1. ERISA: Everything You Need to Know
2. Pension Plans
3. Health Benefit Plans
4. ERISA Title I: Protection of Employee Benefit Rights
5. ERISA Title II: Amendments to the Internal Revenue Code Relating to Retirement Plans
6. ERISA Title III: Jurisdiction, Administration, Enforcement
7. ERISA Title IV: Plan Termination Insurance

ERISA: Everything You Need to Know

ERISA, also referred to as the Employee Retirement Income Security Act of 1974 (“ERISA”), is a federal law that sets forth minimum standards for pension, health, and other employer sponsored benefit plans for the purpose of protecting both employees and employers. ERISA is administered by the Employee Benefits Security Administration (“EBSA”), which operates under the United States Department of Labor (“USDOL”). It applies only to private employers who offer health insurance and other similar benefit plans to employees, such as life insurance and disability insurance. The law does not specifically require employers to offer such plans, but rather provides for specific operations of those plans when being administered to employees.

Pension Plans

A pension plan is an employ-sponsored benefit that requires an employer to make contributions into a pool of funds that is set aside until the employee retires. Under ERISA, employers must provide employees with information regarding the vesting period of such funds. Therefore, all employees should know how long they have to work for the employer before being vested. If you leave the company before being vested, then you will not receive that money upon retirement. Generally speaking, you must work for the employer for a number of years – this number is at the sole discretion of the employer. Some employers only require that you work there for a period of 5 years; however, other employers require a period of at lest 10-20 years before your pension plan vests. It is important to remember that, even after your pension plan vests, you can leave the company and work for another employer. It is not required that you retire from that specific position for that specific employer.

You should also keep in mind that the pension plan is unlike a 401k, which is another retirement vehicle that both you and the employer contribute into.

ERISA also specifies the way in which a pension fund can be paid to the employee. If the plan is a defined benefit plan, those funds must be paid to the employee’s spouse should the employee die before having received all of his or her funds that were vested. Other plans, however, do not provide that spouses continue receiving funds after the employee dies. Alternatively, some plans provide that the spouse can only receive a portion of the pension after the employee dies. However, ERISA does in fact require that all vested retirees be given an opportunity to ensure that the funds are dispersed to the surviving spouse after the retired employee dies.

Health Benefit Plans

As previously noted, ERISA does not require employers to provide health benefits to employees, but does provide for certain requirements to be met if an employer does in fact provide an employer-sponsored health benefit plan. For example, employers must provide employees the with the following, if applicable:

  • The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). HIPAA provides that a health benefit plan cannot refuse to cover an employee’s pre-existing medical condition. It also prohibits employers from discriminating on the basis of an employee’s health status, gender, age, or disability.
  • The Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA”). COBRA provides most employees (those working for a business with at least 20 employees) with a right to continue healthcare coverage even after separating from his or her employer. However, the monthly fees are quite high and COBRA can only continue for a specified period of time, which is usually one year after separation from the employer.
  • The Mental Health Parity Act (“MHPA”). The MHPA requires that the dollar limits and benefit coverage be identical to any other medical or surgical benefits provided through a health benefit plan.
  • The Newborn’ and Mothers’ Health Protection Act (“Newborns’ Act”). The Newborns’ Act protects mothers and newborn children during their hospital stay immediately after childbirth. It requires that group health plans provide at least 48 hours of coverage immediately after a mother has given birth, 96 hours in the event that the mother gives birth via Cesarean section.
  • The Women’s Health and Cancer Rights Act (“WHCRA”). The WHCRA protects a woman’s right to receive breast reconstruction in connection with a mastectomy. Therefore, this law requires that group health plans that cover a mastectomy must also cover treatment for complications as well as post-mastectomy reconstructive surgery.

ERISA Title I: Protection of Employee Benefit Rights

There are many protections set forth in Title 1 for employers to abide by when overseeing any kind of benefit plan for their employees. The below protections are overseen by the USDOL’s Employee Benefits Security Administration. In addition to the below-mentioned protections, Title I also includes information regarding the operations of each type of benefit plan, as illustrated above.

  • Employees must be provided with a plan summary of the benefit plan.
  • Employers must report the plan summary to the USDOL, as well as any participants (employees) of the plan, if they choose to request it at any given time.
  • At any given time, if an employee asks for the amount that he or she is vested along with how much is in the plan, the employer must furnish such information.
  • Employers must know that they have a fiduciary duty to all participants under the plan. With that being said, however, the investment manager(s) also have a fiduciary responsibility to the employees who are participating in the plan.
  • Certain transactions involving the employer and the plan can be rejected and/or prohibited.
  • A pension plan cannot invest more than 10% of the assets in employer securities.

ERISA Title II: Amendments to the Internal Revenue Code Relating to Retirement Plans

  • The pension plan must offer retirees with the option to establish a joint-and-survivor annuity, which allows a surviving spouse to continue receiving pension payments after the former employee has passed away.
  • The benefits of the plan cannot discriminate based on the level of compensation or title.
  • Such plans are subject to certain vesting rules, as was previously mentioned. Therefore, the employer must set forth some sort of vesting period in which employees will then have access to all funds in the pension plan upon retiring.

ERISA Title III: Jurisdiction, Administration, Enforcement

This portion of the statute simply establishes jurisdiction in terms of enforcement. Therefore, both the USDOL and treasury departments share jurisdiction over enforcing the law be followed.

ERISA Title IV: Plan Termination Insurance

Title IV states that the Pension Benefit Guaranty Corporation insure the benefits of those employee participants in underfunded termination plans. It also establishes the procedures and guidelines for terminating a pension plan. Terminating a pension plan could be done for several reasons, including if the employer files for bankruptcy, costs of continuing to provide the benefit will cause the company to fail and be unable to continue operating, or some other financial reason.

Overall, ERISA provides several important guidelines that employers must adhere to. This benefits both the employees as well as the employers, the latter being because employers can very easily ensure that they are following the law by reviewing the ERISA guidelines at any given time.

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