Employee benefits

Scope

Employers that offer these benefits are required to follow certain laws in regard to their plans.

Regulatory citations

• None

Key definitions

• None

Summary of requirements

Many of the laws employers must follow are protected by the Pension and Welfare Benefits Administration (PWBA).

PWBA. The PWBA is a branch of the Department of Labor (DOL) that protects the integrity of pensions, health plans, and other employee benefits for more than 150 million people. It does this via the following:

• Assisting workers in getting the information they need to protect their benefit rights
• Assisting plan officials to understand the requirements of the relevant statutes in order to meet their legal responsibilities
• Developing policies and laws that encourage the growth of employment-based benefits
• Deterring and correcting violations of the relevant statutes

The PWBA is responsible for administering and enforcing those provisions of ERISA that provide protections for participants and beneficiaries in employee benefit plans (participant rights), including providing access to plan information. Also, those individuals who manage plans (and other fiduciaries) must meet certain standards of conduct under the fiduciary responsibilities specified in the law.

ERISA. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in private industry. It protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire.

For example, if an employer maintains a pension plan, ERISA specifies when an employee must be allowed to become a participant, how long they have to work before they have a non-forfeitable interest in their pension, how long a participant can be away from their job before it might affect their benefit, and whether their spouse has a right to part of their pension in the event of their death. Most of the provisions of ERISA are effective for plan years beginning on or after January 1, 1975.

ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit.

ERISA does the following:

• Requires plans to provide participants with information about the plan including important information about plan features and funding. The plan must furnish some information regularly and automatically. Some is available free of charge, some is not.
• 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 your plan.
• 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.
• Gives participants the right to sue for benefits and breaches of fiduciary duty.
• Guarantees payment of certain benefits if a defined plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation

COBRA. Congress passed the landmark Consolidated Omnibus Budget Reconciliation Act health benefit provisions in 1986. The law amends the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise might be terminated.

COBRA contains provisions giving certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves. It is ordinarily less expensive, though, than individual health coverage.

There are 3 elements to qualifying for COBRA benefits. COBRA establishes specific criteria for plans, qualified beneficiaries, and qualifying events:

• Plan coverage. Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA. Both full and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction on an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.
• Qualified beneficiaries. A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee’s spouse, or an employee’s dependent child. In certain cases, a retired employee, the retired employee’s spouse, and the retired employee’s dependent children may be qualified beneficiaries. In addition, any child born to or placed for adoption with a covered employee during the period of COBRA coverage is considered a qualified beneficiary. Agents, independent contractors, and directors who participate in the group health plan may also be qualified beneficiaries.
• Qualifying events. Qualifying events are certain events that would cause an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA. A plan, at its discretion, may provide longer periods of continuation coverage.
  • Employees:
    • Voluntary or involuntary termination of employment for reasons other than gross misconduct
    • Reduction in the number of hours of employment
  • Spouses:
    • Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct
    • Reduction in the hours worked by the covered employee
    • Covered employee’s becoming entitled to Medicare
    • Divorce or legal separation of the covered employee
    • Death of the covered employee
  • Dependent children are the same as for the spouse with one addition:
    • Loss of dependent child status under the plan rules

Of course, employers may offer other benefits such as legal insurance, disability, paid time off, discounts, education funds, and child care. These should be offered in a non-discriminatory fashion.