ERISA Q&A: What You Need to Know
If you currently offer, or are planning to offer your employees retirement benefits, make sure you’re familiar with ERISA rules and regulations.
As a plan sponsor, you must meet at least minimum ERISA standards. One way to ensure you are compliant is to work with a qualified benefits consultant who can analyze your retirement structure and determine if there are any compliance issues.
Unfamiliar with ERISA rules and regulations? Here is some basic information for you.
Q. What is ERISA?
A. ERISA stands for the Employee Retirement Income Security Act of 1974. Among other things, the law protects employers’ voluntary private sector retirement plans. The law does this by setting a minimum standard of requirements the retirement and health benefit plans must meet. ERISA protects both the interests of employees enrolled in benefit plans, as well as their beneficiaries.
Q. Which government entities oversee ERISA?
A. ERISA deals with both tax issues and workers’ rights, therefore the U.S. Department of Labor and U.S. Treasury Department oversee the legal aspects of benefits plans.
Q. What does ERISA require from plan sponsors?
A. Plan sponsors who establish plans must meet certain ERISA minimum standards. Some of these standards include defining:
• Minimum standards for participation, vesting, benefit accrual and funding.
• Who is allowed to become a participant.
• How long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and to have a non-forfeitable right to those benefits.
• Funding rules that require plan sponsors to provide adequate funding for your plan.
• The right of participants to sue for benefits and breaches of fiduciary duty.
• Payment of certain benefits if a defined plan is terminated.
• Whether a participant’s spouse has a right to a portion of their benefit in the event of their death.
• When employers must deposit withheld employee contributions into a 401(k) or other pension plan.
Q. What information must a plan sponsor provide participants?
A. Plan sponsors must offer participants certain documents. One document is the Summary Plan Description (SPD). An SPD outlines:
• Benefits recipients receive from the plan
• How this plan operates
• How benefits are calculated
• How participants can file claims for benefits
• When and how benefits are paid
Participants also should receive a Certificate of Insurance and be informed if the plan is changed using a revised SPD or by a separate document called a Summary of Material Modifications. In addition, the administrator must give participants a copy of the plan’s summary annual report (SAR) each year.
Q. What information must plan sponsors provide the federal government?
A. You may need to file an annual report with the federal government.
Q. What does ERISA not tell plan sponsors to do?
A. ERISA does not tell employers what kind or how many benefits to provide.
Q. What are the employer’s plan options?
A. There are defined benefit and defined contribution plans.
The employer funds a defined benefit which guarantees participants a specific monthly amount at retirement. The benefit can either be an exact dollar amount, or an amount based on a formula that takes into consideration an employee’s age, salary and years they have been employed by the company.
A defined contribution plan doesn’t guarantee participants a specific amount. Instead, the employee or employer or both make regular contributions to the plan. Employees choose how their contributions are invested and how much money they want to contribute each month. The amount they can take out each month at retirement is based on how much money is contributed, how the investments perform and the current interest rate. A 401(k) is an example of this type of plan.
If you have questions about ERISA, please contact us.