Almost all companies offer employees certain benefits. Some are required, and others are simply a good way to ensure that employees have incentives to stay with the company. While these benefits are generally considered a good thing, they can quickly become a legal liability if not properly managed. The Employee Retirement Income Security Act of 1974 (ERISA) governs most health and retirement benefits offered to employees, as well as some other fringe benefit plans. Accordingly, ERISA compliance is vital for companies. A Priori benefits lawyer can help you assess your company’s ERISA compliance level and identify areas in need of improvement in order to avoid costly liabilities.
The Employee Retirement Income Security Act of 1974 was enacted to protect the retirement assets of Americans by implementing rules governing their management. In addition, the act regulates other employer benefit plans, including health insurance plans and fringe benefit plans. Virtually all private-sector corporations, partnerships, non-profits and sole proprietorships must comply with ERISA.
Protections under ERISA
ERISA established a number of key protections. The following are some of the most important:
- All covered employee benefit plans must regularly provide automatic disclosures and updated plan information, especially related to plan features and funding.
- There must be minimum standards for participation, vesting, benefit accrual and adequate funding of retirement plans from plan sponsors.
- Basic benefits of retirement plans are guaranteed by the Pension Benefit Guaranty Corporation if an employee plan is unexpectedly terminated.
- Managers of employee benefit plans have a fiduciary duty to manage assets responsibly.
- Plan participants have the right to sue for benefits under plans and for breach of plan contract.
Several important amendments have affected ERISA over the years. The following are key changes that have affected employer compliance.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) was added to ERISA in 1985 to ensure that dismissed employees would not immediately lose health benefits. COBRA requires that employers allow workers to continue to pay into their current health plan for a certain period of time in order to maintain the same level of health insurance and coverage.
The Health Insurance Portability and Accountability Act (HIPAA) was added to ERISA in 1996. The most relevant portions of HIPAA today are those that created privacy standards to protect patients' medical records and other health information provided to health plans, doctors, hospitals, and other health care providers. It also made it easier for employees to transfer health plans when moving to a new company.
Other ERISA amendments over the years have further expanded the conditions that must be covered under employee heath plans. These include maternity coverage for hospital stays after giving birth, mental health care and post-mastectomy reconstruction.
Key ERISA Compliance Issues
Under ERISA, all employers or plan administrators are responsible for federal compliance through three main administrative requirements:
- Reporting. Regular reports must be filed with both the IRS and the Department of Labor on plan modifications, coverage levels and claims procedures.
- Disclosure. Proper disclosures must be made to plan participants and the Department of Labor regarding financial information, changes to coverage, and any modifications of plan structure.
- Claim Payouts. Claims payouts must be made in a timely manner, and there must be a clearly defined claims procedure in place and followed.
There are other fiduciary responsibilities that plan administrators must consider if managing a retirement plan, but these three compliance requirements make up the bare minimum required under ERISA. If your company sponsors an employee retirement plan not managed by a third party, speaking with an ERISA lawyer may help determine additional issues that should be addressed.
Can a pension plan reduce promised benefits?
Under certain circumstances, yes. Generally, only future benefits accruals can be changed, while previously accrued benefits must stay the same as promised. The exception is if an employer terminates a plan due to lack of money to properly maintain the fund. In this case, the Pension Benefit Guaranty Corporation will take over responsibility for the plan, but only to a certain level. Benefits above such a level would be lost.