What is ERISA Law? Everything You Need to Know

If you are an employee in the United States, it is likely that your employer’s retirement plan is governed by a federal law called the Employee Retirement Income Security Act of 1974 (ERISA). This law sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.

While ERISA does not require any employer to provide a retirement plan or health benefits, it does require that, if an employer chooses to do so, the plan must meet certain standards. For example, under ERISA, employers must provide participants with information about the plan, give them a chance to voice grievances and complaints, and not engage in any practices that would mislead participants or deprive them of their benefits.

Let’s take a closer look at all the particularities.

History of ERISA

So, what is ERISA law? ERISA was enacted in 1974 in response to a number of major scandals that had come to light in the early 1970s. These scandals involved the misuse of employee pension funds by employers and unions. In addition, there was a growing concern that many employees did not have any retirement savings at all.

In order to address these problems, Congress passed ERISA. This law established minimum standards for retirement plans in the private sector and provided for strict regulation of pension plan management.

The goals of ERISA are to:

• Protect the interests of employees in their retirement savings
• Promote the formation of retirement savings plans
• Regulate the operation of these plans

Since its passage, ERISA has been amended several times, most notably in 1980, 1984, and 1996.

What Does ERISA Cover?

ERISA covers two types of employee benefit plans: pension plans and welfare plans.

Pension plans are retirement savings plans that are usually sponsored by employers. They may be defined benefit plans, which promise a certain level of benefits upon retirement, or defined contribution plans, under which employees and employers contribute a fixed amount each year.

Welfare plans are employee benefit plans that provide benefits other than retirement savings, such as health insurance, life insurance, and disability income protection.

ERISA does not cover certain types of employee benefit plans, such as:

• Individual retirement accounts (IRAs)
• Keoghs
• Governmental plans
• Plans maintained outside the United States
• Certain church-related plans
• Some benefits provided by fishermen and farmers’ cooperatives

What Are the Key Provisions of ERISA?

There are several key provisions of ERISA that are designed to protect the interests of employees in their retirement savings.

First, ERISA requires that pension plans be established and maintained in a fiduciary capacity. This means that plan sponsors and administrators must act in the best interests of plan participants and beneficiaries.

Second, ERISA imposes a number of reporting and disclosure requirements on pension plans. For example, plan sponsors must provide participants with a summary plan description that outlines the key features of the plan. In addition, plan sponsors must provide participants with an annual report that includes information on the financial status of the plan and the benefits that have been paid out.

Third, ERISA establishes certain standards for the administration of pension plans. For example, plan sponsors must adopt written procedures for the processing of benefit claims and grievances. In addition, plan administrators must give participants a reasonable opportunity to appeal adverse benefit determinations.

Fourth, ERISA prohibits certain types of transactions between pension plans and plan sponsors or other parties that could result in a conflict of interest. For example, plan sponsors are prohibited from borrowing money from the plan or using plan assets for their own benefit.

Finally, ERISA establishes a number of criminal and civil penalties for violations of the law. These penalties can be imposed on both individuals and companies.

Final Thoughts

ERISA is a complex law that governs the operation of employee benefit plans in the United States. While it imposes a number of requirements on employers and other plan sponsors, its primary purpose is to protect the interests of employees in their retirement savings.

If you have any questions about ERISA or how it may affect your retirement savings, you should speak with an experienced ERISA attorney.