Employee Retirement Income Security Act

The Employee Retirement Income Security Act of 1974 (ERISA) protects the retirement assets of Americans, by implementing rules that qualified plans must follow to ensure that plan fiduciaries do not misuse plan assets.

Investopedia Says:
ERISA also:

1) Requires plans to provide participants with important information about plan features and funding. The plan must furnish some information regularly and automatically. Some of this information is available free of charge.

2) Sets minimum standards for participation, vesting, benefit-accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits and to have a non-forfeitable right to those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for the plan.

3) Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.

4) Gives participants the right to sue for benefits and breaches of fiduciary duty.

5) Guarantees payment of certain benefits if a defined plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.

6) Protects the plan from mismanagement and misuse of assets through its fiduciary provisions.

This act was enacted to address irregularities in the administration of certain large pension plans -- particularly the Teamsters Pension Fund, which had a rather colorful history involving questionable loans to certain Las Vegas casinos.

Related Links:
Learn how the passed bill can help you save more for retirement. Pension Protection Act Of 2006 Becomes Law
Find out how this "retirement lifeguard" can save drowning plans. The Pension Benefit Guaranty Corporation Rescues Plans
Past mismanagement of employer stock-ownership plans can help you learn what to avoid today. What Enron Taught Us About Retirement Plans
Thinking of adding a loan feature to your company's plan? Here's what you need to know. Qualified Plan Loans: Guidelines to Operations
Will the plan assets you've worked hard for be safe if you experience a personal financial crisis? Bankruptcy Protection For Your Accounts

Law that established rules and regulations to govern private pension plans, including vesting requirements, funding mechanisms, and general plan design and descriptions. For example, three ways of vesting were established: full vesting after 10 years of service (Cliff Vesting); Five to Fifteen Year Rule (at least 25% of benefits vest at end of 5 years of service, 5% each year during the next 5 years, and 10% each year during the next 5 years); and Rule of 45 (when employee's age and years of service add up to 45), 50% of the benefits must be vested with 10% additional vesting each year thereafter.

Under the Tax Reform Act of 1986, vesting requirements were changed to 100% vesting after 5 years of service or 20% vesting after 3 years of service, 40% at the end of 4 years of service, 60% at the end of 5 years of service, 80% at the end of 6 years of service and 100% at the end of 7 years of service. (These vesting requirements are effective as of January 1, 1989.)

Federal law enacted in 1974 that set investment guidelines for management of private pension plans and profit sharing plans, including employee vesting and conduct of plan administrators. The act also established a pension insurance fund, the Pension Benefit Guaranty Corp.

The Employee Retirement Income Security Act of 1974 (ERISA) is a U.S. federal law that regulates most private sector employee benefit plans, including 401(k) plans, profit-sharing plans, simplified employee pension (SEP) plans, and Keogh plans. Originally intended to address the problem of embezzlement from plan funds by trustees, ERISA sets minimum standards to ensure that such plans are established and maintained in a fair and financially sound manner. The law obligates employers to provide plan participants with the benefits they are promised, and establishes strict penalties for those who fail to do so. It also sets forth vesting requirements—time periods over which employees gain full rights to the money invested by employers on their behalf. ERISA governs most employer-sponsored pension plans, but does not apply to those sponsored by businesses with less than 25 employees.

ERISA outlines a number of requirements for administrators of employee benefit plans. For example, those who manage plan funds are required to manage them in the exclusive interest of plan participants and beneficiaries. In other words, employers are not allowed to use retirement funds set aside by employees for their own purposes. ERISA also requires plan administrators to avoid transactions that would create a conflict of interest, and to respect limitations on the percentage of employee benefit plan funds that can be invested in employer securities.

ERISA also sets rules governing the disclosure of information about the financial condition of benefit plans to participants and to the U.S. government. For example, administrators are required to furnish participants with a summary plan description (SPD) covering their rights and benefits under the plan. In addition, employers must file Form 5500 annually with the Internal Revenue Service to report the financial condition and other information about the operation of the plan. ERISA provides for civil and criminal penalties of up to $1000 per day for failing or refusing to comply with these annual reporting requirements.

