ERISA

Scope

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

Regulatory citations

• None

Key definitions

• None

Summary of requirements

If organizations maintain a pension plan, ERISA specifies when employees must be allowed to become a participant, how long employees have to work before earning a non-forfeitable interest in their pension, how long they can be away from their job before it might affect their benefits, and whether their spouses have 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.

Background. The provisions of Title I of ERISA were enacted to address public concern that funds of private pension plans were being mismanaged and abused. ERISA was the culmination of a long line of legislation concerned with the labor and tax aspects of employee benefit plans. Since its enactment, ERISA has been amended to meet the changing retirement and health care needs of employees and their families.

The administration of ERISA is divided among the U.S. Department of Labor, the Internal Revenue Service of the Department of the Treasury (IRS), and the Pension Benefit Guaranty Corporation (PBGC). Title I, which contains rules for reporting and disclosure, vesting, participation, funding, fiduciary conduct, and civil enforcement, is administered by the U.S. Department of Labor. Title II, which amended the Internal Revenue Code to parallel many of the Title I rules, is administered by the IRS. Title III is concerned with jurisdictional matters and with coordination of enforcement and regulatory activities by the U.S. Department of Labor and the IRS. Title IV covers the insurance of defined benefit pension plans and is administered by the PBGC.

The goal of Title I is to protect the interests of participants and their beneficiaries in employee benefit plans. Among other things, ERISA requires that:

• Sponsors of private employee benefit plans provide participants and beneficiaries with adequate information regarding their plans; and
• Individuals who manage plans (and other fiduciaries) must meet certain standards of conduct, derived from the common law of trusts and made applicable (with certain modifications) to all fiduciaries.

The law also contains detailed provisions for reporting to the government and disclosure to participants. Furthermore, there are civil enforcement provisions aimed at assuring that plan funds are protected and that participants who qualify receive their benefits.

Coverage. ERISA covers pension plans and welfare benefit plans (e.g., employment based medical and hospitalization benefits, apprenticeship plans, and other plans described in section 3(1) of Title I). Plan sponsors must design and administer their plans in accordance with ERISA. Title II of ERISA contains standards that must be met by employee pension benefit plans in order to qualify for favorable tax treatment. Noncompliance with these tax qualification requirements of ERISA may result in disqualification of a plan and/or other penalties.

Requirements. ERISA requires employers to maintain a funding vehicle for certain plans and indicates permitted types of funding vehicles. It also places limitations on the types of personnel who are allowed to manage plans and the plan assets and indicates when such personnel may be compensated for their work on the plan.

Plan administrators — the people who run plans — must give plan participants certain facts in writing about their retirement and health benefit plans. These facts must include plan rules, financial information, and documents on the operation and management of the plan. Some of the facts must be provided regularly and automatically by the plan administrator. Others can be made available upon request, free-of-charge or for copying fees. The request should be made in writing.

Summary plan descriptions (SPDs). One of the most important documents participants are entitled to receive automatically is a summary of the plan, called the summary plan description or SPD. The SPD must be provided when an employee becomes a participant of an ERISA-covered retirement or health benefit plan, or when a beneficiary receives benefits under such a plan. The plan administrator is legally obligated to provide the SPD to participants, free of charge.

The summary plan description tells participants what the plan provides and how it operates. It provides information on when an employee can begin to participate, how service and benefits are calculated, when benefits become vested, when and in what form benefits are paid, and how to file a claim for benefits. If a plan is changed, participants must be informed, either through a revised summary plan description, or in a separate document, called a summary of material modifications, which also must be given to participants free of charge. Updated SPDs must be furnished every five years if changes are made to the SPD information or the plan is amended; otherwise they must be furnished every ten years.

ERISA also requires that SPDs be updated periodically. Furthermore, ERISA requires disclosure of any material reduction in covered services or benefits to participants and beneficiaries generally within 60 days of the adoption of the change through either a revised SPD or a summary of material modification (SMM). Material changes that do not result in a reduction in covered services or benefits must be disclosed through a SMM or a revised SPD not later than 210 days after the end of the plan year in which the change was adopted.

Among other information, the SPD of health plans must describe the following:

• Cost-sharing provisions, including premiums, deductibles, coinsurance and co-payment amounts for which the participant or beneficiary will be responsible.
• Annual or lifetime caps or other limits on benefits under the plan.
• The extent to which preventive services are covered under the plan.
• Whether, and under what circumstances, existing and new drugs are covered under the plan.
• Whether, and under what circumstances, coverage is provided for medical tests, devices and procedures.
• Provisions governing the use of network providers, the composition of provider networks and whether, and under what circumstances, coverage is provided for out-of-network services.
• Conditions or limits on the selection of primary care providers or providers of specialty medical care.
• Conditions or limits applicable to obtaining emergency medical care.
• Provisions requiring preauthorizations or utilization review as a condition to obtaining a benefit or service under the plan.

Summary annual report. In addition to the summary plan description, each year the plan administrator must automatically give participants a copy of the plan’s summary annual report. This is a summary of the annual financial report that most plans must file with the Department of Labor on the Form 5500. The summary annual report is provided at no cost. To learn more about the plan assets, participants may ask the plan administrator for a copy of the annual report in its entirety.

Fiduciary violations. A variety of violations can occur under ERISA. Some examples of fiduciary violations include the following:

• The failure of fiduciaries to operate the plan prudently and for the exclusive benefit of participants.
• The use of plan assets to benefit certain related parties in interest to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals.
• The failure to properly value plan assets at their current fair market value, or to hold plan assets in trust.
• The failure to make benefit payments, either pension or welfare, due under the terms of the plan.
• Taking any adverse action against an individual for exercising his or her rights under the plan (e.g., being fired, fined, or otherwise being discriminated against).
• The failure of employers to offer continuing group health care coverage for at least 18 months after leaving their employer.

Criminal violations. In addition to the fiduciary violations, the Employee Benefits Security Administration (EBSA) also conducts investigations of criminal violations regarding employee benefit plans such as embezzlement, kickbacks, and false statements under Title 18 of the U.S. Criminal Code. Prosecution is handled by U.S. Attorneys’ offices. Title 18 contains three statutes which directly address violations involving employee benefit plans:

• Theft or Embezzlement from Employee Benefit Plan (18 U.S.C. Section 664)
• False Statements or Concealment of Facts in Relation to Documents Required by the Employee Retirement Income Security Act of 1974 (18 U.S.C. Section 1027)
• Offer, Acceptance, or Solicitation to Influence Operations of Employee Benefit Plan (18 U.S.C. Section 1954).

ERISA also contains the following criminal provisions:

• Section 411, Prohibition Against Certain Persons Holding Certain Positions
• Section 501, Willful Violation of Title I, Part 1
• Section 511, Coercive Interference. Persons convicted of violations enumerated in section 411 are subject to a bar from holding plan positions or providing services to plans for up to 13 years.

Decisions to seek criminal action turn on a number of factors including:

• The egregiousness and magnitude of the violation,
• The desirability and likelihood of incarceration both as a deterrent and as a punishment, or
• Whether the case involves a prior ERISA violator.