ERISA stands for the Employment Retirement Income Security Act of 1974. ERISA is a Federal Statutory labor law that deals with the employer-employee relationship. ERISA was enacted because employers would make promises to employees concerning benefits and sometimes they were not followed through with. ERISA is a proactive method for the employees because without it they could not do anything about their employers going back on their promises and would be left without any employee benefits in a time of need. ERISA governs benefits which include pension plans, health and disability insurance, death benefits, severance plans, plans providing pre-paid legal services, scholarship funds, apprenticeship and training programs, and employer operated day care centers.
To avoid confusion, employers do not have to provide employees with any benefits whatsoever and there is no penalty for not providing benefits. But if the employers choose to provide employees with benefits, this is when ERISA laws are applied to ensure that employers keep their word and do not revoke these benefits from their employees.
Because employers are not required to provide their employees with benefits, some may ask why any employer would consider having these benefits and why would they choose to be regulated by ERISA. Employers are interested in attracting talent and keeping talent and providing benefits to employees is a way to do this. It is a way to compete with other employers for the best workers and to keep the employees in their company.
Employee Benefits fit into two main groups and ERISA contains laws for each of these. The first group includes benefit plans that are defined by the benefits that are provided under the plan. This plan is also known as an annuity plan or pension plan. When you go to work you become a participant in this plan. There is a formula in the plan that sets forth how to determine how much you are going to get. The amount is determined based on how much you make and how long you have worked at the company.
The next group that ERISA covers is the defined contribution plans, which is defined by the contributions into an account in your name. For example a 401k plan is a defined contribution plan. This is a tax vehicle where you as a participant elect to take money out of your pay. This pay will be pre tax meaning you don’t have to pay taxes on it until you take it out. It will be invested and will grow pretax. You will only pay taxes at the end when you take a distribution of the money.
Under ERISA, benefit plans are to be operated in a fair and financially sound matter. Employers and entities that manage and control employment benefit plan funds are required to manage funds for the exclusive benefit of plan participants and beneficiaries, avoid conflicts of interest when making investment and benefit decisions, report certain information about the plans to the government and to the plan participants, and comply with specific guidelines regulating how and where plan funds may be invested.
To qualify for benefits, each employee benefit plan must notify participants of the process for filing a claim for benefits and also set forth standards that the employee must meet to qualify for the specific employee benefits. Also an employer is prohibited from making significant changes to an employee benefit plan without first notifying the participants that are in that plan.
Once a plan participant files a claim, the plan has ninety days to inform the participant whether the claim is accepted or denied. If the claim is denied, the plan is required to inform the employee how to submit a denial for a full and fair review, and must give the participant sixty days to do so. Once the employee submits a request for review, the plan must review the denial and make a decision within 120 days. If the employee is not happy with the decision they may file suit against the plan under ERISA.
