The Employment Retirement Income Security Act, or ERISA, has been in effect in the United States since September of 1974, during the presidency of Gerald Ford. The Act was intended to create reform for pension and retirement plans for people who work in the private sector, and to prevent abuse of those plans by their administrators. It requires that there be clear information available to the plan owners as to the details of their plans.
Some of the types of information required to be given, as enacted by ERISA, include:
- General features of the plan, and how it is funded (does the employer match the amount their employee contributes? This is common);
- Length of Service: often, an employee must work for their employer for a certain amount of time before they can participate in the plan;
- Minimum Contribution: employees who participate in the plan must meet the minimum contribution required;
- Time of Vesting: an employee must also often work for a certain amount of time before they are granted access to all of the funds (or, their share of the funds. They do not receive the employer’s contribution, generally, if they take the funds out before their retirement);
- Process for Appealing: When an employee participant has a complaint related to the plan, they should follow the method laid out in the plan for filing a grievance; and
- Right to Sue: plan participants should be notified that they may file suit if the appeals process fails.
ERISA provides minimum standards for things like funding and vesting of plans.
Who Administers Employee Pension and Benefit Plans?
The employer administers the plan, and when talking about retirement plans, they are referred to as the fiduciary. They are required to follow the plan as it is written. They should provide employee participants with the details of the plan in writing. The employer/fiduciary has a duty to their employee/participants to treat them with a reasonable standard of care.
This duty includes making any decisions regarding the plan for the benefit of the plan and its participants. Basically, they should invest wisely, and produce as much money as possible in benefits.
Who Enforces ERISA?
ERISA is enforced by:
- The Labor Department’s Employee Benefits Security Administration;
- The Internal Revenue Service; or
- The Pension Benefit Guaranty Corporation.
What Types of Benefits Plans are Included in ERISA?
We have talked generally, up to this point, about ERISA covering “pension” or “retirement” plans. Here is a more detailed description of the types of plans covered by the Act:
- Pension Plans: These are established, voluntarily, by employers, in order to provide a source of income for employee/participants upon their retirement; and
- Welfare Plans: These include plans for employee “benefits.” Benefits are things like health insurance, disability insurance, vacation policies, day care, and other types of benefits employers may grant their employees.
What Plans are Not Included in ERISA?
ERISA was created to govern private-sector plans. Thus, plans in the following categories are not covered by the Act:
- Plans put in place by churches;
- Plans only maintained to comply with workers’ compensation or unemployment;
- Government pension plans for employees who do not work in the U.S. (and who are not citizens); and
- Simplified Employee Pension plans, or SEPs. These are still retirement accounts set up by employers to help employees save for retirement, but are not subject to the complicated rules and regulations of ERISA.
How Does ERISA Provide Protection?
In three significant ways:
- Eligibility Guidelines: the plan must be offered to any employee, aged 21+, who has worked for the employer for a minimum of 12 months.
- Management of Funds: as part of their fiduciary duty, the employer has the responsibility for managing funds with care. They may be subject to prosecution for failure to do so.
- Wrongful Termination: an employer cannot terminate an employee simply to keep from having to give them benefits.
ERISA also provides a guarantee that funds will be paid, even if something happens to the benefit program, like the employer going bankrupt. The funds are guaranteed to be paid via the Pension Benefit Guaranty Corporation.
The Act has been amended numerous times, to add the Consolidated Omnibus Reconciliation Act (COBRA), which allows terminated employees to continue benefits for a time and at a greater cost, and the Health Insurance Portability and Accountability Act (HIPAA), which keeps individuals’ information private to prevent discrimination against them.
There are a number of reporting requirements under ERISA which ensure compliance. In the event of a compliance failure, the fiduciary may be subject to civil and criminal penalties.
How is ERISA Compliance Encouraged?
Compliance is encouraged by tax breaks and other incentives for employers. On the other hand, failure to comply may mean a loss of favorable tax treatment, and other penalties. Companies are aware of the penalties, including the possibility of lawsuits.
The administrators of the plans are required to file a return with the Department of Labor, as well as the IRS, with details about the plans, and any modifications that are made to them.
How Can an Employment Lawyer Help?
If you feel that there has been a violation of your benefit plan under ERISA, contact a local employment lawyer. They can assist you with gaining the benefits you are owed. Employers may also want to contact attorneys if they have questions about whether they are in compliance.