(By: Brittany Brooks)
The Employee Retirement Income Security Act, also known as ERISA, was established in 1974 to protect employees and their retirement funds. The primary purpose of ERISA is to safeguard employees contributing funds into their employer-sponsored retirement plan and regulate the fiduciaries who oversee those assets.
Fiduciary: The person or company with discretionary authority over managing the employee’s pension/ retirement plan and its assets. This includes trustees, plan administrators, investment committees, or anyone who provides advice regarding the plan and its assets.
It provides regulations and guidelines for:
- Benefits accrual
- Employee eligibility and participation
- And how long an employee can be absent before their retirement plan is forfeited
In short, ERISA ensures employees don’t lose the retirement contributions they worked so hard for and stops fiduciaries from misusing the funds. All while empowering employees with the right to sue the fiduciary in the event violations are made.
Plans Covered by ERISA…
Are called qualified plans. Qualified plans must be employer-sponsored, tax-deductible, and all employees are required to have access to the same benefits.
Examples: 401(k), 403(b), deferred compensation plans, profit-sharing, and a few other retirement plans
ERISA does not cover IRAs, Simplified Employee Pensions, and retirement plans administered by the federal government or churches.
ERISA applies to any company offering a qualified plan:
- Limited Liability Company (LLC)
- Nonprofit organization
- And any business with at least one employee
The key here, if you offer a qualified retirement or pension plan, you are held accountable for all ERISA rules, guidelines, and regulations.
There are a series of federal requirements plan sponsors must meet that revolve around:
- Benefit accrual
- And participation
Speak with your ERISA representative or benefits administrator to determine if your company meets the requirements to sponsor an ERISA qualified plan.
ERISA is regulated by the Employee Benefits Security Administration (EBSA) and requires the employer to stay compliant with ERISA regulations.
To remain compliant:
- Plan participants must be updated and informed of any changes
- Plan participants must receive quarterly statements regarding their retirement assets
- Fee disclosures must be provided every 12 months
- Deposits and deferrals must be made on time
ERISA and Health Insurance
ERISA protects some health insurance plans:
- Plans that receive employer contributions
- All mandatory health insurance plans
- And any plan that defines how contributions are administered
Under ERISA, plan providers are required to inform employees of the following:
- Coverage Eligibility
- How to file an insurance claim
- Full disclosure on costs, deductibles, copays, and premiums
*Group health plans are not subject to ERISA law.
Am I required to offer a retirement plan?
No. You are not required to offer a retirement plan to your employees. However, providing a retirement plan is ideal for better retention.
Employers only have to abide by ERISA law if they provide a qualified retirement or health insurance plan.
If an employee purchases a retirement plan privately, am I subject to ERISA regulations?
No. If an employee purchases their own retirement plan, you are not held liable by ERISA law.
Is a fiduciary the same as the employer?
Not necessarily. The fiduciary is the company or person who controls the plan’s assets and manages the plan.
Would that make my company a plan sponsor instead?
As an employer, if you set up and offer a retirement and/or health insurance plan to your employees, you are considered a plan sponsor. As a plan sponsor, you are responsible for enrolling employees once they are eligible, investment decisions, and making contributions if that’s what you agreed to in the policy.
There are other tasks involved, but it’s common for employers to hire a third-party company, like Zupnick & Associates, to lessen the burden of maintaining their employer-sponsored benefits plan.