FEDERAL REGULATION · 6 MIN READ
ERISA: Preemption, Fiduciaries, and Remedies
ERISA is the federal statute governing employee benefit plans, and its preemption scheme is the single most tested concept. Section 514 preempts state laws that relate to employee benefit plans, with a savings clause preserving state laws that regulate insurance. But the savings clause has a ceiling: in Pilot Life v. Dedeaux the Supreme Court held that ERISA section 502(a) supplies the exclusive remedies for participants and beneficiaries seeking benefits, so state common-law bad-faith claims - including punitive damages - are completely preempted even though bad-faith law arguably regulates insurance. A participant suing an ERISA-plan insurer for bad-faith claims handling is limited to ERISA's civil-enforcement scheme: 502(a)(1)(B) for benefits due, and 502(a)(3) for other appropriate equitable relief. ERISA's fiduciary rules are equally exam-worthy. Section 404(a)(1) imposes the prudent-expert standard and the exclusive-benefit rule, along with the plan-documents rule. Section 406 prohibits self-dealing and party-in-interest transactions. Section 409 makes a breaching fiduciary personally liable to restore all plan losses, disgorge profits made with plan assets, and face other equitable relief including removal - the liability is personal and uncapped. Section 405 adds co-fiduciary liability on three grounds: knowingly participating in or concealing another fiduciary's breach, enabling a breach through one's own 404 failure, or knowing of a breach and failing to make reasonable efforts to remedy it. There is no purely vicarious liability between fiduciaries - knowledge or fault is required. Section 410 voids exculpatory provisions, and section 412 requires a fidelity bond for those who handle plan funds. Rounding out the framework: section 503 and its regulations govern claims procedures, section 510 prohibits retaliation and interference with benefit rights, and section 413 sets the limitations period for fiduciary-breach actions. For P&C producers the practical touchpoints are group plans funded through insurance, the fidelity bond requirement, and knowing when a claim dispute belongs exclusively in ERISA's remedial channel.
Key rules
ERISA 502(a) remedies are exclusive; state bad-faith suits against plan insurers are preempted.
Pilot Life v. Dedeaux held that state common-law tort and punitive claims for benefit denials are completely displaced, and the savings clause cannot rescue them because 502(a) exclusivity overrides it for benefit actions.
Why the exam cares: The classic scenario is a participant suing in state court for bad faith - the tested outcome is complete preemption with only ERISA remedies remaining.
Fiduciaries owe the prudent-expert standard and must follow plan documents.
Section 404(a)(1) requires acting solely in participants' interest with the care of a prudent person familiar with such matters, and in accordance with plan documents insofar as they comply with ERISA.
Why the exam cares: The prudent-expert formulation (not a lay prudent person) is a tested distinction in duty-of-care questions.
A breaching fiduciary is personally liable for all plan losses, uncapped.
Section 409(a) requires making good any losses, restoring profits made through use of plan assets, and permits other equitable relief including removal; liability runs to the natural person, not just the employer.
Why the exam cares: Questions test the scope - personal, uncapped, plus disgorgement and removal - against softer distractors like corporate-only or capped liability.
Co-fiduciary liability requires knowledge or enabling fault — never mere status.
Section 405(a) attaches liability for knowingly participating in or concealing a breach, enabling one through your own 404 failure, or knowing of a breach and failing to make reasonable remedial efforts.
Why the exam cares: The tested trap is vicarious liability from the co-trustee relationship alone; ERISA demands one of the three fault grounds.
Exculpation is void and fund handlers must be bonded.
Section 410 nullifies provisions purporting to relieve fiduciaries of liability, and section 412 requires a fidelity bond for persons handling plan funds or property.
Why the exam cares: Bonding and anti-exculpation appear as quick recall items and connect ERISA to the crime/fidelity coverages producers sell.
Numbers to memorize
- 3 — grounds for co-fiduciary liability under ERISA 405(a): knowing participation or concealment, enabling via own breach, failure to remedy a known breach
- 6 — classifications used by MHPAEA parity testing of financial requirements and treatment limits
Common traps
- Assuming the savings clause preserves state bad-faith remedies — remember Pilot Life holds 502(a) exclusivity overrides the savings clause for benefit-related suits.
- Treating co-fiduciary liability as vicarious — remember Trustee A is liable for Trustee B's breach only with knowledge, concealment, enabling fault, or failure to remedy.
- Capping fiduciary liability at the employer level — remember section 409 liability is personal to the individual fiduciary and unlimited in amount.
- Expecting punitive or extracontractual damages under ERISA — remember the civil-enforcement scheme provides benefits, equitable relief, and fee awards, not tort-style damages.
When an ERISA fact pattern ends in a lawsuit, ask two questions in order: is the claim benefit-related (if so, 502(a) is exclusive), and if fiduciary breach is alleged, which of the three 405(a) grounds fits.
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