Plans Must Carefully Field ERISA Claims and Settlements

By Lee Barney | August 07, 2015
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It is important for advisers to be very meticulous about how they allocate the settlement moneys.

“Unfortunately, current regulations do not give specific instructions, and the process for allocation to participants may not be the same for every single plan receiving a settlement,” says Rick Skelly, client executive at Barney & Barney’s retirement services division, based in San Diego. “When the plan receives the actual settlement check, it doesn’t come with specific allocation instructions to the participants. The plan sponsor must determine the allocation themselves.”

In some cases the settlement agreements includes a formula for allocating the funds to participants, says Marcia Wagner, principle with Wagner Law Group in Boston.

As to how participants receive the funds, for those who are currently still in the plan, it is placed into their account, Johnson says. For those who have left the plan, “it will be a trailing distribution,” he says.

In some cases, sponsors may decide to allocate the funds only to those who are currently in the plan, Skelly says. However, if it is not “administratively feasible” to allocate the funds to the participants, “the payment may, to the extent permitted by the retirement plan, be used to pay reasonable administrative expenses associated with maintaining the retirement plan,” he says. “The money would be deposited into the forfeiture account in this instance.”

In addition, if the lawsuit has dragged on for a long period of time and many of the participants have left the plan and are unreachable, this could also prompt the sponsor to allocate a settlement to the plan’s administrative expenses, rather than to participants, Skelly says.

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