The Employee Retirement Income Security Act (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in the private sector to protect individuals who benefit from these plans. Instituted in 1974, ERISA is designed to safeguard the interests of employee benefit plan participants and their beneficiaries.
This act requires plan providers to provide participants with information about plan features and funding. It gives participants a means to seek remedies and ensures their rights to benefits are protected.
Types of ERISA plans
ERISA applies to two types of plans: pension plans and welfare benefit plans. Pension plans are established to provide retirement income or to defer income until termination of covered employment or beyond. Welfare benefit plans provide different benefits, such as health insurance, life insurance, disability insurance and apprenticeship training.
The impact of ERISA on employees
Understanding ERISA is crucial for employees because it impacts how their benefits are managed and protected. One of the critical benefits of ERISA is that it requires plans to provide participants with important information about plan features and funding. This information must be provided in a manner that is understandable to the average participant. It includes details about plan rules, financial information and documents about the plan’s operation and management.
Another significant aspect of ERISA is its fiduciary responsibility provision. This requires those who manage and control plan assets to do so in the best interest of the participants and beneficiaries. Those in charge of managing a pension plan must act prudently and not let their interests conflict with those of the plan participants.
Rights and protections under ERISA
ERISA also gives participants the right to sue for benefits and breaches of fiduciary duty. If a participant feels that their rights under the plan are being violated, ERISA provides a means for them to take legal action. For example, if benefits are wrongly denied, participants can appeal and have the denial reviewed.
Lastly, ERISA guarantees payment of certain benefits through the Pension Benefit Guaranty Corporation if a defined plan is terminated. This is a significant protection for employees, ensuring they will receive at least some pension benefits even if their employer goes out of business or the pension plan is otherwise discontinued.
For these reasons and more, it’s important to have a solid, basic understanding of ERISA in order to make informed decisions about one’s rights and options under the law.