In 1996, ERISA was amended by Health Insurance Portability and Accountability Act (HIPAA) to improve the continuity of health insurance coverage for employees who terminate their employment with a company. The amendment prohibits employers from discriminating against employees on the basis of health status and sets rules regarding preexisting conditions. For more information about the provisions of ERISA, see the Department of Labor Web site at http://www.dol.gov.

Further Reading:

Anastasio, Susan. Small Business Insurance and Risk Management Guide. U.S. Small Business Administration, n.d.

Blakely, Stephen. "Pension Power." Nation's Business. July 1997.

Clifford, Lee. "Getting Over the Hump before You're Over the Hill." Fortune. August 14, 2000.

Crouch, Holmes F. Decisions When Retiring. Allyear Tax Guides, 1995.

"Five Steps to a Great Retirement." Money. November 1, 1999.

Infante, Victor D. "Retirement Plan Trends." Workforce. November 2000.

Janecek, Lenore. Health Insurance: A Guide for Artists, Consultants, Entrepreneurs, and Other Self-Employed. Allworth Press, 1993.

Martin, Ray. Your Financial Guide: Advice for Every Stage of Your Life. Macmillan, 1996.

Szabo, Joan. "Pension Tension." Entrepreneur. November 2000.

See also: Pension Plans

The name of federal legislation, popularly abbreviated as ERISA (29 U.S.C.A. § 1001 et seq. [1974]), which regulates the financing, vesting, and administration of pension plans for workers in private business and industry.

The 1974 enactment of ERISA by Congress was intended to preserve and protect the rights of employees to their pensions upon retirement by establishing statutory requirements that govern such matters.

Excerpt from the Employee Retirement Income Security Act of 1974

It is hereby ... declared to be the policy of this Act to protect interstate commerce, the Federal taxing power, and the interests of participants in private pension plans and their beneficiaries by improving the equitable character and the soundness of such plans by requiring them to vest the accrued benefits of employees with significant periods of service, to meet minimum standards of funding, and by requiring plan termination insurance.

The Employee Retirement Income Security Act of 1974 (P.L. 93-406, 88 Stat. 829), commonly known as ERISA, is the principal federal law regulating employee-benefit plans in the private sector. There are two general types of employee-benefit plans: 1) pension plans are arrangements for providing retirement income; 2) welfare plans include arrangements for providing benefits such as health, life, and disability insurance and severance pay. Because the legislators who drafted ERISA were primarily concerned with protecting employees who lost retirement benefits, they established detailed regulations for pension plans. They paid much less attention to welfare plans.

History of Pension and Health Plans

Although some employers provided pensions or medical benefits as early as the 1880s, only a small minority of private-sector workers was covered by a pension or health plan in 1940. During World War II the number of pension and health plans rose dramatically. One reason was federal tax policy. The income tax gave (and continues to give) more favorable treatment to employer-financed retirement and health benefits than to wages. Rates of taxation were high during the war, so employees could significantly reduce their income tax by substituting a pension or health plan for cash compensation. Also, the federal government froze wages during the war but exempted employer-financed pensions and medical insurance from the freeze. Many businesses adopted a pension or health plan as a means of increasing employee compensation. Shortly after the war, labor unions began demanding pensions and health insurance for their members. By 1965 almost half of private-sector employees were covered by a pension plan and more than 70 percent of government and private-sector employees were covered by a health-insurance plan.

Government oversight of employee-benefit plans was relatively limited in the 1940s and 1950s. Federal law aimed to prevent the use of pension plans for tax avoidance and to ensure that funds held by pension and welfare plans were used to benefit employees, rather than the firm or union that managed the plan. Otherwise, there was little federal or state regulation of employee-benefit plans. In the mid-1950s, government investigations exposed lurid cases in which union officials, sometimes in league with insurance agents or brokers, misused or stole funds from welfare plans. Congress responded by passing the first federal law exclusively concerned with employee-benefit plans, the Welfare and Pension Plans Disclosure Act of 1958. The Disclosure Act required plan managers to publish information so that employees, unions, and the press could monitor employee-benefit plans.

Although the press and public paid the most attention to cases in which funds were wasted or stolen, employees were also threatened by less sensational risks. Many plans did not give employees a legal right to a pension until they had worked for a firm for many years or attained a specific age. Workers who quit or were laid off before they vested (that is, by satisfying service or age requirements) would not receive a pension. Another danger was that a pension plan would not have enough money to pay the benefits it promised. The most famous case of this sort occurred when the Studebaker Corporation closed a plant in South Bend, Indiana, in 1963. Older employees and retirees received their full pension, but workers under age 60 received payments worth only a fraction of the pension they expected or nothing at all.

