ERISA: What You Need to Know

Why ERISA Was Enacted

In 1959, when the Welfare and Pension Plans Disclosure Act was issued, the U.S. Department of Labor began regulating employee benefit plans. This law made it a requirement for employers to provide financial reports and plan descriptions to the government as well as workers who participated in their retirement plan. Although the purpose of this act was to help employees prevent the mismanagement of their retirement funds, this act was still very limited in terms of what it could do. For this reason, ERISA was passed.

All retirement plans that are issued on or after January 1, 1975 are required to abide by ERISA’s requirements. When this act was passed, it expanded on what information employers were required to provide to the government, and made it a requirement for employers to exclusively manage the funds belonging to the participants of the plan.

How ERISA Protects Employees

ERISA was mainly put into place to protect the best interests of employees, and it does so in the following ways:

• Employees are given more access to information regarding their pension plans. Under this act, employers who provide their workers with a retirement plan must let their workers know if significant changes have been made to their plan. Employers are also required to let their employees know how to file a claim for benefits.
• Information about a change to a benefits plan must be provided to workers in writing, either upon request or by the administrator of the plan.
• ERISA protects employees from any wrong actions committed by a plan fiduciary, or anyone who has control over the assets contained in a plan.
• Fiduciaries are not allowed to take too much risk when managing the funds contained in an employee’s retirement plan.
• A fiduciary can be held personally liable if improper planning occurs and a large loss for the employee is sustained.

Ultimately, ERISA is designed to protect employees against any abuse or mismanagement of their retirement funds.

Amendments to This Law

Over the years, ERISA has been amended several times. Many of these amendments were enacted to provide employees with more protections relating to longer coverage, mental health issues or reconstructive surgery for those who have cancer.

The Consolidated Omnibus Budget Reconciliation Act is one of the more important amendments made to ERISA. Enacted in 1985, this amendment was designed to make sure that employees who were let go from their positions for certain reasons or those who resigned from their jobs out of their own free are eligible to maintain their healthcare coverage for a set time period. Another important act that amended ERISA is the Health Insurance Portability and Accountability Act. This act gives employees credit for periods in which they held previous coverage and also limits preexisting medical conditions.

Employer Obligations

There are certain requirements employers are required to meet if they administer a health insurance, retirement or pension plan to their workers. For example, employers must give their employees important information about the features of their plan and how it is financed as well as the duties of the fiduciary. Employers are also required to set up procedures regarding how employees can resolve grievances with a plan. Additionally, employers who knowingly withhold benefits from their workers may be held legally accountable.

ERISA Violation Penalties

Employers who violate any of the terms of ERISA may face civil and criminal penalties, and can be punished in two main ways. The first occurs when someone who is covered by a plan files a complaint against the person who violated the terms of his or her plan. However, before a lawsuit can be filed, generally speaking, administrative procedures for rectifying the situation must be followed.

Second, employers can be penalized for violating an ERISA regulation when an action is made by the Employee Benefits Security Administration. This organization, which is a part of the Department of Labor, is responsible for enforcing any federal laws that pertain to health insurance policies and retirement plans.

To avoid legal actions and penalties, employers should check with attorneys to ensure they’re in compliance with current retirement plan requirements. An ounce of prevention is worth a pound of cure.