Criminal Convictions and ERISA § 411
Under ERISA § 411, no person who has been convicted of certain crimes1 can serve or be permitted to serve in certain capacities for any employee benefit plan for a period of no less than 13 years after conviction or the end of imprisonment, whichever is later. 29 U.S.C. § 1111. The positions in which a felony conviction disqualifies an individual from employment or providing services to an employee benefit plan include:
- Administrator, fiduciary, officer, trustee, custodian, counsel, agent, employee, or representative in any capacity of an employee benefit plan;
- Consultants or advisors to an employee benefit plan, including but not limited to any entity whose activities are in whole or substantial part devoted to providing goods or services to an employee benefit plan; or
- In any capacity that involves decision making authority or custody or control in the monies, funds, assets, or property of any employee benefit plan.
In creating this provision of ERISA, Congress modeled ERISA § 411 on § 504 of the Labor Management Reporting and Disclosure Act (LMRDA), which prohibits persons convicted of certain crimes from serving as union officers. Senate Comm. on Labor and Public Welfare, Employee Retirement Income Security Act of 1974, S. Rep. 93-12, reprinted in 1974 U.S.C.C.A.N. 4870. Violations of ERISA § 411 are punishable by imprisonment up to 5 years, a $10,000 fine or both.
In U.S. v. Lynch, 345 Fed. Appx. 798 (3d Cir. 2009), the Third Circuit affirmed the sentencing enhancements for a plan attorney and insurance broker who hired an individual to provide consulting services for the plan knowing that the individual had a prior embezzlement conviction which barred him from working with a union or an employee benefit plan. In upholding the sentencing enhancements, the Court found that the defendant was in a "position of trust" that allowed him to "commit a difficult to detect wrong by using his degree of authority" with the plan to pay a convicted felon for services the felon was prohibited from providing.
Given the potential criminal liability, ERISA plan counsel should advise their clients of the requirements of ERISA § 411 and assist them in implementing policies designed to prevent disqualified individuals from holding positions with the ERISA plan. Plans should seek certifications from their employees, consultants and advisors that they have not been convicted of one of the enumerated crimes under ERISA § 411. Where individual employees or agents handle funds and other property of an employee benefit fund, the plan should conduct a pre-employment background check in addition to meeting the bonding requirements of ERISA § 412 to determine if a current employee or job applicant has a disqualifying conviction. Any certification provided by an employee should require the individual to advise the plan if he or she is convicted of one of the ERISA § 411 crimes in the future.
While ERISA plans with their own staff need to be aware of disqualification provisions of ERISA § 411, service providers to ERISA plans should also ensure that their employees providing services to ERISA plans do not have disqualifying convictions. ERISA fiduciaries in contracting with consultants and other advisors should make disclosures of any potential ERISA § 411 issues part of the selection process and ultimate service provider agreement.
Individuals who are convicted of violating one of the enumerated crimes in ERISA § 411 may petition the federal court to reduce the statutory length of disability of 13 years to a lesser period, which may not be less than 3 years. The burden of proof is on the convicted individual to demonstrate that he or she has been rehabilitated and can be trusted to not endanger the organization in which he or she seeks a position. Accord Nass v. Local 348 Warehouse, Production, Sales and Services Employees, 503 F.Supp. 217 (E.D.N.Y. 1980) aff'd without opinion, 657 F.2d 264 (2d. Cir. 1981). Additionally, an individual may also move for an exemption from prohibited service in a particular capacity. Unlike a petition for reduction in the length of disability, there is no 3-year waiting period. In considering the proposed relief, the court must make a determination that the convicted individual's service in the particular prohibited position is not contrary to the purposes of ERISA.
ERISA plans safeguard the health and retirement security of millions of Americans. Responsible fiduciaries and ERISA professionals have an obligation to protect that security from the potential criminal harm and misuse. ERISA § 411 is one of the several provisions in ERISA designed to insure that those who provide services to ERISA plans are not likely to abuse their position to the detriment of the participants and beneficiaries ERISA plans were created to protect.
John R. Harney, O'Donoghue & O'Donoghue, LLP
1The enumerated crimes are robbery, bribery, extortion, embezzlement, fraud, grand larceny, burglary, arson, a felony violation of federal or state law involving substances defined in section 102(6) of the Comprehensive Drug Abuse Prevention and Control Act of 1970, murder, rape, kidnapping, perjury, assault with intent to kill, any crime described in section 9(a)(1) of the Investment Company Act of 1940, a criminal violation of ERISA, a violation of section 302 of the Labor Management Relations Act of 1947, a violation of chapter 63 of Title 18 of the United States Code, a violation of the Labor-Management Reporting and Disclosure Act of 1959, any felony involving abuse or misuse of such person's position or employment in a labor organization or employee benefit plan to seek or obtain an illegal gain at the expense of the members of the labor organization or the beneficiaries of the employee benefit plan, or conspiracy to commit any such crimes or attempt to commit any such crime or a crime in which any of the foregoing crimes is an element. 29 U.S.C. §1111(a).