Legislative Debates and the Adoption of Erisa

By the early 1960s pension experts were debating whether Congress should pass additional regulations to protect employees. In March 1962 John F. Kennedy established the President's Committee on Corporate Pension Funds to study private-pension plans and recommend reforms. The committee's report, which appeared in January 1965, called for a major expansion of federal oversight of private-pension plans.

Titled Public Policy and Private Pension Programs, the report argued that the federal government should regulate pension plans to ensure that employees actually received the benefits their plan promised. The committee urged Congress to pass 1) minimum vesting standards, which would prevent plans from making the requirements for receiving benefits too strict, and 2) minimum funding standards, which would require firms to set aside resources so that pension plans would be more likely to meet their obligations. Several months before the committee's report appeared, Democratic Senator Vance Hartke of Indiana proposed another major reform. In August 1964 Hartke, whose constituents included workers at Studebaker, introduced legislation to create a government-run insurance program that would pay retirement benefits if a plan could not do so.

The reforms proposed by the committee and Hartke were very controversial. Business groups and most labor unions opposed minimum vesting and funding standards. If Congress created uniform federal standards, they claimed, managers and union officials would not be able to adapt pension plans to the needs of particular firms. This might lead employers to abandon their pension plan or to not create a plan in the first place. Most labor unions favored an insurance program for private pensions, but the business community vehemently rejected the idea. Business representatives said there was little need for such insurance because most firms set aside enough funds to pay future pension obligations.

Despite opposition from business and organized labor, reform initiatives advanced during the presidency of Lyndon Johnson. In February 1967 Johnson proposed legislation that aimed to prevent theft or misuse of plan funds by creating standards of conduct for officials who managed employee-benefit plans. Later that month, Senator Jacob Javits, a Republican from New York, introduced a much broader bill that included vesting and funding standards and an insurance program as well as rules of conduct for plan managers.

In May 1968 the Department of Labor proposed a bill with vesting and funding standards and an insurance scheme. In light of the strong opposition of business groups and many labor unions, it seemed unlikely that Congress would approve the vesting, funding, and insurance proposals. What is more, Richard Nixon's election in November 1968 brought to power an administration that was not sympathetic to sweeping new regulation of pension plans. Recognizing these political realities, Senator Javits set out to bring the press and public opinion into the campaign for pension reform.

In spring 1970 Javits persuaded New Jersey's Senator Harrison Williams, a Democrat and chair of the Senate Committee on Labor and Public Welfare, to conduct a survey of pension plans. The survey was designed to present a bleak picture. In March 1971 Javits and Williams released figures that did just that. In Javits's words, the study revealed that "only a relative handful" of employees would receive benefits from their pension plan. Pension experts denounced Javits and Williams's data, but the statistics received wide coverage in the press.

The Senate Labor Committee followed up on the survey with hearings highlighting "horror stories" of workers who failed to receive a pension because they changed or lost their job or because their plan could not pay. Although the hearings were successful in creating broad support for pension reform, interest groups and the president continued to oppose key reforms. When the Labor Committee reported a bill for consideration by the full Senate in September 1972, Russell Long, a Democrat from Louisiana who chaired the Senate Committee on Finance, killed the bill, reportedly at the urging of the president and the business community.

In the spring of 1973, the business community abruptly reversed course and endorsed federal regulation when several state legislatures began considering pension reform. If the states regulated pension plans, then plans that operated in more than one state might have to comply with different laws in different states. Employers and labor unions preferred federal regulation because Congress could establish uniform national rules. In September 1973 the Senate passed a comprehensive pension-reform bill. The House of Representatives followed suit in February 1974. President Gerald Ford signed ERISA on September 2, Labor Day. The law created a comprehensive regulatory program, including disclosure requirements, rules of conduct for plan managers, vesting and funding standards, and a pension-insurance program, to protect workers who depended on private-pension plans. ERISA created few rules or standards for welfare plans but greatly limited the authority of state governments to regulate these plans.

