One of the ways employers attract and retain qualified employees is to offer them benefits. These are viewed as separate from compensation, or as indirect compensation. Employee benefits can range from vacations to on-site dry cleaning services.
Employee benefits are a significant factor in an organization’s total budget and the reward package offered to employees. The ability of the organization to attract and retain employees is dependent upon a benefit package that is cost-effective and affordable as well as compliant with applicable regulations.
Some benefits are mandated by statute and cannot be altered or dropped by the organization. Mandated benefits include the following:
The list of benefits that employers may offer is extensive and can be creative, and may include the following:
When a company decides to offer benefits to its employees, it must contend with regulatory requirements. Some of the laws that govern employee benefits includes the following:
Of all these acts, ERISA stands out as having a continual impact on employee benefits. ERISA is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to protect individuals in these plans.
ERISA does not require any employer to establish a health or pension plan. It requires only 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.
Most private-sector employee benefit programs are subject to some provisions of ERISA. The rules apply to and regulate private retirement plans and welfare plans such as employer-sponsored group medical programs, group life insurance, and long-term disability coverage.
Among other things, ERISA provides protections for participants and beneficiaries in employee benefit plans, 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.
The Employee Benefits Security Administration (EBSA) of the Department of Labor is responsible for administering and enforcing these provisions of ERISA.
Regulations that cover ERISA can be found under 29 CFR Parts 2509-2589.
An ERISA plan must be operated for the exclusive benefit of the participants and their beneficiaries. The employer sponsor must follow the prudent person rule with respect to its handling, investment, and management of the plan’s assets. According to this rule, the employer cannot take more risks than a reasonably knowledgeable, prudent investor would under similar circumstances. Benefit plan assets must be segregated from other company assets such as trust agreements, insurance company accounts, and individual policies. The employer has legal and financial obligations not to misuse the funds set aside in trust to provide specific benefits.
Under titles I and IV of ERISA, and the Internal Revenue Code, pension and other employee benefit plans are required to file annual returns/reports concerning the financial condition and operations of the plan. These requirements are generally satisfied by filing the Form 5500 Series.
ERISA does the following:
Applicable large employers are subject to the employer shared responsibility provisions and may be subject to one of two potential payments for a given month if at least one full-time employee received the premium tax credit for purchasing coverage through a health insurance marketplace for that same month the employer either:
Applicable large employers are subject to certain reporting requirements for their full-time employees.