ERISA

Understanding ERISA

The Employee Retirement Income Security Act (ERISA) is a federal act created in 1974 that creates the minimum standards for a private industry’s pension plan. While ERISA does not require an employer to establish a pension plan, it requires plans that have been established to meet certain defined minimum standards.

ERISA generally does not specify just how much money a participant or employee must be paid as a benefit. ERISA does require plans to regularly provide participants with certain information about the plan. ERISA also ensures payment of specific benefits through the Pension Benefit Guaranty Corporation, which is a federally chartered corporation, in the case that a defined plan is terminated.

Benefits of ERISA include:

• Creates the minimum standard for benefit accrual, participation, vesting, and funding. ERISA defines how just long a person may have to work before becoming eligible to take part in a retirement plan, to accumulate any benefits, and to obtain a non-forfeitable right to the benefits acquired.

• ERISA establishes detailed funding rules that need plan sponsors to give adequate funding for the plan.

• Requires a plan to give participants information about the plan such as the plan’s features and funding. This information must be given automatically and regularly. While some of the information is available without charge, this may not be the case for all the information.

• Gives plan participants the right to sue for any benefits and breaches of fiduciary obligation.

• Imposes accountability of plan fiduciaries. ERISA normally defines a fiduciary as a party who has control or discretionary authority over the management or assets of a plan, such as anyone who gives investment advice to the plan. Those who do not follow the rules of proper conduct may be responsible for restoring losses to a plan.

• Ensures payment of certain defined benefits if a plan is ended, by the Pension Benefit Guaranty Corporation.

There have been many amendments to ERISA, increasing the protections offered to plan participants and beneficiaries. One significant amendment, the COBRA or the Consolidated Omnibus Budget Reconciliation Act, gives some workers along with their families the right to keep their health coverage for a given period of time after certain events, such as losing a job.

Another amendment of ERISA is the HIPAA or the Health Insurance Portability and Accountability Act which gives important new security for working Americans along with their families who have any preexisting medical illnesses or might otherwise undergo discrimination in health coverage based on their current health.

Other vital amendments to ERISA include the Newborns' & Mothers' Health Protection Act, the Women's Health & Cancer Rights Act, and the Mental Health Parity Act.

Generally, ERISA applies only to private industry and does not include group health plans maintained or established by governmental entities, church employees, or any plans maintained only to comply with applicable unemployment, workers compensation, or disability laws. Furthermore, ERISA does not apply to plans maintained outside the U.S. primarily for the benefit of any nonresident aliens or unfunded excess benefit plans.