Protecting Employees From Corporate Corruption

By: Amit Mehta

For the past five years, lawsuits against ERISA violators have been given wide coverage by the press. Some of these alleged big violators are...

- AIG
- AON
- Enron
- Marsh & McLennan Companies
- Merck & Co. Inc.

ERISA allows beneficiaries or participants to recover benefits if the company that employs a participant is plagued by corporate fraud.

When corporate execs commit fraud, company stock values take a nosedive. An employee counting on receiving benefits and/or pension may be left with nothing. And if the employee owns company-issued securities, he may be left holding stocks that are next to worthless.

ERISA also applies to cases where company officers mismanage the retirement and benefits plans of employees.

What ERISA Covers

ERISA applies to pension plans, which pays out money to participants after they retire or provides income beyond employment. It also applies to welfare or benefit plans that provide things like:

- Day care
- Death benefits
- Disability benefits
- Education scholarships
- Health benefits
- Legal services
- Training benefits
- Vacation benefits

Even if a company is in jeopardy due to fraud, embezzlement, or other unscrupulous business practices, it can't escape its responsibilities to its employers.

If it reneges on its employee obligations, the ERISA law provides victims with a legal remedy to see that they aren't only paid, but that violators are punished as well.

After the ERISA Act was passed in 1974, many amendments to it have been made and related laws enacted to extend coverage.

In 1996, the Health Insurance Portability and Accountability Act became a law. It gives employees extended health insurance coverage in the face of changing employment status. It also protects those who may be discriminated against in terms of coverage based on preexisting medical conditions.

Krispy Kreme Case

In 2005, Krispy Kreme employees filed an ERISA class action suit against the donut giant. The lawsuit alleged that Krispy Kreme mismanaged its employees' 401k and profit sharing/stock-ownership program.

Victims claimed that Krispy Kreme didn't only withhold stocks but also gave them incorrect information as to the risks of the stocks they used in their profit-sharing plan.

At first, Krispy Kreme denied all allegations. But in 2007, the donut maker agreed to pay victims $4.75 million in a cash settlement approved by a judge.

When a Business Goes Bankrupt

If the financial state of a company has become hopeless, filing bankruptcy is one common legal remedy. While the goal of bankruptcy laws is to protect creditors by ensuring that debts are somehow paid, it was only after ERISA was enacted that innocent employees were given protection under the law.

Nearly two decades after ERISA was passed, the US Supreme Court ruled in a landmark case that employees could be protected by ERISA if their company declares bankruptcy.

The high court stated that employee benefit/welfare plan assets must be protected from creditors. Although many legal experts hold that this judgment is the final word regarding ERISA's application in bankruptcy cases, subsequent rulings in other courts have made some exceptions.

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