ERISA (Employee Retirement Income Security Act)

ERISA is the Employee Retirement Income Security Act of 1974, a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry. The Department of Labor describes it as protecting the people enrolled in those plans. It governs how plans run, not whether an employer must offer one.

A common misconception is that ERISA is only a pension law. It also covers welfare plans, such as group health, disability, and life coverage. Government plans and church plans are generally outside it.

What Plans Does ERISA Cover?

ERISA covers two kinds of plans set up by an employer or an employee organization. Pension plans provide retirement income or defer income until employment ends or later, and welfare plans provide benefits such as medical care, disability coverage, and vacation pay. A 401(k) is an example of the first kind, and a group health plan of the second.

The law applies to plans established or maintained by an employer engaged in commerce, an employee organization, or both. The statute exempts these plans:

• Governmental plans
• Church plans, unless the church makes an election under the tax code
• Plans kept only to comply with workers' compensation, unemployment compensation, or disability insurance laws
• Plans maintained outside the United States primarily for nonresident aliens
• Unfunded excess benefit plans

Who Is a Fiduciary, and What Must They Do?

A fiduciary is anyone with discretionary authority or control over plan management or plan assets, or anyone who gives investment advice for a fee. The test turns on the function a person performs, not a job title. An HR leader or committee that selects plan investments may therefore qualify.

Under 29 U.S.C. 1104, a fiduciary must act solely in the interest of participants and beneficiaries. That means providing benefits and paying reasonable expenses, using prudent care, diversifying investments unless clearly prudent not to, and following plan documents consistent with ERISA. A breaching fiduciary is personally liable to make good the plan's losses.

What Reporting, Disclosure, and Claims Rules Apply?

The administrator must give each participant a summary plan description. It is due within 90 days after a person becomes a participant, or within 120 days after a new plan becomes subject to ERISA, if that is later. Material changes must be summarized within 210 days after the end of the plan year in which they are adopted.

On written request, the administrator must also provide the latest annual report and the plan instruments. Plans file that annual report each year, commonly on the Form 5500 series. When a plan denies a claim, it must give written notice with specific reasons and a reasonable opportunity for full and fair review.

How Is ERISA Enforced?

Participants and beneficiaries can sue to recover benefits due under the plan, enforce their rights, or clarify rights to future benefits. They, other fiduciaries, and the Secretary of Labor can also seek relief for fiduciary breaches, including injunctions. Courts may award reasonable attorney's fees and costs to either side.

An administrator that fails to respond to a document request within 30 days may face a daily penalty, in the court's discretion. For some terminated defined benefit pensions, the Pension Benefit Guaranty Corporation guarantees payment of certain benefits.

What Does ERISA Preemption Mean?

ERISA supersedes state laws to the extent they relate to a covered employee benefit plan. A plan is therefore generally run under one federal framework rather than separate state rules. The statute keeps state laws that regulate insurance, banking, or securities, and generally applicable state criminal laws.

Plans themselves are not deemed to be insurers, banks, or similar entities under state law. In practice, state insurance rules reach the insurer that sells a plan, but a self-funded employer plan is not treated as an insurer. Whether a given state law is preempted is a legal question, so ask benefits counsel.

How Can HR Cloud Help With ERISA Plan Administration?

HR Cloud's published pages do not include plan document drafting, but they do cover the delivery side. The e-signature page says users can sign and store documents from any device, and that mandatory read-and-acknowledge features let managers know employees received a document.

The pages do not describe plan administration, Form 5500 filing, fiduciary oversight, claims handling, or benefits enrollment. HR Cloud is not a legal advisor or a benefits administration tool. The plan sponsor and administrator remain responsible for the duties above.

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Frequently Asked Questions

Q: Does ERISA apply to my company's 401(k) and health plan?

A: Generally yes, if a private-sector employer sponsors the plan. Governmental plans are exempt, as are church plans unless the church elects coverage.

Q: Does ERISA require employers to offer a retirement or health plan?

A: No. ERISA sets standards for plans that employers establish voluntarily. It does not require an employer to create one.

Q: Can a plan fiduciary be personally liable?

A: Yes. A fiduciary who breaches ERISA duties must make good the plan's losses resulting from the breach and restore profits made through plan assets. A court may order other remedies as well.

Q: What is the Form 5500?

A: It is the annual return and report for employee benefit plans under ERISA, developed jointly by the Department of Labor, the IRS, and the PBGC. It must be filed electronically, and small plans use the Form 5500-SF.

Q: Does ERISA's vesting rule apply to health plans?

A: No. The participation and vesting standards do not apply to employee welfare benefit plans such as health coverage. They matter for pension plans such as a 401(k).

Q: Can an employee sue over a denied benefit claim?

A: Yes. ERISA lets a participant or beneficiary sue to recover benefits due under the plan terms. Plans must also offer a review of denied claims, so the employee should follow those steps and talk to counsel.