A Complicated Regulatory Program

ERISA was a long and complex law, and Congress has passed numerous amendments to it. Some revisions aim to help ERISA better perform its protective function. For example, when it became clear that the insurance program had serious flaws, Congress required employers to make larger pension contributions and limited the circumstances in which an employer could shut down a pension plan. Lawmakers also revised ERISA's vesting standards to protect spouses of employees and to require plans to vest employees more rapidly.

The 1980s and 1990s also brought a major shift in the makeup of the private-pension system. Broadly speaking, there are two types of pension plans: 1) In a defined-benefit plan, employees generally receive regular pension payments after they retire. The payments are calculated according to a benefit formula in the plan. 2) In a defined-contribution plan, each employee has an account much like an account in a savings bank. The employee's retirement benefit is the balance of the account.

For most of the twentieth century, defined-benefit plans dominated the private-pension system. In the 1980s and 1990s, defined-contribution plans assumed an increasingly important role. By the mid-1990s, the number of employees in defined-contribution plans exceeded the number of employees in defined-benefit plans. This shift raises new regulatory issues because ERISA does not deal as extensively with risks that threaten employees in defined-contribution plans. For example, in a defined-contribution plan, an employee's retirement benefit depends on the performance of the investments in his or her account. If the investments do badly, the employee will have less money to spend in retirement. (In a defined-benefit plan, by contrast, an employee's pension depends on the benefit formula, rather than the performance of the plan's investments.) The Enron collapse in 2001 vividly demonstrated that employees may suffer ruinous losses if they invest defined-contribution plan funds in their employer's stock.

Bibliography

Gordon, Michael S. "Overview: Why ERISA was Enacted?" in U.S. Senate Committee on Aging, An Information Paper on The Employee Retirement Income Security Act of 1974: The First Decade, 98th Cong., 2nd sess., 1984, Committee Print.

Hacker, Jacob S. The Divided Welfare State: The Battle over Public and Private SocialBenefits in the United States. Cambridge: Cambridge University Press, 2002.

President's Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs. Public Policy and Private Pension Programs: A Report to the President on Private Employee Retirement Plans. Washington, DC: U.S. Government Printing Office, 1965.

Sass, Steven A. The Promise of Private Pensions. Cambridge: Harvard University Press, 1997.

Scofea, Laura A. "The Development and Growth of Employer-Provided Health Insurance." Monthly Labor Review 117, no. 3 (1994): 3–10.

The Employee Retirement Income Security Act of 1974 (ERISA) (Pub.L. 93-406, 88 Stat. 829, enacted September 2, 1974) is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans. ERISA was enacted to protect the interests of employee benefit plan participants and their beneficiaries by requiring the disclosure to them of financial and other information concerning the plan; by establishing standards of conduct for plan fiduciaries; and by providing for appropriate remedies and access to the federal courts.

ERISA is sometimes used to refer to the full body of laws regulating employee benefit plans, which are found mainly in the Internal Revenue Code and ERISA itself.

Responsibility for the interpretation and enforcement of ERISA is divided among the Department of Labor, the Department of the Treasury (particularly the Internal Revenue Service), and the Pension Benefit Guaranty Corporation.

Contents 1 History 2 Coverage 2.1 Pension plans 2.2 Health benefit plans 3 Pension vesting 4 Pension funding 5 ERISA pre-emption 5.1 Hawaii Prepaid Healthcare Act exemption 6 The Statute 6.1 Title I: Protection of Employee Benefit Rights 6.2 Title II: Amendments to the Internal Revenue Code Relating to Retirement Plans 6.3 Title III: Jurisdiction, Administration, Enforcement; Joint Pension Task Force, Etc. 6.4 Title IV: Plan Termination Insurance 6.4.1 Single-employer plans 6.4.1.1 Standard termination 6.4.1.2 Distress termination 6.4.1.3 Termination initiated by the PBGC 6.4.2 Multiemployer plans 7 Non-ERISA status and bankruptcy 8 Finding statutes 9 See also 10 External links 11 Footnotes

History

The history of ERISA can be said to have begun in 1961 when President John F. Kennedy created the President's Committee on Corporate Pension Plans. The movement for pension reform gained some momentum when the Studebaker Corporation, an automobile manufacturer, closed its plant in 1963; the pension plan was so poorly funded that Studebaker could not afford to provide all employees with their pensions. The company created three groups. Group 1 consisted of 3,600 workers who reached the retirement age of 60. They got full pension benefits. Group 2 consisted of 4,000 workers, aged 40-59, who had ten years with Studebaker. They got lump sum payments that roughly equated to 15% of the actuarial value of their pension benefits. Group 3 was a residual group of 2,900 workers with no vested pension rights. They got nothing.

