US Department of Labor http://www.dol.gov/ebsa/complia nce_assistance.html “ The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement and health benefit plans in private industry. “ WHAT IS ERISA ?
E Before ERISA was enacted by the Congress, employees were not protected under any law and many of them retired or were discharged without benefits; years of different questionable practices by certain pension plans passed by. Teamsters Pension Fund was one of the largest, well known for unethical practices, including giving loans to Las Vegas casinos. Despite the increase in number of plans and number of enrolled employees, there were no regulations to protect people from the abusive practices HISTORY OF ERISA
ERISA covers many different benefits, but the main ones are pension plans and in that area, ERISA regulates the following: - Determines the rules of participation in a pension plan, established by an employer - Obligates plan administrators to abide by certain rules, such as: how to invest the plan money, what investments to avoid, how to report and disclose pertinent information, to both plan members and the government as well as how to behave as fiduciary agents.
Nonpension benefit plans - Employers who offer these plans (For ex. disability, medical or dental plans) also need to abide by ERISA rules when it comes to reporting, fiduciary responsibility or disclosure. There are requirements regarding record safekeeping and employee notification that the plan administrator needs to follow There maybe other benefits which by their certain characteristics maybe covered by ERISA, for ex. - A group severance pay plan may meet this criteria, versus the individual severance pay plan, which may not.
Plan designed to make employees of the company owners of the company’s stock. All plans have to comply with the Tax code Employee may select, upon separation from the company, to sell the stock to the company Company determines the allocation to ESOP according to employee’s length of employment Employees are usually eligible to join after one year Vested period has to pass, before employees can receive shares ESOP – Employee stock ownerhip plan
Fund set up by an employer, pre-tax, with the goal to allow employees to contribute to it Some companies offer to match every dollar of employee’s contribution, up to the certain dollar amount Other than cash, contribution can be made in company’s stock Yearly amount limited to a maximum 15% of employee’s pay, and this considers combined contribution of both an employee and an employer; if employee is participating in other retirement plans, this amount has to be reduced, to the total of 15% 401(k) PLANS
Defined benefit pension plan - Gives more benefits to an employee, because employer guarantees certain amount of money, despite the amount in the plan or it’s gain or loss. Defined contribution pension plan - The amount of money employee receives as a payout, depends on his/her salary and the plan’s success or failure in an investment world PENSION PLANS
PLAN FIDUCIARIES Any person involved in top decision making in a certain plan, including trustees and plan administrators. Obligated to act in a way that would increase benefits and decrease risk for the plan members. Important for them is to avoid conflict of interest If plan incurs loses, plan fiduciaries are being held liable for the loses and may have to reimburse plan members out of their own pocket
TITLE 29— LABOR CHAPTER 18-- EMPLOYEE RETIREMENT INCOME SECURITY PROGRAM SUBCHAPTER I— PROTECTION OF EMPLOYEE BENEFIT RIGHTS “Statement furnished by administrator to participants and beneficiaries. a) Each administrator of an employee pension benefit plan shall furnish to any plan participant or beneficiary who so requests in writing, a statement indicating, on the basis of the latest available information-- (1) the total benefits accrued, and (2) the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable.” From the U.S. Code Online via GPO Access [wais.access.gpo.gov] [Laws in effect as of January 3, 2006]
Federal ERISA preemption gives “the right-o-way” to the federal decisions over the state laws. Because at the time when ERISA was enacted, the biggest concern was related to protecting pension benefits, this area has been well covered, which does not apply to other benefits. Because of this “flaw”, remedies for many other benefits exhibit serious loopholes. Many lawmakers have pointed out that there is a need for segmented regulation in Employee Benefits
“Though enacted to protect workers and lower transaction costs of interstate healthcare insurance, ERISA lead to the unintended and undesirable consequences by current interpretation of its ambiguous preemption and remedies provisions. First, it encourages insurers to shirk negligently their responsibilities. Second, ERISA refuses to allow plaintiffs who suffered clear violations of ERISA fiduciary provisions to recover damages. -continued-
Third, ERISA preempts any state law that attempts to fix either the conflict of interest or inadequate remedies. Finally, ERISA places societal costs of uninsured workers on the state while prohibiting the state from forcing the employer or the administrator to internalize these shifted costs.” Author: Mariya Starchevsky ERISA Federal Preemption Problem with a State-Based Solution: The Need for Regulatory Subdivision in Employee Benefits www.kentlaw.edu
Consolidated Omnibus Budget Reconciliation Act (COBRA) - Continuation of health insurance after the job loss or reduction in hours Health Insurance Portability and Accountability Act (HIPAA) - Allows employees to get health insurance without being discriminated for certain conditions, if they are enrolled in a group plan Newborns' and Mothers' Health Protection Act - Protects women after childbirth, allowing them to stay in the hospital for 48h/96h( for C- Section if they are enrolled in a group plan Women's Health and Cancer Rights Act Benefits after mastectomy Mental Health Parity Act - Only for plans which offer mental health benefits, advocates equal treatment considering other health plan benefits Amendments to ERISA
Allows employees to seek legal remedy if they lose benefits the company promised Rules of prohibited transaction – (between the fiduciary and an Erisa plan) may involve civil penalties Multiemployer Pension Plan Amendment Act of 1980 allows employees who are unionized, to participate in pension plans which are sponsored by several employers PENALTIES FOR NONCOMPLIANCE
Credits: 1. US Department of Labor http://www.dol.gov/ebsa/compliance_assistance.html 2. The Library of Congress http://memory.loc.gov/ammem/index.html 3. ESOP facts and figures http://www.esopassociation.org 4. 401(k) frequently asked questions http://www.ici.org/funds/abt/faqs-401(k).html 5. Managers and the Legal Environment –Strategies for the 21 st Century- Constance E. Bagley, Diane W. Savage
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