Court: ERISA Section 510 Protects Underfunding Inquiree

March 30, 2005 ( - Employee Retirement Income Security Act (ERISA) Section 510 protects employees who question a 401(k) plan's funding status from discrimination, a federal appeals court has ruled.

>Circuit Judge Rosemary Pooler of the US 2nd Circuit Court of Appeals, in the case of v. Horizon Media Inc., ruled that a director of human resources who initiated an inquiry into the funding status of her company’s 401(k) plan is protected by Section 510 of ERISA, according to BNA.

>Chrystina Nicolaou, in 1998 and 1999, reported to her supervisors that she had uncovered discrepancies in underpayments of overtime wages, which affected the pension plans’ funding status. Nicolaou informed the company’s attorney, who, along with Nicolaou, meet with the company’s president. According to her complaint, after the meeting, she was demoted and eventually fired in November 2000.

>She then filed suit against the company in US District Court for the Southern District of New York, alleging violations of the Fair Labor Standards Act (FLSA) and ERISA Section 510. The court dismissed the case, saying that since the inquiry was internal, FLSA didn’t apply, and that she wasn’t eligible for lost wages under ERISA (See HR Director Dismissal Lawsuit Thrown Out ). Upon review, the court said that Section 510 does not protect internal inquiries.

>On appeal, only the Section 510 issue was brought up and Pooler ruled that the language of the section was unambiguous on the broad protection offered by ERISA. Whereas FLSA protects those who have started a “proceeding,” ERISA protects an “inquiry or proceeding”, according to Pooler. Use of the somewhat less formal term ‘inquiry’ in ERISA is indicative of an intent ‘to ensure protection for those involved in the informal gathering of information,” wrote Pooler, asserting that ERISA protections extended to Nicolaou.