What Is ERISA and Why Does It Matter?

For those that have employer-provided retirement and health plans, they may have heard of the Employee Retirement Income Security Act. However, most may not know what it is or why it matters.

ERISA Background

Passed in 1974, ERISA is a federal, not state law. As such, it covers everyone in the U.S., not just those in Washington, D.C. ERISA sets the minimum standards for most public-sector employer-provided health and retirement plans. The act is intended to protect the employees that are part of these plans.

A key to this background, though, is that ERISA cover employees of churches, governmental entities or those plans solely for workers compensation or disability laws. Another important distinction is that it only covers those health and retirement plans maintained inside the U.S., not those maintained outside that benefit, primarily, nonresident aliens. Finally, it does not cover unfunded excess benefit plans.

ERISA Basics

At its most basic level, ERISA sets minimum operating standards. These standards include how the benefits accrue and are funded, when benefits vest and how employers can participate. Then, ERISA requires the employer-provided health and retirement plans to give their participants this information. Essentially, what the plans covers and its cost.

ERISA also requires these plans to establish a process to grant benefits to members, including a grievance and appeals process. In addition, if the plan is terminated, ERISA guarantees some benefits through the Pension Benefit Guaranty Corporation, a federally chartered corporation.

Fiduciary Responsibilities

Most importantly, ERISA makes those who control and manage these plans fiduciaries to their members. These fiduciaries include administrators, members of a plan’s investment committee and trustees. These are those that have authority or exercise discretionary control over plan management or plan assets. This also applies to those that provide paid investment advice.

This means that they act on behalf of and in the best interests of their members. As a result, if that fiduciary duty is violated, members have the right to sue. Specifically, those who violate their fiduciary duties are personally liable for the losses to the plan. They also must repay any improper profits. But, calling an attorney is usually the first step.

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