How businesses can comply with ERISA

Introduction

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.ERISA was enacted to protect the retirement savings of American workers and their families by requiring employers to provide certain information about their retirement plans, establish a grievance and appeals process, and provide fiduciary oversight of plan assets.

ERISA applies to most private sector employee benefit plans, including retirement plans, health plans, and welfare plans. However, there are some exceptions, such as plans that cover fewer than 10 employees, government plans, and church plans.

The key provisions of ERISA include:

• Plan information: Employers must provide participants with a summary plan description (SPD) that explains the important features of their plan, such as the types of benefits offered, how benefits are calculated, and how to file a claim for benefits.

• Fiduciary responsibility: ERISA requires plan fiduciaries to act prudently and in the best interests of plan participants and beneficiaries. Fiduciaries are those who have control over the plan's assets, such as plan trustees, investment managers, and plan administrators.

• Grievance and appeals process: ERISA requires plans to establish a grievance and appeals process that allows participants to challenge decisions made by plan fiduciaries.

• Benefit accrual and vesting: ERISA sets minimum standards for how benefits are accrued and vested. Accrual refers to the process of earning benefits over time, while vesting refers to the process of becoming entitled to benefits.

• Termination insurance: ERISA provides for termination insurance through the Pension Benefit Guaranty Corporation (PBGC). The PBGC insures certain types of defined benefit pension plans against the risk of plan termination.

ERISA is a complex law, and there are many nuances to its provisions. If you have any questions about ERISA, you should consult with an attorney.

Here is a brief comparison of ERISA and non-ERISA plans:

ERISA plan

• Coverage

  • Applies to most private sector employee benefit plans

• Purpose

  • Protect the retirement savings of American workers and their families

• Key Provisions

  • Plan information, fiduciary responsibility, grievance and appeals process, benefit accrual and vesting, termination insurance

Non-ERISA plan

• Coverage

  • Does not apply to all private sector employee benefit plans

• Purpose

  • Not specifically designed to protect retirement savings

• Key Provisions

  • None of the above

If you are unsure whether your plan is an ERISA plan, you should consult with an attorney.

Key Provisions

Let’s take a closer look at the key provisions of ERISA:

• Plan information: Employers must provide participants with a summary plan description (SPD) that explains the important features of their plan, such as the types of benefits offered, how benefits are calculated, and how to file a claim for benefits. The SPD must be written in plain language that a layperson can understand.

• Fiduciary responsibility: ERISA requires plan fiduciaries to act prudently and in the best interests of plan participants and beneficiaries. Fiduciaries are those who have control over the plan's assets, such as plan trustees, investment managers, and plan administrators. Fiduciaries must avoid conflicts of interest and must make decisions that are in the best interests of all participants and beneficiaries.

• Grievance and appeals process: ERISA requires plans to establish a grievance and appeals process that allows participants to challenge decisions made by plan fiduciaries. If a participant is not satisfied with the outcome of a grievance, they may be able to file a lawsuit in federal court.

• Benefit accrual and vesting: ERISA sets minimum standards for how benefits are accrued and vested. Accrual refers to the process of earning benefits over time, while vesting refers to the process of becoming entitled to benefits. ERISA requires that most benefits be vested after a certain period of time, usually five years.

• Termination insurance: ERISA provides for termination insurance through the Pension Benefit Guaranty Corporation (PBGC). The PBGC insures certain types of defined benefit pension plans against the risk of plan termination. If a plan terminates and cannot pay its benefits, the PBGC will pay a portion of the benefits to participants.

These are just some of the key provisions of ERISA. There are many other provisions that protect the interests of participants and beneficiaries. If you have any questions about ERISA, you should consult with an attorney.

Examples in Court

Some examples of how ERISA has been applied in court cases:

• Fiduciary duty: In the case of Tibble v. Edison Int'l Corp., the Supreme Court held that plan fiduciaries must act prudently and in the best interests of all participants and beneficiaries, even when making decisions that affect only a small number of participants. This case established that plan fiduciaries must take into account the interests of all participants and beneficiaries, not just the interests of the participants who are directly affected by the decision.

