Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Law, Transactions, & Risk Management
  • HR, Employment, Labor, & Discrimination

Employee Retirement Income Security Act (ERISA) - Explained

What is ERISA?

Written by Jason Gordon

Updated at September 26th, 2021

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is the Employee Retirement Income Security Act?What Does ERISA Do?What are the Types of Pension Plans?Where are the ERISA Protections?Discussion QuestionPractice QuestionAcademic Research

What is the Employee Retirement Income Security Act?

The Employee Retirement Income Security Act (ERISA) was passed to protect employees rights with regard to pension, retirement, and other benefit plans offered or provided by employers. Portions of the plan are administered by the Department of Labor, the Internal Revenue Service, and the Employee Benefits Security Administration.

Next Article: Consolidated Omnibus Budget Reconciliation Act (COBRA) Back to: EMPLOYMENT LAWS

What Does ERISA Do?

 Important provision of ERISA include:

Disclosure and Reporting - Title I establishes disclosure and reporting requirements for sponsors of pension and benefit plans.

Fiduciary Standards - The Act establishes fiduciary standards for administrators of pension and benefit plans.

Insurance Benefits - Title IV requires certain employers to pay premiums to the Pension Benefit Guaranty Corporation, which is an insurance fund to secure certain retirement benefit plans.

Importantly, ERISA does not require employers to offer any particular benefits or pension plan; rather, it applies the above rules to employers who voluntarily provide such plans to employees.

What are the Types of Pension Plans?

There are two basic categories of pension plan covered under ERISA.

Defined Benefit Plan - A defined benefit plan provides recurring payments to an employee upon retirement. The amount of payment is calculated using a formula based upon the years of service and the employees salary during a specified period prior to retirement. The payments generally continue for the remainder of the employee s life.

 Defined Contribution Plan - A defined contribution plan allows an employee to make contributions to a retirement account. The employer generally matches a portion of these contributions. The fund is invested to allow growth (often on a tax-free basis) until the time of retirement. The employee may then withdraw any amount of the funds at any time. Early withdrawal of retirement funds generally results in a penalty to the employee. The funds are taxed at the employees marginal tax rate at the time of withdrawal.

Where are the ERISA Protections?

The three primary protections afforded employees with defined benefit plans are as follows:

Funding - An employer must adequately fund defined-benefit plans. Employers typically employ the services of actuaries to calculate the required amount of funding to meet future projected pension payment demands.

Vesting - A pension plan must vest ownership in the employee within a specified time. That is, the employee becomes entitled to receive benefits under the pension plan after a specified period. The percentage or rate of benefit entitlement is calculated as a percentage of full benefits based on the period or length of employment.

Guarantee - Employees pay premiums to the Pension Benefit Guaranty Corporation to insure the defined benefit plan against loss.

Related Topics

  • Employee Retirement Income Security Act (ERISA)?
  • Active Participant Status
  • Defined Benefit Plan
  • Pension Plan
  • Accumulated Benefit Obligation
  • Defined Contribution Plan
  • Cash Balance Plan
  • Pension Benefit Guaranty Corporation
  • Blackout Period
  • Benefit Allocation Method
  • Multinational Pooling
  • DB(k) Plan Definition
  • Employee Contribution Plan
  • Unit Benefit Plan
  • Top Hat Plan
  • Non-Discrimination Rule
  • Alternative Minimum Cost Method

Discussion Question

Why do you think the government heavily regulates retirement accounts or plans and the companies that sponsor them? What are some arguments against this form of regulation? Do you believe these provisions are sufficient to achieve the government objectives? Why or why not?

Practice Question

ABC Corp decides to offer a retirement plan for its employees. The plan provisions will apply equally to everyone in the company. Can you write a short memo explaining the difference between a defined benefit and defined contribution pension plan? Also, can you explain the primary requirements that the employer must ascertain to protect employee interests in the plan?

Academic Research

  • Legal Accountability for Utilization Review inERISAHealth Plans, Shuren, J. E. (1998). NCL Rev.,77, 731.
  • Sacrificing patients for profits: physician incentives to limit care andERISAfiduciary duty, Marsh, A. K. (1999). Wash. ULQ,77, 1323.
  • Rock, Scissors, Paper:ERISA, The Bankruptcy Code and State Exemption Laws for Individual Retirement Accounts, Pryor, C. S. (2003).Am. Bankr. LJ,77, 65.
  • Preemption of State Laws Relating to Employee Benefit Plans: An Analysis ofERISASection 514, Kilberg, W. J., & Inman, P. D. (1983). Tex. L. Rev.,62, 1313.
  • The Use of Arbitration to Avoid Litigation UnderERISA, Donaldson, R. P. (1975). Wm. & Mary L. Rev.,17, 215.
  • Tactical Self-FundedERISAEmployers Unnecessarily Threaten Employees' Right to an Independent Review of an HMO's Medical Necessity Determination with, , Weeden, L. D. (2003). John's L. Rev.,77, 867.
  • ERISAPreemption and the McCarran-Ferguson Act: The Need for Congressional Action, Manno, T. P. (1979).Temp. LQ,52, 51.
  • Kunin v. Benefit Trust Life Insurance Co.: Protecting Employees underERISAby Constructing Ambiguous Plan Terms against the Insurer, Traynor, M. (1992). Minn. L. Rev.,77, 1219.
  • Eligibility, Treatment, or Something In-Between-Plaintiffs Get Creative to Get PastERISAPreemption, McKenzie, L. P. (2006). J. contemp. health L. & pol'y,23, 272.
  • TheERISA: The Inevitable but Unexpected Hurdles of the Plaintiff's Welfare Benefit Plan, Stephens, C. M. (1996). Am. J. Trial Advoc.,20, 151.
  • ERISAPreemption: Immunity for HMOs, Chan, D. (1998). U. Ill. L. Rev., 199.
  • ERISAPreemption Meets the Age of Managed Care: Toward a Comprehensive Social Policy, Harshbarger, L. H. (1996). Syracuse L. Rev.,47, 191.
employee retirement income security act erisa

Was this article helpful?

Yes
No

Related Articles

  • Blackout Period (Investment Plan) - Explained
  • Department of Labor - Explained
  • Glass Ceiling - Explained
  • Non-Discrimination Rule - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand