What is ERISA Law?

ERISA is an acronym for the Employee Retirement Income Security Act of 1974. This federal law applies to almost all private employers except for those who qualify for exemption.  Put simply, this law describes standards for pension plans, welfare benefits like health and life insurance, apprenticeship plans, and disability insurance. ERISA law sets guidelines for workers' benefits, although employers are not required to provide them.

Who Administers ERISA?

The Employee Benefits Security Administration, which is part of the U.S. Department of Labor, controls ERISA. Your local DOL office can address any concerns you may have. There are specialized ERISA lawyers as well who you can consult, whether you're an employee or an employer.

Who Must Abide by ERISA Law?

ERISA only applies to private employers who offer benefits. Government employers are exempt along with private employers who choose not to offer benefits. Plans are typically run by fiduciaries who are liable for all mismanagement. Privately purchased insurance plans don't apply, as ERISA only affects plans offered by employers. The Benefit Claims Procedure Regulation additionally regulates ERISA and determines what benefits can be granted to employees who file claims or appeals.

What Are Provisions Under ERISA?

The rules of ERISA regulate standards, requirements, and conduct for management and fiduciaries in charge of plans. Reporting needs to be detailed, as employers and fiduciaries are accountable to federal oversight. Transparency towards the recipient is required and appeals must filed in a timely and fair manner for financial protection. Discriminatory practices are prohibited.

Other Areas Addressed Under ERISA

ERISA also includes the Health Insurance Portability and Accountability Act of 1996 and the Consolidated Omnibus Budget Reconciliation Act of 1985. Keep in mind that with several federal laws working together, violating one makes it easy to violate the others, so don't risk those heavy penalties.

ERISA Welfare Benefits Plan

Any arrangements that qualify as employee welfare benefits plans qualify for ERISA:

  • A plan must be in place
  • An employer must act as the administrator of that plan
  • It must be maintained to provide the following benefits:
    • medical care
    • sickness
    • accident
    • death
    • disability
    • unemployment
    • vacation
    • apprenticeship
    • daycare
    • scholarships
    • holiday
    • legal services
    • severance
    • housing

Establishing a plan is easy, but complying with ERISA is more difficult.

ERISA Business Exemptions

Some categories of benefits are exempt if they don't meet certain standards. Important exemptions and safe harbors exist to avoid ERISA regulation. Plans issued by the government and churches are exempt, as well as state-level plans and plans offered by other countries for nonresidents. Exemptions are also made if payments are part of normal payroll, such as:

  • wages
  • overtime
  • shift premiums
  • weekend or holiday premiums
  • sick pay
  • income replacement benefits
  • jury duty
  • vacation

The employer has to pay out of his own assets, and individuals being paid must be current employees. If an employer permits an insurer sell policies directly to employees who would pay for everything on their own, they're exempt.

With the exemption, employees can pay premiums with deductions, allowing their employer to give the deductions straight to the insurance company. If the employer contributes to this coverage or the insurer pays the employer, the exemption no longer applies. The employer also cannot endorse any program over another. The employer's activity has to be restricted to maintaining payroll records and forwarding deductions to insurers.

General ERISA Rule

ERISA doesn't require employers to offer benefits — it just regulates the standards of employers who choose to do so. However, the general rule is that employers are still free to create whatever benefits plans they want. An ERISA-subjected benefits package isn't compliant unless it's given in writing.

Often, employers' written plans don't actually meet ERISA standards. However, insurer documents almost always comply. Insurers are only responsible for inconsistency or insufficiency issues; ERISA issues fall solely on the employer. Insurance documents for ERISA plans indicate the employer as the sponsor, agent for service, administrator, and fiduciary for the plan. Under ERISA, the employer is liable for all plan failures including failure to comply.

Summary Plan Descriptions (SPDs)

Since the employer or sponsor acts as plan administrator, they are responsible for summary plan descriptions and are held liable for any faults. Insurance carriers must pay claims, which is why employers often falsely assume that they provide SPDs, too. However, even when insurers provide benefit booklets describing their plan to participants, they still don't assume liability for SPDs.

Who Must be Furnished with SPDs and/or Summary of Materials Modifications (SMMs)?

An SPD has to be provided to covered participants and beneficiaries with benefits according to ERISA. The Department of Labor can exempt any plan from part or all reporting requirements. This means that the participants directly covered under the plan must be furnished with SPDs and SMMs, but not beneficiaries.

Participant and Beneficiary

A participant is a current or former employee who has qualified for ERISA benefits or could become qualified in the near future. This also works if their beneficiaries are eligible. Beneficiaries who qualify for COBRA and covered retirees can still be considered participants.

Participants are not necessarily beneficiaries. Beneficiaries are designated by participants or by a plan's terms. Beneficiaries are usually children and spouses, but can extend to other people at the participant's discretion.

