The Employee Retirement Income Security
Act of 1974, or ERISA, is a federal law that sets minimum standards for
pension plans in private industry. ERISA protects the assets of millions
of Americans so that funds placed in retirement plans during their working
lives will be there when they retire. Most health insurance, 401k, profit
sharing and even some severance plans are governed by ERISA. 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 nonforfeitable 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 nonforfeitable 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.
