The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that governs how employee benefits operate. While not business is required to offer benefits like pensions, 401(k) plans, or disability insurance, if an employer does decide to offer these and other benefits, there are certain requirements set out by ERISA and related regulations that are to be followed by the employer. The rules and regulations set forth under ERISA do not apply to all employers. Certain government entities and churches may be exempt from ERISA's requirements. That said, the vast majority of employers that offer employee benefits are subject to ERISA's requirements.
The Employee Retirement Income Security Act was passed in response to the failure of some business to keep their promises with respect to employee benefits. Most notably, prior to the passage of ERISA, if an employee was promised a pension, worked long enough to earn that pension, there were no guarantees that the employee would receive that pension if the business failed or otherwise reneged on the promise. With the passage of ERISA, certain requirements put employees in a more secure position with respect to their promised pensions.
The additional security came in many forms. Under ERISA, the Pension Benefit Guaranty Corporation (PBGC) was created. This agency was put in place, along with funding, to provide benefits to pensioners whose employer was unable to keep their promise. The PBGC is funded by premiums paid by employers that offer pension plans.
In addition, ERISA set forth certain funding requirements with respect to pension plans. Following the passage of ERISA, if you were going to offer a pension plan, the plan must be funded according to strict rules and regulations to maximize the probability of the pension fund being solvent for those that were owed benefits.
Another consequence of ERISA is that now all employee benefits offered by employers covered by the law are subject to ERISA rules and regulations. Whereas prior to ERISA, failure to pay a valid disability claim offered via employer provided insurance would have been a claim in state court, all employee benefit claims must be filed in Federal Court as an ERISA action.
The passage of ERISA changed the landscape of employee benefits in expected and unexpected ways. If you are an employer that offers employee benefits or a recipient of employer provided benefits and have questions about ERISA, call Homan & Zentz, P.C.