10 FAQs to Help You Understand ERISA - The Employee Retirement Income Security Act
What is ERISA?In 1974, Congress passed a law to protect and reform pension benefits in the United States called the Employee Retirement Security Act - ERISA for short. Before ERISA was passed, employees had little protection if their employer went bankrupt or raided their pension fund.
When it was finally passed, ERISA was a very broad employee benefit law that actually went beyond regulating pensions. It actually applies to all employee benefits, not just pensions.
Are all employers' benefit plans covered by ERISA?No. If you work for a government agency or a church, your employer's fringe benefit plans are not covered. Some religious organizations have opted into coverage, but that is rare.
What types of employee benefits are covered by ERISA?Essentially, any type of plan, fund or program that is organized to provide insurance, retirement, training and other benefits will be covered by ERISA. This includes:
- Disability Insurance
- Health Insurance
- LIfe and Accident Death & Dismemberment Insurance
- Long Term Care Insurance
- Training and Apprenticeship Programs
- Any other type of organized plan to provide fringe benefits to employees.
ERISA is very broad, and courts have read it to include a wide variety of benefit plans.
What kinds of pensions are covered?Nearly all types of retirement plans you have access to through work are covered by ERISA. Although some high-level executive plans called "Top Hat Plans" are not covered, most programs that will provide income in retirement will be covered.
Are 401k plans covered by ERISA?Yes. 401k plans are covered, because they are type of pension plan.
If ERISA protects "Retirement," why are insurance plans covered?As fringe benefits offered by employer grew to include different types of insurance, employers and unions agreed that these benefits were as important as pension funds. Remember that many health insurance plans were originally self-funded by unions and employers, and protecting those funds was very similar to protecting the cash that was funding pensions.
What if the employee pays for insurance coverage? Is it still covered by ERISA?Generally, yes. As long as the employer sponsors the plan and makes it available to all employees, it is covered by the federal law. If the employer has nothing to do with the plan other than opening its doors to insurance sales people to have access to its employees, then there are exceptions that may take those benefits outside of ERISA. However, simple things like brochures with the employer's logo and distribution of materials by a human resources office can point to employer sponsorship. If you are not sure if a benefit is subject to ERISA or not, consult an attorney familiar with ERISA.
How many employees must an employer have to have a plan covered by ERISA?One. One or more employees other than the owners of the company makes a benefit plan an employee benefit plan.
What if a company's only employees are the owners and their immediate families?In that situation, a private company will generally not be subject to ERISA. It is important to look at how the company's governance is structured. Sometimes, a small business that sets itself up a corporation and unknowingly makes its benefit plans subject to ERISA. Just because a person is a family member does not automatically take the plan out of ERISA.
Why did Congress pass a federal law regulating benefits?The 20th century saw the rapid growth of national companies. Gone were the days of the local store. As national chains expanded into new states, they had to deal with different regulations in each state. Congress sought to create one uniform set of rules for these companies. An unintended consequence of the law is that even local mom & pop stores are subject to ERISA if they offer fringe benefits to their employees.
Because ERISA is a very broad federal law, nearly everyone that works for a private employer is an one or more ERISA plans. If you have a benefit that is denied or you have trouble with making an ERISA claim, you should seriously consider hiring an attorney with extensive experience handling ERISA cases. ERISA is a complex federal law intertwined with extensive Department of Labor regulations, and knowing how it works can make the difference between getting a benefit you deserve or losing a claim.