In 1967, Senator Jacob Javits proposed legislation that would address the funding, vesting, reporting, and disclosure issues identified by the presidential committee. His bill was opposed by business groups and labor unions, both of whom sought to retain the flexibility they enjoyed under pre-ERISA law.

A turning point in the history of ERISA came in 1970, when NBC broadcast Pensions: The Broken Promise, an hour-long television special that showed millions of Americans the consequences of poorly funded pension plans and onerous vesting requirements. In the following years, Congress held a series of public hearings on pension issues and public support for pension reform grew significantly.

ERISA was enacted in 1974 and signed into law by President Gerald Ford on September 2, 1974 — Labor Day. In the years since 1974, ERISA has been amended repeatedly.

Coverage

Pension plans

ERISA does not require employers to establish pension plans. Likewise, as a general rule, it does not require that plans provide a minimum level of benefits. Instead, it regulates the operation of a pension plan once it has been established.

Under ERISA, pension plans must provide for vesting of employees' pension benefits after a specified minimum number of years. ERISA requires that the employers who sponsor plans satisfy certain minimum funding requirements.

ERISA also regulates the manner in which a pension plan may pay benefits. For example, a defined benefit plan must pay a married participant's pension as a "joint-and-survivor annuity" that provides continuing benefits to the surviving spouse unless both the participant and the spouse waive the survivor coverage.

The Pension Benefit Guaranty Corporation was established by ERISA to provide coverage in the event that a terminated defined benefit pension plan does not have sufficient assets to provide the benefits earned by participants. Later amendments to ERISA require an employer who withdraws from participation in a multiemployer pension plan with insufficient assets to pay all participants' vested benefits to contribute the pro rata share of the plan's unfunded vested benefits liability.

Health benefit plans

ERISA does not require that an employer provide health insurance to its employees or retirees, but it regulates the operation of a health benefit plan if an employer chooses to establish one.

There have been several significant amendments to ERISA concerning health benefit plans:

• The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides some employees and beneficiaries with the right to continue their coverage under an employer-sponsored group health benefit plan for a limited time the occurrence of certain events that would otherwise cause termination of such coverage, such as the loss of employment.
• The Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits a health benefit plan from refusing to cover an employee's pre-existing medical conditions in some circumstances. It also bars health benefit plans from certain types of discrimination on the basis of health status, genetic information, or disability.

Other relevant amendments to ERISA include the Newborns' and Mothers' Health Protection Act, the Mental Health Parity Act, and the Women's Health and Cancer Rights Act.

During the 1990s and 2000s, many employers who promised lifetime health coverage to their retirees limited or eliminated those benefits.^[1][2] ERISA does not provide for vesting of health care benefits in the way that employees become vested in their accrued pension benefits. Employees and retirees who were promised lifetime health coverage may be able to enforce those promises by suing the employer for breach of contract, or by challenging the right of the health benefit plan to change its plan documents in order to eliminate those promised benefits.

Pension vesting

Before ERISA, some defined benefit pension plans required decades of service before an employee's benefit became vested. It was not unusual for a plan to provide no benefit at all to an employee who left employment before retirement (age 65 or perhaps age 55), regardless of the length of the employee's service.

As of 2007, employees' benefits in a defined benefit pension plan must become vested at 100% after five years or under a seven-year graded-vesting schedule (20% a year for each year of service beginning with the third year of service and ending with 100% after seven years).

Under the Pension Protection Act of 2006, employer contributions made after 2006 to a defined contribution plan must become vested at 100% after three years or under a six-year graded-vesting schedule (20% a year for each year of service beginning with the second year of service and ending with 100% after six years). Different rules apply with respect to employer contributions made before 2007. Employee contributions are always 100% vested.

Pension funding

Under ERISA, minimum funding requirements were established for defined benefit plans. By their nature, defined contribution plans are always fully funded, even if the employee has not yet become vested in the employer contributions.

