2. CHAPTER NINETEEN Employment Retirement Security Act

3. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-3 Myths About ERISA 1.Your pension plans are not protected against the trustees who administer them 2.If you put money into a retirement plan, it will be there when you retire 3.If you put money into a retirement plan, it will not be there when you retire 4.ERISA applies only to retirement or pension funds

4. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-4 Statutory Basis  Employee Retirement Income Security Act allows for civil action by participants or beneficiaries to recover benefits or enforce rights under the terms of his or her plan  It prohibits interference with those rights protected under such plans

5. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-5 Who is Covered  Any employer that offers welfare benefit plans to its employees is covered by ERISA  Most private sector plans are covered  Generally, plans maintained by governmental entities or churches are not covered

6. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-6 Types of Plans to Which ERISA Applies  ERISA covers employee benefit plans –Welfare plans –Pension plans  Defined benefit contribution plans  Defined benefit plans  Qualified plans must be permanent, in writing and communicated, must have assets held in trust, and must exclusively benefit employees and beneficiaries

7. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-7 ERISA Regulations  Reporting and disclosure –Summary plan descriptions –Annual reports  Fiduciary duty –Fiduciary is one who holds funds in trust for another –Must handle funds in best interests of participants

8. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-8  Eligibility and vesting rules –All employees over 21 and with one year of employment are eligible –Vesting is acquiring a right or interest that is irrevocable by the donor  Employees vested after 5 – 7 years  Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) –Allows temporary continuation of health care coverage –Covers retrieval of pension funds by employers

9. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-9  Health Insurance Portability and Accountability Act (HIPAA) –Limits preexisting exclusions in health care plans –Protects individual health information from inappropriate use  Funding requirements of defined benefit plans are set forth under ERISA  Also covers modification of existing retirement plans

10. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-10 Enforcement of ERISA  Enforced by Department of Labor and Internal Revenue Service  Plaintiffs may only file for relief under ERISA –State common-law claims are preempted  Some ERISA claims may also be violations of ADEA

11. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19-11 Management Considerations  Don’t assume compliance; maintain consistent review  Although retirement fund opportunities are not required, they are subject to ERISA if offered  Be careful of matching employee contributions with company stock  Stay abreast of changing legislation