Covered Participant

A participant is covered by the date the plan dictates participation begins, the date the individual is eligible for benefits, or the date the participant makes a contribution to the plan. One court ruled that SPDs don't have to be given to employees prior to signing up for a plan. Legally speaking, the vast majority of the paperwork and processes don't begin until the employees agree to a plan in writing.

COBRA-Qualified Beneficiaries

People who elect for COBRA healthcare coverage can expect to be given SPDs and SMMs if they're receiving COBRA coverage. If beneficiaries all live together, an SPD can be given to the employee on the plan on behalf of the other beneficiaries.

QMCSO Alternate Recipients

A qualified medical child support order, or QMCSO, is a participant for disclosures. In these cases, SMMs and SPDs have to be given to the legal guardian of the child. This may be a parent, an adoptive parent, or whoever else is responsible for the child's well being.

Spouses and Other Dependents of Deceased Participants

If a participant is unable to get an SPD, it needs to be given to the people still eligible for benefits. Because of this, it's a good idea for plan administrators to get in the habit of giving SMMs and SPDs to deceased participant's dependents.

Representatives or Guardians of Incapacitated Persons

SMMs and SPDs must be given to representatives or guardians when the entitled participant is incapacitated. That means people must have representatives elected for them beforehand to ensure it goes to the right person should they become incapacitated.

Eligible Employees 

SPDs are technically not required before an employee gets under a plan, but some employers give forms as soon as eligible employees need to enroll to get coverage. Regardless of when SPDs are issued, employees must be given notice of enrollment and the required premium payments. If the notice does not contain an SPD, it must describe how to get one.

DOL Only Upon Request

Plan administrators are not required by ERISA to file a SPDs or SMMs with the Department of Labor. If the DOL requests inspection, however, the documents need to be ready in order to be compliant with the law.

Conflict Between SPD/SMM and Plan Documents or Insurance Contracts

Initially, there aren't any penalties for not preparing or distributing an SPD against Form 5500 requirements. It only gets complicated when participants sue for not getting the benefits their plan promised. If an SPD doesn't match the plan document or is inadequate for another reason, it will typically be enforced instead of the plan document in the participants' or beneficiaries' favor.

It's important to provide accurate detailed SPDs or employers could be held accountable for benefits they didn't want to offer in the first place. SPDs are generally viewed as part of plan documents. Language in SPDs needs to be clear. If it's not, the court will use the document's language in general to get an idea. One court described SPDs as the main source for understanding someone's expectations within a plan. An SPD that doesn't match plan documents doesn't meet ERISA standards.

Four-Page Summary of Benefits and Coverage

Healthcare reform expanded ERISA's requirements of disclosure. Now, a four-page summary of the plan is to be given to an employee prior to enrollment or reenrollment. The summary must be accurate without confusing or unclear language. This applies as well as SMM and SPD requirements. The summary is also relevant for health plans brought in by healthcare reform. It is also required of pre-existing group health plans and coverage. The Secretary of Health & Human Services must issue guidance addressing the summary requirement.

The National Association of Insurance Commissioners, a group health insurance-related consumer advocacy organization representatives, health insurers, healthcare professionals, patient advocates, and other qualified people, consulted to develop the standards. The summary is required for group health care plans as well but with some exceptions. Older group health plans must comply, too. Plan administrators and insurers must provide these summaries. Plans that are self-insured must provide the summary on their own or work with a third party to act on their behalf. If that fails, the plan is no longer in compliance and could incur penalties.

ERISA IRS Reporting Requirements

The main reporting method ERISA imposes is IRS Form 5500, which is the annual report. Also imposed is an annual schedule M-1 reporting requirement on various arrangements that offer health benefits. If a benefit plan involves a Voluntary Employees' Beneficiary Association, the association will be required to file IRS Form 990, which is a yearly information return.

ERISA Annual Report Requirements

Without an applicable exemption, the ERISA plan administrator must file an annual report with the Department of Labor that includes specific plan information through the IRS Form 5500. The DOL can exempt welfare plans from the 5500 in part or altogether if the plan is eligible for one of the exemptions.

Consequences of IRS Form 5500 Noncompliance

The DOL can impose penalties if an employer fails to file a 5500. Late and deficient or incomplete 5500s can cause penalties as well. These forms can be a lot to keep up with, so make sure you have the correct forms filed on time.

The Amount and Period of Statutory Civil Penalties

ERISA 502 gives penalties if you fail to file a 5500. If a 5500 form is rejected for not providing the required material, it will be considered unfiled. Noncompliance penalties are heavy, where the plan administrator can be fined up to $1,100 a day from the first day they fail to successfully file.

Penalties are cumulative as well. There is no statute of limitations on this, so they can work with plans as old as 1988, the year the ERISA amendment passed. The potential penalty is compounding if you leave a 5500 unfiled.

The DOL has formed a Late-Filer Enforcement Program and a Nonfiler Enforcement Program in which penalties for less than the top limit may be issued. Late-filers may only be fined $50 a day, while non-filers may only be fined $300 a day. There is a maximum $30,000 assessment a year per plan filing.

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