on your side

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former Department of Justice

Brian J. Kuester

Former U.S. Attorney
Former DA

John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Joe Brown

Former U.S. Attorney & Former District Attorney

Local Trial & Defense Counsel

Amanda Marshall

Former U.S. Attorney

Local Counsel

Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach

Former Special Agent (OIG)

Michael Koslow

Former Supervisory Special Agent (FBI)

Chris Quick

Former Special Agent (FBI & IRS-CI)

Ray Yuen

Former Supervisory Special Agent (FBI)

Civil Litigation Risks Under ERISA Section 502(a) (28 U.S.C. Section 1132(a))

Specifically, ERISA Section 502(a) (28 U.S.C. Section 1132(a)) identifies the parties that have standing to pursue civil litigation and enforcement actions for statutory violations. Under Section 502(a), the parties that can sue for ERISA enforcement include:

• The Secretary of the U.S. Department of Labor (DOL)
• Plan participants and beneficiaries (i.e., employees and their family members)
• Fiduciaries of plan participants and beneficiaries
• States and state agencies
• Other employers (in cases involving multiemployer plans)

However, not all of these parties can pursue civil litigation against employers and plan managers in all cases. With this in mind, when facing litigation under ostensibly pursued under 28 U.S.C. Section 1132(a), one of the first steps in the defense process is to assess the plaintiff’s standing. If a plaintiff lacks standing based on the limitations in Section 1132(a) (or ERISA Section 502(a)), raising the issue of standing could bring an end to the litigation before it truly begins.

With that said, many parties’ enforcement rights under Section 1132(a) are quite broad. This includes plan participants, beneficiaries, fiduciaries, and the Secretary of the DOL. For example, under various provisions of Section 1132(a), the Secretary can pursue civil enforcement action for:

• “Appropriate relief” under 28 U.S.C. Section 1109;
• “Appropriate relief” under 28 U.S.C. Section 1025(c);
• Injunctive relief against any violation of ERISA, or “to obtain other appropriate equitable relief (i) to redress such violation or (ii) to enforce any provision of [ERISA];”
• Collection of civil penalties owed as a result of failing to file an annual report or supply other requested information, executing a prohibited transaction under 28 U.S.C. Section 1106, or committing other fiduciary violations of ERISA; or,
• Injunctive relief against violations of 28 U.S.C. Section 1021(f), or “to obtain appropriate equitable relief (i) to redress such violation or (ii) to enforce such subsection.”

Participants, beneficiaries, and fiduciaries’ enforcement rights are similarly broad—although they do not entirely overlap with the DOL’s enforcement authority. It is with respect to states’ and employers’ rights where the ability to pursue civil litigation under Section 1132(a) becomes more limited. In any case, assessing the grounds for a private lawsuit or federal enforcement action is a critical early step, as noted above. Even if a lawsuit or civil enforcement action is facially justified under Section 1132(a), there are still several possible substantive defenses, and identifying the specific provisions of ERISA under which a plaintiff is seeking damages, civil penalties, or injunctive relief is essential for identifying the defenses an employer or plan manager has available.

3 Key DOL Enforcement Risks Under ERISA Statute 28 U.S.C. Section 1132

1. Civil Penalties in DOJ Enforcement Actions Under 28 U.S.C. Section 1132(i) (ERISA Section 502(i))

While the DOL has several options for pursuing enforcement action under 28 U.S.C. Section 1132(a), it frequently initiates actions based on subsection 1132(a)(6)—which allows for the collection of civil penalties under Section 1132(i) (ERISA Section 502(i)). This section applies to non-qualified plans, and it allows the DOL to pursue two “tiers” of penalties depending on the circumstances involved. As the DOL’s Enforcement Manual explains:

“The first tier of the penalty may not exceed 5% of the ‘amount involved.’ The second tier of the penalty, which is not more than 100 % of the amount involved, applies only if the prohibited transaction remains uncorrected within 90 days after a final agency order.”

As the DOL’s Enforcement Manual goes on to explain, since assessment of the civil penalties authorized by Section 502(i) is discretionary, the DOL may choose to impose these penalties “as one of several enforcement options.” In cases involving particularly egregious violations, the DOL may choose to pursue enforcement action under multiple provisions of Section 502(a)—potentially exposing targeted employers and plan managers to substantial financial liability (in addition to the judicial enforcement of injunctions against prohibited practices).