Before the Pension Protection Act (PPA), a defined benefit plan maintained a "funding standard account", which was charged annually for the cost of benefits earned during the year and credited for employer contributions. Increases in the plan's liabilities due to benefit improvements, changes in actuarial assumptions, and any other reasons were amortized and charged to the account; decreases in the plan's liabilities were amortized and credited to the account. Every year, the employer was required to contribute the amount necessary to keep the funding standard account from falling below $0 at year-end.

In 2008, when the PPA funding rules went into effect, single-employer pension plans no longer maintain funding standard accounts. The funding requirement under PPA is simply that a plan must stay fully funded (that is, its assets must equal or exceed its liabilities). If a plan is fully funded, the minimum required contribution is the cost of benefits earned during the year. If a plan is not fully funded, the contribution also includes the amount necessary to amortize over seven years the difference between its liabilities and its assets. Stricter rules apply to severely underfunded plans (called "at-risk status").

The PPA has different funding requirements for multiemployer pension plans, which preserve most of the pre-PPA funding rules including the funding standard account. Under PPA, increases and decreases in the plan's liabilities will be amortized, but the amortization period for benefit improvements adopted after 2007 will be shortened. As with single-employer plans, multiemployer pension plans that are significantly underfunded are subject to restrictions. The restrictions, which may limit the plan's ability to improve benefits or require the plan to reduce employees' benefits, vary depending whether a pension plan's funding status is termed "endangered", "seriously endangered", or "critical". The restrictions accompanying each deficient funding status are progressively more severe as funding status worsens.

ERISA pre-emption

ERISA Section 514 preempts all state laws that relate to any employee benefit plan, with certain, enumerated exceptions. The most important exceptions — i.e. state laws that survive despite the fact that they may relate to an employee benefit plan — are state insurance, banking, or securities laws, generally applicable criminal laws, and domestic relations orders that meet ERISA's qualification requirements.

A major limitation is placed on the insurance exception, known as the "deemer clause", which essentially provides that state insurance law cannot operate on employer self-funded benefit plans. The Supreme Court has created another limitation on the insurance exception, in which even a law regulating insurance will be pre-empted if it purports to add a remedy to a participant or beneficiary in an employee benefit plan that ERISA did not explicitly provide.[1]

The result is that the only remedy available to a covered person who has been denied benefits or dropped from coverage altogether is to seek an order from a federal judge (no jury trial is permitted) directing the Plan (in actuality the insurance company that underwrites and administers it) to pay for "medically necessary" care. If a person dies before the case can be heard, however, the claim dies with him or her, since ERISA provides no remedy for injury or wrongful death caused by the withholding of care.

Even if benefits are improperly denied, the insurance company cannot be sued for any resulting injury or wrongful death, regardless of whether it acted in bad faith in denying benefits. Insurers operating ERISA plans enjoy several immunities not available to other types of insurance companies. ERISA preempts all conflicting state laws, including state statutes prohibiting unfair claims practices and causes of action arising under state common law for insurance bad faith.^[3] There is no right to a jury trial in ERISA benefits actions.^[4] Although Americans normally take for granted the right to testify on their behalf, plaintiffs have no right to present live testimony in ERISA bench trials, in which the judge simply reads through the documents which formed the record originally before the ERISA plan administrator and performs de novo review.^[5] Finally, punitive damages are not allowed in actions for ERISA benefits.^[6]

Many persons included among the some 47 million people presently without health care coverage in the United States are former ERISA "subscribers", insurance terminology for Plan beneficiaries. who have been denied benefits-usually on the ground that the prescribed care is not medically necessary or is "experimental"-or dropped from coverage, often because they have lost their jobs due to the very illness for which care was denied.

Many consumer and health care advocates have called for a "restoration of the freedom of contract enforcement," to the 75% of Americans insured under these work place group plans-in effect, a repeal of the ERISA pre-emption. Permitting these insured persons access to customary state remedies (98% of all civil disputes are resolved in state courts) would, they contend, result in a substantial reduction in arbitrary denial of care benefits, simultaneously alleviating a major burden on state Medicaid systems and clogged federal court dockets.

