What Is the Employee Retirement Income Security Act (ERISA)?
The Employee Retirement Income Security Act (ERISA) of 1974 sets minimum standards for employer-sponsored benefit plans within the private sector and federally regulates retirement, health and wellness benefits for millions of Americans.
Find out how ERISA protects retirement assets and health benefit plans for the majority of American workers.
Definition and examples of ERISA
ERISA is a comprehensive federal law that protects employees in employer-sponsored retirement and health plans, except those offered by government entities or churches (generally). Requires most private employers to voluntarily provide benefits to comply with federal and state regulations or face penalties.
The law covers retirement benefits, including pensions, profit-sharing plans, employer-sponsored individual retirement accounts (IRAs), and 401 (k) plans; pension plans, such as health, dental, disability and life insurance; health plans offered by employers; as well as scholarship, vacation and severance funds.
"ERISA is important because it tries to ensure that workers receive the benefits they were promised," said Joseph A. Garofolo, director of ERISA Expert Services.
ERISA requires plan sponsors to provide plan participants and beneficiaries with important information about benefits, including coverage, costs, and financing. It also holds the plan's managers and fiduciaries accountable through established rules of conduct and protects plan funds from mismanagement and abuse.
In the event of termination, mismanagement of funds, or fiduciary breach, ERISA guarantees payment of benefits through the federally licensed company, Pension Benefit Guaranty Corporation (PBGC). It also allows plan participants to file claims through a grievance and appeal process to obtain their benefits.
At the new job, you will receive a new hire package with brochures on health and retirement plans offered by the company. ERISA requires employers to provide this information to employees. The packet should include a brief description of the plan detailing the plan options, claim processes, and eligibility requirements. Additionally, plan participants will also receive annual notices and benefit summaries in the mail from time to time.
How ERISA works
ERISA protects the interests of employees and employers alike. Provides guidance to plan managers, ensures employees receive their benefits, and provides protection for plan assets and contributions.
Companies are not required to provide employee benefits, but they must meet the minimum standards set out in ERISA if they do. Failure to comply can result in disqualification from the plans and other penalties.
The standard requirements outlined by ERISA include:
Disclosure of Information on Health and Retirement Benefits to Employees.
An established complaints procedure
Non-discriminatory practices on the basis of health or disability
A consistent procurement schedule
Plan information report with the Department of Labor and the IRS
making timely contributions
Fiduciary responsibility to act in the best interest of the participants.
Minimum financing requirements
Plan the assets to be held in an insurance or trust contract
The right to continue group health coverage
An established process for appeals and complaints.
The right to file a claim for benefits for any fiduciary irregularity.
Guarantee of payment of certain benefits through the PBGC
"ERISA was enacted to protect the interests of participants and beneficiaries, among other things, by creating very high standards for those responsible for administering the plans," Garofolo said.
"ERISA also allows participants and beneficiaries to file lawsuits in federal court to protect their rights and benefits and gives a government agency broad authority to investigate and enforce the statute."
Oversight of ERISA is shared between the Department of Labor, the Internal Revenue Service (IRS), and the PBGC.
The Department of Labor's Employee Benefits Security Administration (EBSA) enforces the provisions of ERISA regarding fiduciary duty and prohibited transactions. The IRS focuses on capital, acquisitions, and financing issues. The PBGC works as a protection against failures, guaranteeing guaranteed minimum benefits for some pension plans.
File a claim
Garofolo explained how ERISA governance could work in the workplace. For example, if an employee is disabled and his employer offers a disability plan, he can submit an application for benefits in accordance with the application procedure required by ERISA.
If the claim is denied, ERISA requires the plan to provide a full and fair review of all denied claims, Garofolo said. If the plan administrator determines that the employee is not entitled to disability benefits, the administrator must provide the employee with certain information, including the reasons for the denial and the plan provisions that form the basis for the denial.
Once the employee completes the claim process, he can file a lawsuit with ERISA and a court can determine that the employee is entitled to plan benefits.
Changes in ERISA
Since its inception, ERISA has been modified several times to extend its protections. The three most common additions are the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPPA), and the Affordable Care Act (ACA).
COBRA allows some workers and their families to continue buying health coverage for a limited period after a qualifying event, such as layoff.
HIPPA protects patient information and reduces discrimination in health coverage based on exclusions for pre-existing conditions.
The ACA provides access to affordable health care for millions of Americans. He also reformed the health insurance market to make it easier for employers to offer health insurance.
Other amendments include the Maternal and Newborn Health Protection Act, the Women's Health and Cancer Rights Act, and the Mental Health Dependency Parity and Equity Act.
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Source: Securities Finance Times
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