ABA Family Legal Guide

Law and the Workplace

Leaving a Job

Pension Plans

How does Employee Retirement Income Security Act (ERISA) prevent misuse of pension funds?

Those who manage pension funds are considered to be fiduciaries and are obligated to act with "care, skill, prudence, and diligence" in conducting the affairs of the pension plan. This means that the assets of the pension plan must be diversified among a group of investments so as to minimize the risk of large losses. Plan administrators are prohibited from using pension assets to invest in funds or property in which they have a financial interest. ERISA prohibits a plan administrator from borrowing money from the fund for personal use or making loans with pension money to the employer. It also gives pension plan participants the right to sue administrators who breach their duty and violate ERISA.