Hawaii Prepaid Healthcare Act exemption

ERISA contains an exemption specifically regarding the Hawaii Prepaid Healthcare Act, which was enacted by that state a few months before ERISA was signed into law. As a result, private employers in Hawaii are bound by the rules of that state law in addition to ERISA. The exemption also freezes the law in its original 1974 form, meaning the Hawaii legislature is not able to make non-administrative amendments without Congressional approval.^[7][8]

The Statute

Title I: Protection of Employee Benefit Rights

Title I protects employees' rights to their benefits. The following are some of the ways in which it achieves that goal:

• Participants must be provided plan summaries.
• Employers are required to report information about the plan to the Labor Department and provide it to participants upon request. The information is reported on Form 5500, which is available for public inspection and may be viewed at websites such as freeERISA.com and Free5500.com.
• If a participant requests, the employer must provide the participant with a calculation of her or his accrued and vested pension benefits.
• Employers have fiduciary responsibility to the participants and to the plan.
• Certain transactions between the employer and the plan are prohibited.
• A pension plan is barred from investing more than 10% of its assets in employer securities.

Title I also includes the pension funding and vesting rules described above.

The United States Department of Labor's Employee Benefits Security Administration is responsible for overseeing Title I, promulgating regulations implementing and interpreting the statute as well as conducting enforcement. Plan fiduciaries and plan participants may also bring certain civil causes of action in Federal Court.

The current Assistant Secretary of Labor for Employee Benefits and head of the Employee Benefits Security Administration is the Hon. Phyllis Borzi. Past Assistant Secretaries include the Hon. Bradford P. Campbell, the Hon. Ann L. Combs and the Hon. Olena Berg-Lacy.

Title II: Amendments to the Internal Revenue Code Relating to Retirement Plans

Title II amended the Internal Revenue Code (IRC). The changes include the following:

• The addition of various requirements for a pension plan to be tax-favored ("qualified"), including:
  • the plan must offer retirees the option of a joint-and-survivor annuity,
  • benefits under the plan may not discriminate in favor of officers and highly-paid employees,
  • and plans are subject to the pension funding and vesting rules described above.
• The imposition of maximum limits on the annual benefit that may be paid from a qualified defined benefit pension plan and the annual contribution that may be made to a qualified defined contribution pension plan.
• The creation of individual retirement accounts (IRAs).
• Revision of the rules concerning the maximum tax deduction allowed with respect to a contribution to a pension plan.
• The imposition of an excise tax if the employer fails to make a required contribution to a pension plan or engages in transactions prohibited by ERISA.

Title III: Jurisdiction, Administration, Enforcement; Joint Pension Task Force, Etc.

Title III outlines procedures for co-ordination between the Labor and Treasury Departments in enforcing ERISA.

It also created the Joint Board for the Enrollment of Actuaries, which licenses actuaries to perform a variety of actuarial tasks required of pension plans under ERISA. The Joint Board administers two examinations to prospective Enrolled Actuaries. After an individual passes the two exams and completes sufficient relevant professional experience, she or he becomes an Enrolled Actuary.

Title IV: Plan Termination Insurance

Title IV created the Pension Benefit Guaranty Corporation (PBGC) to insure benefits of participants in underfunded terminated plans. It also describes the procedures that a pension plan must follow in order to terminate.

Single-employer plans

Standard termination

An employer may terminate a single-employer plan under a standard termination if the plan's assets equal or exceed its liabilities. If the assets are less than the liabilities, the employer must contribute the amount necessary to fully fund the plan. A standard termination is sometimes referred to as a voluntary termination because the employer has chosen to terminate the plan.

In a standard termination, all accrued benefits under the plan become 100% vested. The plan must purchase annuity contracts for all participants. If the plan permits the payment of lump sums, employees may be offered the choice of a lump sum payment or an annuity.

If any assets remain in the plan after a standard termination has been completed, the provisions of the plan control their treatment. In some plans, the excess assets revert to the employer; in other plans, the excess assets must be used to increase participants' benefits.

Distress termination

An employer may terminate a single-employer plan under a distress termination if the employer demonstrates to the PBGC that:

• the employer is facing liquidation under bankruptcy proceedings,
• the costs of continuing the plan will cause the business to fail, or
• the costs of continuing the plan have become unreasonably burdensome solely because of a decline in the employer's workforce.

If the PBGC finds that a distress termination is appropriate, the plan's liabilities are calculated and compared with its assets. Depending on the difference between the two values, the termination may be treated as if it had been a standard termination or as if it had been initiated by the PBGC.