• Benefit denial: In the case of Firestone Tire & Rubber Co. v. Bruch, the Supreme Court held that benefit denials by plan administrators must be reviewed de novo by the courts. This means that the courts will not defer to the plan administrator's decision, but will instead review the decision on its own merits. This case established that participants have a right to have their benefit claims reviewed by the courts, even if the plan administrator has already denied the claim.

• Plan termination: In the case of Metropolitan Life Insurance Co. v. Glenn, the Supreme Court held that the PBGC's termination insurance does not apply to plans that are terminated by the employer. This case established that the PBGC's termination insurance is only available to plans that are terminated involuntarily, such as when the plan is unable to pay its benefits.

These are just a few examples of how ERISA has been applied in court cases. There are many other cases that have interpreted and applied the various provisions of ERISA. If you have any questions about ERISA, you should consult with an attorney.

Business Impact of the Law

ERISA has a significant impact on businesses, both large and small. Here are some of the key impacts:

• Plan information: Employers must provide participants with a summary plan description (SPD) that explains the important features of their plan, such as the types of benefits offered, how benefits are calculated, and how to file a claim for benefits. The SPD must be written in plain language that a layperson can understand. This helps employees understand their benefits and how they work.

• Fiduciary responsibility: ERISA requires plan fiduciaries to act prudently and in the best interests of plan participants and beneficiaries. Fiduciaries are those who have control over the plan's assets, such as plan trustees, investment managers, and plan administrators. This means that plan fiduciaries must make decisions that are in the best interests of all participants and beneficiaries, not just the interests of the employer. This helps to ensure that plan assets are managed responsibly and that participants receive the benefits they are entitled to.

• Grievance and appeals process: ERISA requires plans to establish a grievance and appeals process that allows participants to challenge decisions made by plan fiduciaries. This means that participants have a right to appeal a decision if they believe it is unfair or incorrect. This helps to ensure that participants have a fair chance to get the benefits they are entitled to.

• Benefit accrual and vesting: ERISA sets minimum standards for how benefits are accrued and vested. Accrual refers to the process of earning benefits over time, while vesting refers to the process of becoming entitled to benefits. ERISA requires that most benefits be vested after a certain period of time, usually five years. This means that participants who have worked for the employer for at least five years are entitled to receive their benefits even if they leave the job. This helps to ensure that participants have a secure retirement.

• Termination insurance: ERISA provides for termination insurance through the Pension Benefit Guaranty Corporation (PBGC). The PBGC insures certain types of defined benefit pension plans against the risk of plan termination. If a plan terminates and cannot pay its benefits, the PBGC will pay a portion of the benefits to participants. This helps to ensure that participants receive some of their benefits even if the plan terminates.

Overall, ERISA is a complex law that has a significant impact on businesses. However, it is important to remember that ERISA is designed to protect the retirement savings of American workers and their families. By complying with ERISA requirements, businesses can help to ensure that their employees receive the benefits they are entitled to.

Additional Resources

You can find more information about ERISA here:

• Department of Labor: The Department of Labor (DOL) is the federal agency responsible for administering ERISA. The DOL website has a wealth of information about ERISA, including:

  • A summary of ERISA

  • A guide to retirement plans

  • A guide to health plans

  • A guide to welfare plans

  • A list of frequently asked questions about ERISA

  • A directory of DOL offices

  • A link to the DOL's ERISA enforcement website https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement

• Pension Benefit Guaranty Corporation: The Pension Benefit Guaranty Corporation (PBGC) is a federal agency that insures certain types of defined benefit pension plans. The PBGC website has a wealth of information about ERISA, including:

