94 Pages Posted: 14 Nov 2005
This Article proposes the following principles to determine if a release may deprive an individual of the right to a court review of the denial of a claim to an ERISA plan benefit entitlement:
1) The ERISA spendthrift prohibition on the assignment or alienation of pension benefits voids any release of such a plan or its fiduciaries from a claim that an individual is entitled to accrued benefits under such plan. This does not preclude settlements of pension benefit claims disputes. However, only judicially approved settlements are binding.
2) The ERISA fiduciary-duty provisions void any release of a welfare plan or its respective fiduciaries from claims that an individual is entitled to benefits under such plans unless, when the individual executed the purported release:
(a) he or she voluntarily agreed to release the plan and fiduciaries from the claim at issue;
(b) he or she fully understood what a prudent fiduciary would have known about the released rights; and
(c) he or she received fair and reasonable consideration for such release.
Thus, a court reviewing the effectiveness of a release must generally review the individual's underlying benefit claim. Therefore, fair settlements of bona fide ERISA claims disputes will be approved. However, releases which do not specify the benefits claim at issue, such as general releases in employee termination agreements do not generally affect such ERISA claims.
3) The fiduciary-duty provisions void any release of a pension plan or its fiduciaries, from a claim that an individual is entitled to benefits that accrued under such plan on or after the execution of the release, unless each of the three conditions set forth in the second principle is satisfied. Two such major releases are often at issue. First, the release of a right to participate in an ERISA plan, such as a 401(k) plan, and second, the release of a right to have payments that are part of a settlement of a non-ERISA dispute, such as one pertaining to a purported wrongful layoff, treated for pension benefit purposes in the same manner as similar compensation.
These three principles, which rest upon ERISA's fundamental purpose and basic provisions, have not been consistently considered or applied by the courts. The courts have also rarely considered whether ERISA's prohibition of any agreement purporting to relieve fiduciaries of their duties voids any attempt to release claims to any ERISA benefit entitlements. Many courts have applied contract principles, supplemented at times by special scrutiny. Fiduciary principles, however, also place the burden of showing that the individual received fair consideration and fully understood the release on the party wishing to rely on an ERISA release that is not void ab initio. Thus, individuals have been wrongfully deprived of pension and welfare benefits to which they are entitled.
Keywords: ERISA, benefits, releases, waivers, employee benefits, employment releases, general releases
JEL Classification: H21, J32, K31, K34, M52
Suggested Citation: Suggested Citation
Feuer, Albert, When are Releases of Claims for ERISA Plan Benefits Effective?. John Marshall Law Review, Vol. 38, p. 773, Spring 2005. Available at SSRN: https://ssrn.com/abstract=827885