Termination initiated by the PBGC

PBGC may initiate proceedings to terminate a single-employer plan if it determines that:

• the employer has not made its minimum required contributions to the plan,
• the plan will not be able to pay benefits when due, or
• PBGC's long-term cost can be expected to be unreasonably higher if it does not terminate the plan.

A termination initiated by the PBGC is sometimes called an involuntary termination.

The benefits paid by the PBGC after a plan termination may be less than those promised by the employer. See Pension Benefit Guaranty Corporation for details.

Multiemployer plans

A multiemployer plan may be terminated in one of three ways:

• It may be amended so that participants receive no credit for future service,
• All contributing employers may withdraw from the plan or stop making contributions to it, or
• It may be converted into a defined contribution plan.

Non-ERISA status and bankruptcy

In 2005, Public Law 109-8[1] amended the Bankruptcy Code, by exempting most organised retirement plans, even those not subject to ERISA, and accorded them protected status, claimable as exempt property by a debtor declaring bankruptcy under the U.S. Bankruptcy Code.

Now, most pension plans have the same protection as an ERISA anti-alienation clause giving these pensions the same protection as a spendthrift trust. The only remaining unprotected areas are the SIMPLE IRA and the SEP IRA. The SEP IRA is functionally similar to a self-settle trust, and a sound policy reason would exist to not shield SEP IRAs, but many financial planners argue that a rollover (or direct transfer) from a SEP IRA to a rollover IRA would give those funds protected status, too.

Finding statutes

Portions of ERISA are codified in various places of the United States Code, including 29 U.S.C. ch.18, and Internal Revenue Code sections § 219 and § 408 (relating to the Individual Retirement Account) and sections § 410 through § 415, and § 4971, § 4974 and § 4975. A cross-reference between the sections of the ERISA law and the corresponding sections in the U.S.Code can be found at http://www.harp.org/erisaxref.htm.

See also

• Bankruptcy in the United States
• Employee Benefits Security Administration
• Pegram v. Herdrich
• Pension Benefit Guaranty Corporation
• Vivien v. Worldcom

External links

Wikisource has original text related to this article: Employee Retirement Income Security Act

• Department of Labor 2003 "interpretive bulletin," Field Assistance Bulletin 2003-3, May 19, 2003, concerning allocation of expenses in a defined contribution plan.
• Guide to ERISA rights from the United States Department of Labor
• LA Times, 21 August 2005,
  • Frequently Asked Questions, ERISA-Governed Disability Claims
  • "The Safety Net She Believed In Was Pulled Away When She Fell" (registration required)
• Text of the Employee Retirement Income Security Act - 29 U.S. Code Chapter 18

Footnotes

1. ^ Costello, Daniel (October 18, 2004). "Not a future they expected". Los Angeles Times. Archived from the original on 2004-10-19. http://www.groupsrv.com/science/about62563.html. Retrieved 2008-04-12. 
2. ^ Schultz, Ellen E. (November 10, 2004). "Companies Sue Union Retirees To Cut Promised Health Benefits". The Wall Street Journal. pp. p. 1. http://online.wsj.com/public/resources/documents/SB110003711129469246.htm. Retrieved 2008-04-12. 
3. ^ Kidneigh v. UNUM Life Ins. Co. of Am., 345 F.3d 1182, 1184 (10th Cir. 2003); Bast v. Prudential Life Ins. Co. of Am., 150 F.2d 1003 (9th Cir. 1998); Kanne v. Connecticut Gen. Life Ins., 867 F.2d 489, 492 (9th Cir. 1988).
4. ^ Thomas v. Oregon Fruit Prods. Co., 228 F.3d 991, 996-97 (9th Cir. 2000) (listing cases and joining their holding).
5. ^ Kearney v. Standard Ins. Co., 175 F.3d 1084, 1094-1095 (9th Cir. 1999) (en banc).
6. ^ Varhola v. Doe, 820 F.2d 809, 812-13 (6th Cir. 1987).
7. ^ Hawaii Institute for Public Affairs. "Prepaid Health Care Act". http://www.healthcoveragehawaii.org/target/prepaid.html. Retrieved 2007-11-08. 
8. ^ Cornell University Law School. "§ 1144". http://www.law.cornell.edu/uscode/html/uscode29/usc_sec_29_00001144----000-.html. Retrieved 2007-11-08. 

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