Can Poor Pension Governance Land You in Jail?

In a riveting and timely article, senior Greenberg Traurig ERISA attorney Jeff Mamorsky provides a serious wake-up call to pension fiduciaries everywhere. (Click here to read “Is Today’s Pension Plan Environment Cause for Concern?”,CEO Magazine, August 2006.)

Mamorsky chronicles the parade of corporate horribles in the U.S. that eventually led to the Sarbanes-Oxley Act of 2002 (SOX). He points out the irony that “All this happened in the USA despite the fact that the federal pension law, the Employee Retirement Income Security Act of 1974 (ERISA), contains rules that require plan sponsors to establish internal control procedures to monitor compliance with the fiduciary responsibility requirements of ERISA.”

In the spirit of the stick winning over the carrot, Mamorsky adds that “These rules were in some cases not followed since there were few real teeth in the law. It took SOX with its draconian certification penalties and ERISA’s ‘white collar’ criminal penalty provisions to make plan sponsors take pension governance more seriously.”

Emphasizing the nature of personal liability for pension fiduciaries, the article explains the critical, and undeniable, connection between SOX compliance and pension governance. In a rather ominous statement, Mamorsky warns “This liability has increased as the result of legislation such as SOX that requires a public company CEO, CFO or other responsible fiduciary to certify the establishment and adequacy of ‘disclosure controls and procedures’ relating to material items in the annual financial report. What companies sometimes overlook is that this SOX section 404 management assessment of the adequacy of internal control procedures requirement applies to pension and benefit expenses.”

If you aren’t scared at this point in the article, he goes on to describe SOX sanctions of money and jail – “$2m and up to ten years’ imprisonment for non-wilful ($5m / up to 20 years’ imprisonment for wilful) certification of any statement that does not comply with SOX requirements.” Then there is the matter of heightened IRS scrutiny of pension plan governance (or lack thereof), a rise in litigation and general upset about the topics du jour, pension funding gaps, rescinded benefits and so on.

Mamorsky concludes that the rest of the world is starting to feel the pinch as the UK and other countries address governance as an important element of the “global pension world.”

As an aside, our sister company, BVA, LLC is soon to launch a pension litigation database, chock full of analyses and trends. We had planned to launch earlier but found many more cases than we originally anticipated.

A harbinger of days ahead in pension governance land?