Meeting all the legal requirements for your company’s benefits and retirement programs can be challenging, but it helps protect your employees’ — and your own — funds from potential misuse and unfair access to the benefits. Read more about ERISA, the primary law governing most private-sector benefits and retirement programs, and how you can stay compliant.
ERISA
In 1974, the federal government established the Employee Retirement Income Security Act (ERISA), a law that sets the requirements for employee retirement and welfare benefit plans. It sets minimum standards to protect the employees that participate in these plans and ensure employees have fair access to join them. ERISA rules apply to most, but not all, insured or self-funded employee benefit programs.
Some of the basic requirements ERISA establishes include:
Giving employees standard information about the plan.
Minimum participation standards.
Funding rules.
Standards for vesting and benefit accrual.
Since 1974, ERISA has been amended several times. One amendment, the Consolidated Omnibus Budget Reconciliation Act (COBRA), gives employees access to health insurance after their employment has terminated. Other amendments employees might be familiar with include:
The Health Insurance Portability and Accountability Act (HIPAA).
Newborns’ and Mothers’ Health Protection Act.
The Women’s Health and Cancer Rights Act.
The Affordable Care Act.
The Mental Health Parity and Addiction Equity Act.
Ultimately, ERISA and its amendments establish minimum participation standards, protect employees’ funds, and establish avenues so individuals can sue for misuse.
Understanding ERISA
ERISA defines the role and responsibilities of fiduciaries that have control over the plan’s management and assets. It bans potential misuse of funds by the fiduciary, ensures participants are informed of their rights, and guarantees payment under the Pension Benefit Guaranty Corporation.
ERISA vs. SEP
ERISA establishes a hefty compliance burden that small businesses reasonably struggle to meet. Instead, small businesses can establish Simplified Employee Pensions (SEPs). These accounts are not subject to ERISA oversight and allow employers to offer their employees meaningful retirement saving opportunities.
History of ERISA
Before ERISA was established in 1974, retirement accounts and employees had few protections. One notable case that highlighted the need for oversight was the Teamsters Pension Fund, which loaned money to Las Vegas casinos and misused employee funds. The public response once the misuse was uncovered prompted the formation of ERISA’s core protections.
Who Administers ERISA?
The Employee Benefits Security Administration (EBSA) administers ERISA. The EBSA falls under the Department of Labor (DOL), and local offices are responsible for answering questions and addressing complaints or concerns.
Abiding by ERISA Law
ERISA’s provisions apply to private-industry employers that have retirement accounts and employer-sponsored health insurance plans for their employees, but it does not require employers to offer those plans. ERISA also doesn’t apply to privately purchased policies and benefits. ERISA establishes minimum standards and, while the law is complex, employees can make civil claims if employers — or the plan fiduciary — fail to meet those minimum standards or mismanage an applicable plan.
Employers or organizations that violate ERISA standards are subject to DOL enforcement actions, penalties, and lawsuits. Employees can learn more about supplemental regulations that govern ERISA-covered plans by researching the Benefits Claims Procedure Regulation (29 CFR 2560.503-1). These procedures explain how employees can pursue a claim and what they can expect.
Provisions Under ERISA
Five core provisions under ERISA focus on the following:
Conduct: The rules govern how fiduciaries and managed care entities can conduct themselves.
Reporting and Accountability: Entities must follow detailed reportability requirements as they report to the federal government.
Disclosures: Plan participants must be informed about the benefits, rules, and plan limitations.
Procedural Safeguards: Each plan must have written procedures regarding filing and appealing claims.
Financial and Best-Interest Protection: Safeguards protect the plan funds and enforce nondiscrimination policies.
Which Employers Are Subject to ERISA?
Both small and large private-sector employers are subject to ERISA’s terms. Such organizations include Limited Liability Companies (LLCs), corporations, sole proprietorships, partnerships, and even nonprofit organizations. However, government plans and church plans are exempt from ERISA oversight.
Which Welfare Benefit Plans Are Not Subject to ERISA?
The following welfare plans are exempt from following ERISA:
Adoption assistance plan.
Commuting plans.
Dependent Care Assistance Programs (DCAPs).
Health Savings Accounts (HSAs).
Pet insurance.
Financial and retirement planning programs.
Health club memberships, provided they don’t include medical care.
Liability insurance plans.
Professional development programs and scholarships.
Unemployment compensation.
Along with generally exempt plans, the Department of Labor has exempted two categories of plans: safe harbor exemptions for some payroll practices and for voluntary plans.
Which Payroll Practices Are Exempt From ERISA Under the DOL’s Safe Harbor?
Some pay is exempt from ERISA’s regulations, including:
General wage payments, including overtime, shift premiums, and holiday pay.
Paid medical leave or unfunded sick pay in which employees get paid while they aren’t at work due to medical reasons.
Unfunded pay for events such as vacation, jury duty, and holidays.
These pay processes are only exempt from ERISA regulation if they are unfunded.
Which Voluntary Plans Are Exempt From ERISA Under the DOL’s Safe Harbor?
Some voluntary insurance plans don’t fall under ERISA oversight. To be considered an exempt voluntary plan, the plan must meet these requirements:
Participation is voluntary.
The plan is funded by the group.
The employer makes no contributions.
Employers receive no financial benefit from the plan, with the exception of reasonable administrative fees for services rendered.
ERISA Compliance Checklist
Meeting ERISA’s compliance burden can be difficult, especially for small businesses. To get started, make sure your company has these resources for each of the plans:
An ERISA-compliant plan document.
A Summary Plan Description that new employees receive within 90 days.
Updated benefits requirements.
A Summary Annual Report (SAR).
A six-year archive of Form 5500 information.
An ERISA fidelity bond if the plan sponsor handles plan assets.
A clearly defined claims and appeals process.
Regular nondiscrimination testing.
A Section 125 document for pre-tax contributions.
This list is just a brief overview of some of the requirements companies must meet to be compliant with ERISA.
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The Human Interest TeamWe believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.
