Employee Retirement Income Security Act: A Complete Guide - Shegerian Law

Retirement is a significant milestone in one’s career. After working most of your life, you can reap the benefits and simply relax, travel, or explore hobbies. So, before all that, you must ensure you have enough funds to live a retiree’s life, and one way to do that is through employer-sponsored plans.

Another aspect you must learn about regarding employer-sponsored plans is protection. What if something goes wrong and your employer fails to deliver your retirement benefits? These events are where the Employee Retirement Income Security Act (ERISA) steps in.

What is the purpose of ERISA, and what does it cover? ERISA, as mandated by the federal government, protects employees from potential negligence on the part of their employer when it comes to retirement. 

In this guide, we’ll delve into the ins and outs of the law, such as its standards, applications, coverages, and steps you take in the event of issues.

What is the Purpose of ERISA?

The Employee Retirement Income Security Act (ERISA) is a federal law enacted in 1974 to guard employees’ retirement benefits. It sets standards for managing and administrating employer retirement plans, ensuring fairness and transparency.

ERISA mandates employers to be transparent about their plan’s features and funding, helping workers make informed decisions about their retirement plans. The law also places responsibilities on employers to act according to their workers’ interests and offer procedures for benefit claims, appeals, and legal action against violations. 

What Does ERISA Cover?

ERISA covers pensions and establishes standards for plan funding, schedules, and the calculation and distribution of benefits upon retirement. The act also extends to various insurance plans employers offer, such as health, life, and disability insurance. 

Under ERISA, employers must follow strict guidelines regarding the management of insurance plans, including disclosing their full details, claims procedures, and other responsibilities. These rules hold employers accountable by providing adequate protection for employees and their families and ensuring they receive coverage.

ERISA also includes employer-sponsored retirement savings plans such as 401(k). These provisions are subject to the law’s regulations, which include rules for eligibility, contributions, investment options, and distribution of benefits.

Failure to comply with ERISA requirements can lead to fines and penalties. These penalties may include civil fines imposed by the U.S. Department of Labor (DOL), criminal penalties, and compensation to employees who have suffered harm due to the violations. 

According to the DOL, ERISA does not apply to group health plans created or maintained by government entities or churches for their employees or plans established solely to comply with relevant workers’ compensation, unemployment, or disability laws. 

ERISA also excludes plans maintained outside the United States primarily for the benefit of non-resident aliens or unfunded excess benefit plans.

Common ERISA Violations Made by Employers

As someone close to retirement, it’s vital to know the common violations employers commit so that you know your rights and receive your benefits. Here are some to watch out for.

  1. Reduction or withdrawal of promised benefits

This violation occurs when employers change the terms of their retirement or pension plans without providing proper notification or justification to employees. For instance, an employer might reduce the rate of contributions to a retirement plan or alter the release schedule, which decreases the benefits employees expect to receive.

ERISA requires employers to communicate any alterations to the plan promptly and allow employees to understand and adjust to them. Any changes to the terms must apply to all participants and beneficiaries without singling out age, gender, or employment status. 

  1. Failure to provide documentation to employees

Under ERISA, employers must provide employees with essential information about their benefit plans, including documents, summary plan descriptions (SPDs), and annual reports. 

Plan documents outline the formal terms and conditions of the benefit plan, including eligibility criteria, calculations, vesting schedules, and procedures for amending the plan. Meanwhile, SPDs summarize key features in a more user-friendly format.

Annual reports provide employees with information about the plan’s financial status, investment performance, and administrative expenses, allowing them to assess its health and sustainability. Employees without access to these documents may struggle to understand their benefits, file claims, or challenge denials, leading to financial hardship and legal disputes.

  1. Negligence of fiduciary duties

Those who manage and oversee employee benefit plans, such as plan trustees and administrators, have fiduciary responsibilities. The law allows them to act in the best interests of plan participants and beneficiaries. 

However, negligence in these fiduciary duties can take various forms, one of which is the mismanagement of funds. Fiduciaries must prudently manage, diversify, and invest assets to minimize risk and maximize returns. ERISA may hold liable those who fail to exercise due diligence or make uncertain investments without considering risks. 

  1. Improper handling of plan assets

Instances of mishandling or misappropriation of assets jeopardize the integrity and security of the plan. 

Administrators or trustees who use plan assets to fund personal expenses, invest in ventures that benefit themselves or their affiliated companies, or receive undisclosed fees or kickbacks may be committing a breach of contract and face allegations of mismanagement under ERISA.

Fiduciaries must maintain accurate and complete records of plan transactions, assets, and liabilities. Failure to keep records or mix plan resources with personal or other non-plan funds can be another case of improper handling. 

  1. Failure to follow claims procedures

One of the primary requirements under ERISA’s procedures is the timely and efficient handling of claims and notifying employees of decisions regarding them. Not sticking to established timelines leads to unnecessary delays. These setbacks can cause financial strain to employees who rely on these benefits for their livelihoods.

ERISA also requires employers to provide employees with clear and understandable explanations if they deny any claims, including specific reasons and steps for appealing the decision. Denying legitimate benefit claims without proper justification or failing to provide an opportunity to appeal violates ERISA’s procedural requirements and is grounds for a lawsuit.

Secure Your Retirement

ERISA is a vital defense for retiring employees, establishing minimum standards and procedures for employer-sponsored benefit plans. However, common violations like benefit reductions, documentation failures, and negligence can endanger your financial future.

If you encounter any trouble regarding retirement or other legal issues and need an employment lawyer, consider partnering with Shegerian & Associates. Our team will be your advocate and help you receive your deserved compensation.

Manuela Varela

Relations Manager

Manuela Varela has been with Shegerian & Associates since August 2022. She is responsible for outreach and marketing on behalf of the firm and manages relationships between firms and referring attorneys. She is also responsible for developing business opportunities and affiliations. Manuela graduated from Loyola Marymount University with a degree in Economics and Political Science.