Millions of Americans have company-sponsored health plans and retirement benefits. To make sure employees receive their benefits and to watch over benefit funds, a U.S. Department of Labor regulates these plans through federal law. The Employee Retirement Income Security Act (ERISA) sets rules for employers to protect employees who participate in employer-sponsored pension plans and health plans.
This article gives an overview of ERISA requirements for businesses that have one or more of these plans.
What Is ERISA?
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets rules for businesses that have retirement and health plans to protect employees covered by these plans. ERISA has oversight for other federal laws including:
- COBRA insurance to allow workers to get continued health coverage for a limited time after job loss and other similar events
- HIPPA privacy protections for health records to prevent discrimination in health coverage
- The Affordable Care Act (ACA), the health insurance reform law that provides for affordable health insurance and encourages businesses to give health coverage to employees
Who Are the People Involved in ERISA Plans?
Participants are the people covered by these plans, especially employees who qualify to be in the plan. Employee spouses, family, and beneficiaries (others who receive benefits) may also have benefits and protection under a plan.
Plan administrators run the plan on a day-to-day basis. They can be an employer, a committee of employees, an executive, or an outside company. ERISA also allows several employers to join together to create group health or retirement plans.
Plan fiduciaries are people in a position of trust, especially over decisions relating to plan funds. They are often financial advisors who manage asset portfolios.
How Does ERISA Work?
Your business doesn’t have to have a health plan or retirement plan, but if you do have one or both of these types of plans, ERISA requires you to:
- Follow minimum benefit and funding rules
- Keep participants informed about their rights
- Protect the financial assets of the plan so it can pay benefits
- Hold fiduciaries to specific standards
- Guarantee payment of certain benefits if the plan is ended
It’s against the law to discriminate in any way against a participant or beneficiary in a health or retirement plan.
Some ERISA Resources:
- This Health Benefits Advisor walks you through a series of questions to let you know the laws that apply to your business.
- The IRS Small Business Retirement Plan Resources page has information about selecting and setting up a retirement plan.
- This Reporting and Disclosure Guide can help you sort through the many reports you might need to make to employees and federal agencies.
Examples of ERISA Health and Retirement Plans
Most health and retirement plans are subject to ERISA regulation. Here are some examples of plans for employers, employees, and self-employed individuals:
- Association Health Plans and Association Retirement Plans for groups of employers and sole proprietors
- Welfare benefit plans, including medical, dental, life insurance, apprenticeship and training, scholarship funds, severance pay, and disability insurance.
- Pension plans, profit-sharing plans, stock bonus plans, money purchase plans, and 401(k) plans
- IRA-based plans for employers and employees, like SIMPLE, SEP, and Payroll Deduction IRAs
Types of ERISA Reports
A major part of what ERISA does is to make sure employers are reporting to participants and to regulators. Here are some of the most important reports.
Reports to Participants
Your business must have a document called a Summary Plan Description (SPD) that explains how the plan works. This document must be written in easy-to-understand language and it must include all parts of the plan describing participant benefits, rights, and obligations. There are specific rules about when you must send the document to participants.
Each year, you must give participants a Summary Annual Report (SAR), which is similar to Form 5500 (see below). You must also give copies of plan legal documents to participants if they request them within 30 days. You can make the copies available at the principal plan office instead of copying and sending them out.
For your company health plans, you must give employees a Summary of Benefits and Coverage (SBC) document with answers to important questions. For each of the questions on the SBC, there is an answer and “Why This Matters.” You must give this information, along with a glossary of terms, to each new participant or beneficiary or when plan changes are made.
Annual Report to the IRS
The most important report for your employee benefit plans is an annual report on Form 5500. The main purpose of the form is to make sure that employee benefit plans are operated and managed to certain standards to protect the rights and benefits of participants and beneficiaries.
Some benefit plans don’t have to comply with the annual reporting requirements. If you have a small plan with fewer than 100 participants or less than $250,000 in plan assets, you may be able to use simpler versions like Form 5500-SF or Form 5500-EZ.
Form 5500 is complicated and you must file this report for every employee benefit plan. The IRS has penalties for not filing this form ($250 a day, up to $150,000).
If you are considering setting up a health or retirement plan for your employees, find a professional benefit plan administrator to help. By doing so, you can be sure your plan complies with ERISA and that all reports and forms are accurate and on time.
- The Employee Retirement Income and Security Act (ERISA) requires employers that have retirement and health plans to provide at least minimum benefits to participants.
- Each plan participant must receive a description of how each plan works, along with information about rights and how to file complaints.
- Retirement plans must meet additional rules for plan assets and management.
- Employers must file an annual report on each benefit plan with the IRS.