  • A summary of ERISA

  • A guide to defined benefit pension plans

  • A guide to the PBGC's termination insurance program

  • A list of frequently asked questions about ERISA

  • A link to the PBGC's termination insurance website https://www.pbgc.gov/

• Employee Benefits Security Administration: The Employee Benefits Security Administration (EBSA) is a division of the DOL that is responsible for enforcing ERISA. The EBSA website has a wealth of information about ERISA, including:

  • A summary of ERISA

  • A guide to filing an ERISA complaint

  • A list of frequently asked questions about ERISA

  • A link to the EBSA's enforcement website https://www.dol.gov/agencies/ebsa

• ERISA Law and Legal Resources: This website provides a comprehensive overview of ERISA, including:

  • A summary of ERISA

  • A guide to the different types of ERISA plans

  • A guide to the ERISA fiduciary duty

  • A guide to the ERISA grievance and appeals process

  • A guide to the ERISA termination insurance program

  • A list of frequently asked questions about ERISA

  • A link to a directory of ERISA lawyers https://erisabenefitslaw.com/legal-services/

How Businesses Can Comply with ERISA

Here are some examples of how businesses can comply with this federal law:

• Provide participants with a summary plan description (SPD): The SPD is a document that must be provided to all participants in an ERISA plan. The SPD must explain the important features of the plan, such as the types of benefits offered, how benefits are calculated, and how to file a claim for benefits.

• Appoint a plan administrator: The plan administrator is responsible for administering the plan, such as enrolling participants, processing claims, and paying benefits. The plan administrator must be a fiduciary of the plan, which means they must act in the best interests of the participants and beneficiaries.

• Invest plan assets prudently: Plan fiduciaries must invest plan assets prudently, which means they must make decisions that are in the best interests of the participants and beneficiaries. Plan fiduciaries must also diversify the plan assets to reduce risk.

• Provide a grievance and appeals process: The plan must provide a grievance and appeals process that allows participants to challenge decisions made by the plan administrator. This process allows participants to have a say in how their benefits are administered.

• File an annual Form 5500: The plan administrator must file an annual Form 5500 with the Department of Labor. The Form 5500 provides information about the plan, such as the number of participants, the types of benefits offered, and the plan's financial information.

Here are some examples of how businesses located in different states might comply with ERISA:

• California: California has a number of laws that supplement ERISA. For example, California requires employers to provide paid family leave benefits to their employees. California also has a law that prohibits employers from discriminating against employees based on their health status.

• New York: New York also has a number of laws that supplement ERISA. For example, New York requires employers to provide paid sick leave benefits to their employees. New York also has a law that requires employers to provide retirement plan information to their employees in a language that they can understand.

• Texas: Texas does not have any laws that supplement ERISA. However, Texas does have a state agency that enforces ERISA, the Texas Department of Insurance.

It is important to note that this is not an exhaustive list of the ways that businesses can comply with ERISA. If you have any questions about ERISA compliance, you should consult with an attorney.

What Are Your Thoughts?

Do you have any thoughts on ERISA? Share them on social media with the hashtag #theindustryleader!

We would love to hear your thoughts on ERISA. How has it affected your business? What are your experiences with ERISA compliance? Share your thoughts on social media and help us to raise awareness of this important law.

Here are some examples of what you could share:

• If you are a business owner, you could share how ERISA has affected your business. For example, you could share how ERISA has helped you to provide retirement savings for your employees or how it has helped you to comply with other employment laws.

• If you are an employee, you could share your experiences with ERISA. For example, you could share how ERISA has helped you to understand your benefits or how it has helped you to file a claim for benefits.

• If you are an attorney, you could share your thoughts on ERISA compliance. For example, you could share common mistakes that businesses make when complying with ERISA or how to avoid these mistakes.

We hope you will share your thoughts on ERISA on social media. Together, we can help to raise awareness of this important law and protect the retirement savings of American workers.

How businesses can comply with ERISA and protect the retirement savings of their employees

Related Content