The Employee Retirement Income Security Act (ERISA) was enacted in 1974 primarily to set standards for private pension programs. Prior to ERISA, the management of some large pension funds had been indulging in questionable investments and loans. ERISA was enacted to make sure that pensioners get the benefits that they deserve from their fund contributions.
ERISA's protections do not apply just to pensions, but also to other benefit programs and welfare plans that are provided by employers. These welfare plans include employer-sponsored health plans, vacation policies, required training, employer-sponsored day care, and other benefits that are voluntarily provided by employers.
Voluntary is the key word. ERISA does not require employers to offer any benefits — but any employer who chooses to offer them must follow the ERISA guidelines for administering these benefits. This keeps potential employers from misrepresenting benefits to you or modifying benefits below minimum threshold limits.
ERISA applies only to private employers. Governmental programs and programs for religious-based organizations are exempt.
The areas of protection are summarized below.
- Plan Information – You must be given a written plan that includes all necessary information about the features of your benefits plan and the funding associated with it. Employers are responsible for supplying this plan, known as a Summary Plan Description, to all employees.
The plan information must include an overview of the plan's features and funding structure; the standards and qualification rules for participation, vesting, and the accrual of benefits; the management and control of the collective benefits; and the methods to address grievances including the rights to sue for breaches of benefits.
- Access/Non-Discrimination – If a benefit program exists and you meet eligibility requirements, you must be offered access to it as long as you are over 21 years old and have worked there for at least one year (employers may offer the benefits earlier, but not later).
- Fiduciary Responsibility – Under ERISA, your employer has a fiduciary responsibility to manage and distribute your funds properly. Mismanagement of the pension funds can result in prosecution.
The Supreme Court ruled in a recent case (Tibble v Edison International) that employers have a continuing fiduciary duty through the life of the plan — in other words, employers cannot just set up a proper initial investment and ignore the results as things change over time.
- Reserve Funding – In case a defined benefit plan is terminated, the Pension Benefit Guaranty Corporation (PBGC) steps in to cover the benefits. PBGC is funded by a pool provided by sponsors of defined-benefit plans (not through tax dollars).
- Wrongful Termination – You cannot be fired simply to prevent eligibility for benefit plans.
Compliance with ERISA is monitored through required reports with regulatory agencies. Violations can result in fines from the Department of Labor (DOL), as well as potential civil lawsuits and even criminal charges.
ERISA has been amended many times over the years, with important amendments related to health benefits. The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows workers and families the right to extend their employer-based health coverage for a period of time after a job loss or other certain events. The Affordable Care Act (ACA) provides a private alternative now, but COBRA is still available for those transitioning between jobs. Meanwhile, the Health Insurance Portability and Accountability Act (HIPAA) is aimed at preventing discrimination against health coverage for those with pre-existing medical conditions and other health-related factors.
Other amendments include the Newborn's and Mothers' Health Protection Act and the Mental Health Parity Act. You can find a basic description of ERISA and links to these amendments and other subtopics on the DOL website
As a worker, you should know your rights under ERISA. If an employer is violating ERISA, whether by ignorance or by intent, you need to understand how you are being deprived of benefits and what you can do about the situation.