What Is the Purpose of ERISA?
If you and your family get health, dental, or vision care through employer-provided insurance, it’s important to understand your rights under the Employment Retirement Income Security Act (ERISA).
ERISA safeguards the group benefits that millions of American employees and their families depend on for healthcare, retirement savings, and insurance. However, few employees fully understand what ERISA is or the essential protections it provides. Failing to understand your ERISA rights can mean missing out on valuable benefits you’re not aware of. It can also make you vulnerable to fraud or deception at the hands of a dishonest employer.
In this blog post, our ERISA lawyer John Peace will explain the purpose of ERISA and how it plays a vital role in employees’ lives.
What Is the ERISA?
The Employee Retirement Income Security Act of 1974 is a federal law that regulates employer-sponsored group benefits like insurance policies and pension plans. ERISA establishes standards for how employers and insurers administer these group benefit plans to employees. It also lays out the rights and protections employees have to access group benefits, as well as a process for reporting violations of their rights.
ERISA applies only to group benefit plans offered by private employers. These plans can include:
- Retirement plans,
- Health insurance,
- Short- or long-term disability insurance, and
- Life insurance.
Take note: ERISA doesn’t require an employer to offer any particular set of benefits. It just governs how an employer manages the group benefit plans it makes available. It’s up to an employer to decide which benefit plans to offer.
What Is the Main Purpose of the ERISA?
Put simply, ERISA makes sure that employees enrolled in employer retirement or health plans get the benefits they’re promised.
In the past, fraud and mismanagement were an unfortunate but common part of the insurance industry. Companies often abused their power for profit and prevented individuals from accessing the benefits they were owed.
ERISA was designed in part to curb these unfair practices. It also aimed to give workers a safety net in case their employer couldn’t or wouldn’t pay out a promised pension plan.
Today, ERISA more generally offers employees a way to seek redress when they’ve been denied any group employment benefit.
How Does ERISA Protect My Employee Benefits?
ERISA establishes a set of rules designed to promote the fair management of group benefit plans by employers and insurance companies. These regulations protect plan participants (employees) in a variety of ways.
Fiduciary Responsibilities
ERISA lays out specific expectations for those who oversee employee benefit plans. These are designed to prevent mismanagement or abuse of the funds invested in benefit plans. Fiduciaries can include plan administrators, employers, investment managers, and service providers.
ERISA makes it their duty to act with care and prudence in managing plans. Financial decisions like how to invest plan funds should be made with the interests of plan participants and their beneficiaries in mind.Â
Disclosure Requirements
ERISA also requires employers and insurance companies to be transparent with employees about their rights and responsibilities in any benefit plan. For each plan they’re enrolled in, participants should receive a summary plan description (SPD). This is an important document that outlines what a plan includes and how it works. If a plan changes, participants must also be informed in writing.Â
Anti-Discrimination Protections
ERISA prohibits taking certain discriminatory factors into account when awarding employee benefits. It’s illegal for benefit plans to discriminate based on characteristics like age, race, gender, or length of company service.
Nationwide Protection
Because ERISA is federal law, its regulations and protections apply to private employers and employees no matter what state you live in. If there are laws covering employee group benefits in your state, ERISA takes precedence over them.
How Does ERISA Affect My Retirement and Health Plans?
ERISA comes into play in several important ways in employee healthcare and retirement plans.
Health Insurance
ERISA regulates all health insurance plans your employer sponsors. This includes (but isn’t limited to) group medical, dental, and vision insurance plans. When you file a claim to receive health benefits through your employer, the insurer is generally required under ERISA to respond promptly (although companies can request more time). If it denies your ERISA claim, the insurance company must explain why. You can also file an appeal to challenge the denial of benefits under ERISA.
ERISA also supports continuing health coverage for certain employees at risk of losing their insurance. The details around when health coverage can be extended for qualified employees are handled by a different federal law, the Consolidated Omnibus Budget Reconciliation Act. ERISA safeguards the right that employees have to access this extended coverage.
Retirement and Pension Plans
Most employer-sponsored retirement plans fall under ERISA’s authority. This includes defined benefit plans, like pensions that pay out upon retirement. It also includes defined contribution plans like a 401(k) or an employee stock ownership plan (ESOP).
ERISA sets specific vesting requirements for these plans. This ensures that employees gradually acquire ownership of the assets their employer contributes to the benefit plan. Once funds are vested, an employee is entitled to their retirement benefits, even if they leave their job.
Be aware: not all pension plans are covered by ERISA. For example, pension plans designed for employees of the government or a church are exempt from ERISA regulation.
Don’t Miss Out on the Benefits You’re Owed
Historically, part of the purpose of ERISA was to reduce the challenges that Americans faced in accessing insurance benefits they’d been promised. Despite the positive changes that its regulation has brought, ERISA is still a complex set of laws that few employees fully understand. That’s why it’s important to reach out to a legal professional if you have questions or concerns about your rights to employer-sponsored benefits.
ERISA attorney John Peace of the Peace Law Firm has over fifteen years of experience helping employees navigate the complexity of ERISA regulations and claims. If you’ve had a claim denied or simply want to better understand your rights as a plan participant, contact the Peace Law Firm for a free, no-obligation consultation.
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