2. Civil Penalties in DOJ Enforcement Actions Under 28 U.S.C. Section 1132(l) (ERISA Section 502(l))

ERISA Section 502(l) is another potent weapon in the DOL’s ERISA enforcement arsenal. Under this section of the statute, the DOL can impose a civil penalty equal to 20 percent of the amount an employer, plan manager, or other fiduciary is obligated to pay pursuant to a settlement with the Secretary or a court order. As the DOL’s Enforcement Manual further clarifies, the Section 502(l) penalty represents, “a percentage of the amount paid to the plan or to a participant or beneficiary that represents losses incurred by the plan, disgorged profits, and amounts necessary to achieve correction of the ERISA violation.”

Once the DOL imposes a penalty under Section 502(l), the penalized party has just 60 days to pay before facing collection action. However, penalized parties also have the option to petition for a waiver or reduction, and doing so tolls the penalty payment period.

3. Civil Penalties for Reporting and Notice Violations Under 28 U.S.C. Section 1132(c) (ERISA Section 502(c))

While prohibited transactions and other substantive violations of ERISA can lead to DOL enforcement action under 28 U.S.C. Section 1132, employers and plan managers can face civil enforcement action for technical violations as well. This includes failing to submit annual reports (which is subject to civil penalties under Section 1132(c)(2)) and failing to provide required notices to plan participants (which is subject to civil penalties under Section 1132(c)(7)).

Enforcement actions under these provisions are common, as employers and plan managers will often have relatively few defense options available. However, not all enforcement actions under Sections 1132(c)(2) and 1132(c)(7) are justified; and, in many cases, employers and plan managers will be able to negotiate favorable settlements with the DOL through their defense counsel. Since reporting and notice violations can also result in referrals for litigation (as outlined in the DOL’s Enforcement Manual), it is imperative that employers facing investigations related to reporting and notice violations take a proactive approach to their defense.

Damages in Private Litigation Under 28 U.S.C. Section 1132(a) (ERISA Section 502(a))

Regardless of whether the DOL pursues enforcement action (or even has standing to pursue enforcement action) under Section 1132(a), employers, plan managers, and others can face private litigation under various provisions of the statute. In private litigation under 28 U.S.C. Section 1132(a) (ERISA Section 502(a)), plaintiffs can typically seek to recover the benefits to which they are legally entitled under their plans.

Crucially, however, the courts have the discretion to award attorneys’ fees and costs in private litigation under Section 502(a) as well, and this can substantially increase defendants’ exposure in Section 502(a) litigation. As explained in an article published by the Federal Bar Association (internal citations omitted):

“Courts apply multifactor tests to determine whether a party is entitled to attorneys’ fees under ERISA, and these tests often vary. Regardless of the test applied, courts have held that ‘[n]o single factor is determinative, and thus, the district court must consider each factor before exercising its discretion.’ Therefore, determining the amount to be awarded for attorneys’ fees most often depends on the court and the applicable facts of the case.”

Here, too, given the potential for significant liability, parties targeted in private litigation under Section 502(a) need to take a proactive and strategic approach to their defense. While relatively few private ERISA enforcement actions go to trial, avoiding the costs (and inherent risks) of trial requires the ability to successfully raise issues with the plaintiff’s (or plaintiffs’) case during the pre-trial phase.

Civil Enforcement Under 28 U.S.C. Section 1132(a) Can Lead to Criminal Prosecution

Finally, it is important to note that while 28 U.S.C. Section 1132(a) provides for civil enforcement of employers’ and plan managers’ obligations under ERISA, civil enforcement action or litigation under Section 1132(a) can also lead to criminal prosecution. The Secretary of the DOL has the authority to refer cases to the U.S. Department of Justice for further investigation and prosecution, and whistleblower claims filed in connection with private civil lawsuits can trigger criminal ERISA investigations as well. As a result, companies targeted under Section 1132(a) will often face litigation on multiple fronts; and, in these scenarios, avoiding unnecessary consequences requires a comprehensive and coordinated defense executed by highly-experienced federal defense counsel.

Contact the ERISA Defense Lawyers at Oberheiden P.C.

At Oberheiden P.C., we defend companies in civil and criminal ERISA matters nationwide. If you need to know more about the risks of facing allegations under 28 U.S.C. Section 1132(a) (ERISA Section 502(a)), we invite you to get in touch. Call 888-680-1745 or contact us online to arrange a complimentary consultation today.