Retirement plans and other programs and policies are some of the most sought-after benefits employees seek when job searching. While employee benefits can be an effective way to draw in new talent, they can also be challenging to manage. Employers must remain in compliance with federal and state regulations to avoid hefty penalties.
The Employee Retirement Income Security Act (ERISA) of 1974 is one such federal regulation that nearly all businesses in the U.S. must comply with if they offer benefits. What is ERISA, exactly? It is a comprehensive law that regulates health, welfare, pension and other employee benefits. The law is designed to protect the interests of its beneficiaries and participants by requiring the reporting and disclosure of relevant data.
Requirements Under ERISA
Health plans, retirement plans, pensions, and other types of employee benefits often fall under ERISA. No business type is excluded from following these regulations, including unions and private employers. It does not dictate what type of employee benefits you must provide to your workers, or how many benefits you need to offer.
Instead, it establishes rules on how to properly manage different types of employer-sponsored health and pension plans. For example, employers must provide employees with a summary plan description that details the plan’s copays, deductibles and premiums. Employers must also file reports each year with the federal government, as well as meet certain standards pertaining to premiums, eligibility, and nondiscrimination.
Purpose of ERISA
The main purpose of ERISA is to protect employees who rely on their pensions or retirement benefits that were promised by their employer after leaving employment. The law also protects current employees. Strict guidelines are published that outline how and when employees can earn a non-forfeitable interest in their promised pension benefits.
If pension funds are mismanaged by business leaders, ERISA offers a backup in the form of the Pension Benefit Guaranty Company. In the event that an employer fails to pay out benefits as promised, this company will pay out pension benefits instead. If benefit payments are disputed, the ERISA law requires plans to provide grievance and appeals processes that participants can choose to pursue.
Who ERISA Protects
Employees who receive certain employer-sponsored benefits, such as health care, 401k retirement plans, disability insurance, and similar benefits, are entitled to legal rights under the Employee Retirement Income Security Act. Under this law, employees have the right to establish an appeal or grievance process to receive benefits, sue for breaches of fiduciary duty, sue for their rightful benefits, fight discrimination in health care, and maintain their health insurance for a limited time after losing their job. In short, it protects employees from wrongful denial of benefits based on the rights established under federal employment law.
Alternative Plans Not Covered by ERISA
Employers who contribute to a health or retirement plan must follow the rules of ERISA. However, there are certain types of plans that are not covered. For example, ERISA does not usually cover group health plans that are established or maintained by a religious institution or government organization. In addition, ERISA only applies to plans that are maintained in the U.S.
To qualify for protection under ERISA, a plan must be employer-sponsored and tax-deductible based on requirements set by the IRS. In addition, qualified plans must follow non-discriminatory rules, meaning each employee has the right to access the same benefits. Plans like tax-deferred compensation and bonus plans are considered non-ERISA qualified plans.
Later Additions to ERISA
Over the years, there have been multiple amendments made to ERISA. These changes have been established as a way to provide further protection to employees. For example, modifications have been made relating to coverage length, mental health problems, cancer patients, reconstructive surgery, and other topics.
One of the most notable additions to ERISA was the Consolidated Omnibus Budget Reconciliation Act (COBRA) enacted in 1985. This act was put in place to ensure that employees who chose to voluntarily resign or were let go under specified circumstances were still able to receive healthcare benefits for a set period of time. Another amendment made under ERISA was the Newborns’ and Mothers’ Health Protection Act. This act requires health plans to offer maternity coverage that pays for the mothers’ hospital bills following childbirth.
Consult BenefitCorp for Retirement Planning
If you offer employee benefits to your workers or are considering offering benefits, know that the benefits you offer will likely be subject to ERISA regulations. Even if you are not directly responsible for managing ERISA obligations, it is important to be familiar with these legal requirements. To remain in compliance with ERISA, you must file certain informational returns with the IRS and Department of Labor, disclose information to plan participants and establish a claims procedure to process benefit claims. To learn more about ERISA, contact the retirement planning experts at BenefitCorp.