What Employers Should Know About ERISA Compliance
Employee benefits are a crucial aspect of modern employment, and the Employee Retirement Income Security Act (ERISA) plays a pivotal role in regulating these benefits. ERISA, enacted in 1974, governs how employers provide and manage their retirement and welfare benefit plans. Complying with ERISA is not just a matter of legal obligation but also a way to ensure the financial well-being of employees and your organization.
ERISA sets the standards for employer-sponsored benefit plans, including retirement plans (like 401(k)s) and health and welfare benefits (such as group health insurance). It aims to protect the interests of employees by establishing rules for plan reporting, disclosure, fiduciary responsibility, and claims procedures.
Who is Subject to ERISA?
ERISA applies to most private-sector employers that offer benefit plans to their employees. This includes both for-profit and nonprofit organizations. However, it does not cover government employers or certain church-related organizations.
One of the core tenets of ERISA is the requirement that plan administrators and other individuals responsible for managing benefit plans act as fiduciaries. Fiduciaries must act solely in the interest of plan participants and beneficiaries, prudently manage plan assets, and diversify investments to minimize risk.
Reporting and Disclosure Obligations
ERISA mandates that employers provide participants with plan information, including summary plan descriptions (SPDs) and annual reports. These documents must be easily understandable and include details about plan benefits, funding, and procedures for filing claims and appeals.
ERISA sets specific requirements for processing benefit claims and appeals, ensuring that employees have a fair and timely process for obtaining their benefits. Employers must establish and follow these procedures and provide claimants with written notice of the determination of their claim.
Most ERISA-covered plans are required to file Form 5500 annually. This document provides the Department of Labor and the IRS with information about the plan, its funding, and its operations. It helps ensure transparency and accountability.
Pension Benefit Guaranty Corporation (PBGC)
For employers offering defined benefit pension plans, it's essential to understand the PBGC, a federal agency that insures these plans. ERISA requires employers to pay premiums to the PBGC and comply with its rules.
Penalties for Non-Compliance
Non-compliance with ERISA can lead to severe consequences, including penalties, fines, and legal liability. Employers may face monetary penalties for failing to file Form 5500, and fiduciaries can be personally liable for plan losses caused by their breach of duty.
Engage with Professionals
To ensure ERISA compliance, many employers choose to work with third-party administrators, legal advisors, and benefit consultants. These professionals can help employers navigate the complex ERISA landscape and implement best practices.
Stay Informed and Evolve
ERISA is subject to regular updates and changes. Employers must stay informed about legislative developments and adapt their benefit plans and practices accordingly to remain compliant.
Maintaining a strong and compliant benefits program will support the well-being of both employees and the organization. We can help with that part. Contact us with your questions, and we will help you double-check your compliance so that your employees and your business are protected.