Employers choosing to offer pension and health insurance benefits to employees are subject to the Employee Retirement Income Security Act (ERISA) of 1974. Since the federal law was enacted, employees have enjoyed a certain level of protection by a law that directs how employers and their benefits partners administer pension and health insurance programs.
The goal of this post is to give you a basic understanding of what the ERISA is and why you should care about it. It is important to note that the law does not offer an exemption for small businesses. As such, the ERISA covers nearly every employer in the United States with the exception of government agencies, recognized churches, and Indian tribes.
The Basics of ERISA
The ERISA came about as a result of pension reform initiated by President Kennedy in the early 1960s. The government impetus for looking at pensions was a highly publicized decision regarding the Studebaker Corporation's pension plan when the company closed in 1963. Studebaker had not properly managed its pension plan and, as such, could not afford to pay employee benefits as promised.
Congress intended the ERISA to protect employees enrolled in both pension and health insurance plans against mismanagement. A lot has changed since then. For example, traditional pension plans are nearly extinct in the private sector. Most employers offering retirement plans now prefer 401(k)s instead.
In terms of health insurance, we all know the effects of the Affordable Care Act (ACA). Most employers in the U.S. must now offer their eligible workers a health insurance plan that meets minimum standards. Though that may change in the future, the employer mandate remains in effect for now. So even those employers that do not offer pension plans are still subject to the ERISA by virtue of health insurance.
There have been a number of laws passed since 1974 that have enhanced the reach of the ERISA. For example, the Consolidated Omnibus Budget Reconciliation Act (COBRA) established the right of an employee to continue using a former employer’s health insurance plan for a time following termination. The more recent Health Insurance Portability and Accountability Act (HIPPAA) introduced measures to protect employees from discrimination in health insurance plans.
ERISA Documentation and Reporting
At this point it is important to note that the ERISA does not mandate that employers offer pensions or health insurance. The ACA does mandate health insurance, but there is no federal statute forcing companies to offer any sort of retirement plan. The ERISA only comes into play when health insurance plans and pensions are offered.
The ERISA requires employers to maintain the necessary documents to explain what their plans offer. Plan members must receive at least summary plan descriptions that detail their rights and obligations. These documents can be created, distributed, and stored digitally.
In terms of reporting requirements, the ERISA requires certain forms to be filed on a given schedule. For example, large plans covering 100 or more employees are required to file Form 5500 within seven months of the end of the plan year.
One last thing to note is that the ERISA established certain fiduciary responsibilities for those individuals and entities who manage and/or control plan assets. This provision was put in place to protect both employers and employees against plan managers who might not act in their best interests.
Your company needs to be familiar with the ERISA if you offer either a pension or a qualifying health insurance plan. Be sure you know and understand what the law says so that you can maintain compliance.