ERISA is the acronym for The Employee Retirement Income Security Act and was enacted by the 93rd United States Congress on September 2, 1974. Designed to provide pension reform, the act is a federal law that sets standards and regulations of protection for individuals that are in private sector company retirement plans. ERISA requires the set plans to provide employees with accurate plan information, and important facts about:
- Plan Features and Funding: employers typically match an employee’s contribution to the account
- Amount of time employee must work for employer before participating in a retirement account is allowed
- Minimum Standards Required for Participation: the minimum amount of money an employee must contribute in a defined period in order to participate
- Vesting: when the employee has the right to all of their share of the fund.
- Benefit accrual
- Management and control features
- Claims and Appeals Process for Participants: if an employee has a grievance, their first recourse is to pursue the appeals process laid out in the plan’s terms
- Right to sue for benefits that are breached
An employer is usually called the fiduciary, and has to follow the plan guidelines, while the employee is called the qualified beneficiary. A written summary of the plan should be given to an employee at the time they begin participating in it. The fiduciary owes the beneficiary a duty of care.
ERISA establishes minimum standards of vesting, funding, and fiduciary relationships and a system of compulsory benefit insurance to protect the security of pension rights. Specifically, ERISA protects pension and benefit plan recipients and beneficiaries.
A fiduciary of an ERISA plan must make any decisions for the sole benefit of the plan, which includes doing their best to maximize the benefits of the plan and minimize the costs of running the plan.
ERISA defines three main types of benefits plans:
- Employee Benefit Plans: benefit plans that are voluntarily established and managed by an employer, an employee organization, or both.
- Pension Plans: are benefit plans established to provide employees with retirement income, or income after termination of employment.
- Welfare Plans: employee benefits plans designed to provide employees with benefits covering issues such as health, death, disability, vacation, legal help, day care, scholarships, training, and other benefits of this nature.
The welfare aspect of the plan must make clear outlines for the procedure of claims. Essentially how to file a claim for the benefit, what to expect, and what to do if the plan is denied.
ERISA typically does not cover employment plans:
- Established by churches;
- Plans only maintained to comply with workers’ compensation or unemployment;
- Established by the government; and
- For employees working outside the United States (non-citizens).
There are three main protections provided by ERISA:
- Eligibility Guidelines: an employee aged 21 or over who has worked at least 12 months for the employer must be offered access to any pension or benefit plan in place.
- Management of Funds: an employer is liable and subject to prosecution for mismanagement of benefit funds.
- Wrongful Termination: an employee cannot be fired to prevent eligibility for benefit plans.
ERISA also guarantees the payment of certain benefits through a federally chartered corporation, the Pension Benefit Guaranty Corporation, in the event that an employee’s benefit program is terminated (resulting in their not receiving the benefit they are owed from that program).
Later amendments to ERISA include the Consolidated Omnibus Budget Reconciliation Act (COBRA), and the Health Insurance Portability and Accountability Act (HIPAA). COBRA allows some employees to continue their health benefits after a certain event, most often, the termination of their job. HIPAA prevents discrimination in health coverage based on a person’s health condition.
Compliance with ERISA is monitored through a series of reporting requirements. Failure to comply is a violation subject to civil liability and criminal penalties including costly Department of Labor penalties. Employees can also bring bad faith claims against their employers who deny them benefits that they are entitled to under ERISA.
Companies that comply with ERISA are offered tax breaks and incentives which encourage employers to follow ERISA guidelines. Failure to comply will result in loss of favorable tax treatment and other penalties. Companies know that they can be sued by their employees for ERISA violations.
ERISA plan administrators must file returns to the Department of Labor and the IRS. The returns must include information about the type of coverage offered and how any claims should be processed. They must also report any modifications that were made after the previous filed return.
If you believe your employer has acted improperly with regard to your benefits or pension, an employment lawyer near you can help you resolve the dispute and make sure you receive the benefits you are entitled to.
If you are an employer and are concerned about ERISA compliance, an employment attorney can help you establish a benefit plan that protects you and your employees.