What is ERISA?

It’s likely that at some point you have come across the term ERISA – probably while participating in a retirement plan or setting one up for your own small business.

So what is ERISA?

ERISA stands for the Employee Retirement Income Security Act of 1974.

ERISA established guidelines and minimum standards for private-sector pension and health plans to protect the plans’ employee participants and their beneficiaries. It was established in large part as a reaction to pension plan failures where employees lost their promised benefits, notably Studebaker auto.  ERISA doesn’t require companies to have pension or health plans, but it does regulate them once they are established.

The bulk of ERISA can be broken down to four requirements and rules:

  1. Plans must provide participants with certain information about the plan – the features of the plan (example: the eligibility requirements) and how the plan is funded.
  2. The people or entities who manage the plan’s assets must act as fiduciaries – meaning that they must act in the plan’s best interest. (More about fiduciary duty in a future post!)
  3. Plans must have a set process for participants to get their benefits from the plans.
  4. Participants are allowed to sue for their benefits OR if the fiduciaries did not do their fiduciary duty.

Over the years, ERISA has been added to and amended. Some well known additions are COBRA (this allows some workers to continue to receive their health coverage after losing their jobs) and HIPAA (privacy laws regarding healthcare).

There are some plans that are not covered by ERISA including plans that are run by the government and plans run by churches for their employees.

The DOL has some information about ERISA on their website.

And, unsurprisingly, Wikipedia has an in-depth description of ERISA as well.