What is ERISA?
ERISA stands for Employee Retirement Income Security Act, a federal law that was passed under President Ford in 1974 to help secure the interests of retired people and their beneficiaries. Since then it has been amended a few times in response to the growing needs of American workers and their families. Essentially it establishes minimum standards for those with retirement plans, who work in the private industry, to provide protection for those in these plans. Under this act, plan managers must provide plan information to participants, and they, as well as other fiduciaries, must follow a standard of conduct. It enforces provisions that make sure qualifying participants receive all of their benefits, regardless of the financial status of the company - this includes bankruptcy.
Why is it so important?
The answer is simple: it protects retirement savings from any kind of abuse and/or mismanagement. It makes certain that the people in charge of these plans act in the best interest of the plan participants and that they are held to the highest of standards. It ensures that there is complete transparency and accountability and that participants can access their plans at any time. ENRISA protects many employee benefits, including: retirement (pension plans) and health, as well as other welfare benefit plans such as life insurance, disability insurance, and even apprenticeship plans. ERISA laws are not applicable to private insurance policies or benefits.
Aside from requiring participants to receive plan information (plan features and funding) upon demand, ENRISA secures that plans include a grievance and appeals process for participants to receive their benefits, and gives them the right to sue for violations of fiduciary responsibility.
ERISA does have its limitations and is a rather complicated sector of law if one wants to file a civil claim against an ERISA employer. Though difficult, it still offers protection to employees who may have been wronged in some way by those financially in charge of a plan's administration. As an example, an employee can sue the trustee of a plan if he/she mismanaged the plan and caused an employee to incur a loss(es).
Who needs to follow ERISA law?
Actually only private corporations, small businesses and non-profits must comply with ERISA regulations, similar to timeshare regulations. Excluded are public sector retirement and pension plans, religious establishments such as churches, and any negotiations made with non-U.S. citizens.
It is important to remember that ERISA does not require employers to offer retirement plans – they are not legally obligated to do so. Rather, ERISA guidelines set the foundation for specified categories of retirement plans. ERISA rules affect private sector retirement benefits only if the employer identifies that the benefits were completely voluntary and that the employee chose to use these policies.
How is ERISA administered?
ERISA is implemented and enforced by 3 entities: the Labor Department’s Employee Benefits Security Administration, the Pension Benefit Guaranty Corporation, and the Treasury Department’s Internal Revenue Service.
The Department of Labor: this agency oversees the duties of fiduciaries, which are most often retirement managers. They are given the responsibility of managing plans, interpreting and communicating the plan details to participating employees, record keeping, and reporting the needed information to the government.
The Pension Benefit Guaranty Corporation: its primary duty is to insure the funds of private pensions.
The IRS: this entity enforces the regulations for participation funds.
Over the years there have been amendments to ERISA to align with the ongoing needs of workers, which have in turn expanded the protections to health benefit plan participants and their beneficiaries. The most important being COBRA (Consolidated Omnibus Budget Reconciliation Act). This allows an employee (and family members) who are in between jobs to continue receiving health coverage for a restricted amount of time– perhaps due to life events such as a job loss. Though it can be quite costly, it still provides an alternative. Former employees can purchase health coverage for up to 18 months, while children and spouses can keep it for up to 36 months. This even includes divorce – the spouse can continue the insurance for a specified amount of time. COBRA does not apply if the employee was let go/terminated for a serious issue or anything considered to be gross misconduct.
Another ERISA change is the Health Insurance Portability and Accountability Act (HIPAA)– an act that protects workers and their families from health coverage discrimination based on a person’s pre-existing health conditions.
ERISA does not, in general, include coverage of group health plans established and maintained by government agencies, churches, or plans that exist only to comply with unemployment, workers compensation, or laws surrounding disability. Also, it does not cover plans outside of the USA for non-resident aliens.
Other important revisions that were added to ERISA include: the Mental Health Parity Act, the Women's Health and Cancer Rights Act, the Mental Health Parity and Addiction Equity Act, the Newborns' and Mothers' Health Protection Act, and the Affordable Care Act.
Though COBRA and HIPAA are the most noteworthy changes to the rules of ERISA, there is a constant need for changes in policy as industry needs are constantly evolving. Those employers who use full coverage health insurance policies most often have all compliance issues managed by the provider itself. However, owners with self-funded health plans must handle these issues on an internal basis which can be complicated. That is why it is vital for risk appraisers and retirement plan managers to be as knowledgeable as possible with any and all policy changes. The top organizations that are self-insured have pros devoted to every aspect of risk assessment and benefit plan management. The problem lies with many aspiring small-business owners, who do not have the expertise, and staying compliant with all regulations with retirement and healthcare can be daunting.
Why it’s important to understand ERISA
Even those employers who are organized and well-intentioned can make mistakes with respect to complying with ERISA. As mentioned above, that is why it is necessary to hand over the job of compliance to someone in the company with the know-how, or to hire an outside source. The fees and punishments that can be incurred vary immensely (and they can be huge) depending on the regulatory body that governs a single aspect of retirement plans, so as they say… better to be safe than sorry!
Provisions under ERISA
In summation, ERISA sets and manages requirements and standards for the following:
- Actions and Conduct: ERISA rules controls the conduct of those in charge of plans, such as HMOs, and other fiduciaries.
- Reporting and Accountability: ERISA requires that comprehensive reporting and accountability is communicated to the federal government.
- Disclosures: Precise declarations must be given to plan participants (a plan summary that distinctly lists benefits, limitations of the plan, rules for receiving those benefits, and other specifications for receiving benefits – for example; getting a referral in advance for surgery or doctor visits.
- Procedural Protections: ERISA specifies a written policy be confirmed regarding how claims need to be filed, a written appeals process for denied claims, and lastly, that claims appeals be overseen in a timely and fair manner.
- Financial and Best-Interest Protection: ERISA acts as a guard to ensure that plan funds are protected and provided in the best interest of the plan participant. It also forbids discriminatory practices in acquiring and collecting plan benefits for qualified persons.