ERISA: What it is and how it works

What Is the Employee Retirement Income Security Act (ERISA)?

ERISA (Employee Retirement Income Security Act) is a federal law that was created to protect the retirement assets of American workers. The law was enacted in the 1970s to improve upon the WPPDA (Welfare and Pension Plans Disclosure Act), which was limited in helping employees stay on top of their funds and keep track of any abuse of mismanagement.

How does ERISA work?

ERISA establishes the minimum requirements for retirement and healthcare plans to help protect workers and plan beneficiaries. While it’s not required for employers to offer their employees plans, it does set the standards if they do.

Some of the areas the ERISA law sets standards for include:

  • Reporting: Plan administrators are held accountable through annual reporting
  • Protection: The law lays out how assets in retirement plans are protected and how grievances can be addressed
  • Plan participation: There are anti-discrimination regulations in place that help protect all plan participants
  • Fiduciary standards: Ensuring plan administrators act in employees’ best interests, not their own
  • Information disclosures: All participants must be provided standardized information about their plans
signing documents

What is a wrap document?

A wrap document is a tool to maintain compliance with rules related to plan documents and summary plan descriptions (SPD). Specifically, ERISA requires all ERISA plans to:

  • Have a written document requirement
  • Provide SPDs to plan participants

The SPD rules have specific content requirements that usually are not included in the standard documents that an employer receives from insurance carriers. In addition, a plan document should have several legal protections (e.g., discretionary authority, the ability to amend or terminate the plan). The standard benefits-at-a-glance or insurance certificate will rarely satisfy these requirements.

What benefit plans are subject to ERISA?

ERISA applies to two types of plans “Employee Welfare Benefit Plans” and “Employee Pension Benefit Plans.”

A welfare plan is any plan, program or fund that an employer offers, which can include:

  • Health Insurance
  • Group Life Insurance
  • Long Term Disability Income
  • Unemployment Benefits
  • Funded Vacation Benefits
  • Funded Apprenticeship and Traning Programs
  • Dependent Care Assistance
  • Higher Education
  • Wellness Programs

A pension plan is any plan, program or fund offered by an employer that provides retirement income or deferral of income, including:

  • Profit-Sharing
  • Stock Bonus Plans
  • Money Purchase Plans
  • 401(k) Plans
  • Employee Stock Ownership
  • Defined Benefit Retirement Plans

Not all plans are protected by ERISA, some examples are pension or health plans provided by:

  • Federal Government
  • State or Local Governments
  • Indian Tribal Entities
  • Churches

All ERISA-covered health and welfare plans that are funded through a trust must file Form 5500, no matter how many participants are in the plan. Also, health and welfare plans that are unfunded/self-insured or insured must file if they have 100 or more participants at the start of the plan year.

The Bottom Line on ERISA

While you don’t need a working knowledge of ERISA, it’s important to understand the law and the protection it offers plan participants and what you as a company need to do to stay compliant. Luckily isolved can help, contact our sales team to see how we can help you stay compliant with ERISA.

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