The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law designed to protect workers who are relying on health insurance, retirement plans and other benefits that their employers have promised them. ERISA establishes standards for how employee benefits should be managed and offers workers a remedy should their benefits be mismanaged. This law also grants participants the right to sue their employers for breach of fiduciary duty and guarantees payment of certain benefits via a federal program called the Pension Benefit Guaranty Corporation (PBGC). So, who is subject to ERISA?
When Does ERISA Apply?
Any employer who provides pension plans to its employees is subject to ERISA. This law also applies to several other types of employee benefit plans, including:
- Health and dental insurance plans
- Unemployment benefits
- Health savings accounts (HSAs) funded through pre-tax contributions
- Flexible spending accounts (FSAs)
- Disability insurance
- Prescription drug plans
- Housing assistance plans
- Vision plans
- Pre-paid legal service plans
If you offer your employees long-term disability insurance policies, these are typically governed by ERISA. Similarly to other benefits, ERISA dictates specific requirements for processing disability benefit claims, as well as a timeline for a decision (generally within 45 days of receiving an insurance claim).
When Does ERISA Not Apply?
There are three cases where ERISA does not apply: government employers and entities, unfunded excess benefits plans and plans maintained outside of the United States. Here is a close look at each of these three cases.
Government Employers & Entities
Lawmakers first introduced ERISA with the intention of curbing systemic abuses of private employee pensions. Nevertheless, it ultimately determined that state and local governments should decide the most effective ways of protecting employees. Benefit plans created under a collective bargaining agreement between a union and a government entity are among those not covered by ERISA.
Be sure to always check your state’s laws regarding ERISA and government plans for details regarding exemptions. In Connecticut, for example, courts ruled in a series of decisions that the following plans are not subject to ERISA:
- Public school district healthcare plans
- State-established optional retirement plans for university employees
- Firemen’s pension funds
- Claims for benefits under group disability policies issued to The National Guard Association
- Claims by city employees against their health insurers
Unfunded Excess Benefits Plans
These plans are employers’ unfunded plans to provide benefits for select employees in excess of the amount that can be saved due to limits that apply to a majority of qualified plans. These types of plans are perfect for high-earning workers. Examples of excess benefit plans include stock-based incentive plans, deferred compensation plans and recognition and retention plans. Part of the reason for these plans not being subject to ERISA is that they have the ability to increase or decrease in value. Deferred compensation plans also typically allow pre-retirement distributions for certain life events (e.g. purchasing a home). Limits on benefits are set forth in Section 415 of the Internal Revenue Code (IRC).
Plans Maintained Outside Of The U.S.
Plans maintained outside the U.S. for the main benefit of nonresident aliens are not subject to ERISA. This is because ERISA was enacted to apply exclusively to American employees. ERISA is administered by the Employee Benefits Security Administration (EBSA), a division of the Department of Labor, as well as the Treasury Department.
ERISA also does not apply to employee benefits plans established by churches or other religious organizations or plans maintained for the sole purpose of complying with disability, unemployment or workers’ compensation laws. Certain types of voluntary group insurance plans where employees pay insurance companies all premiums through payroll deductions may also not be subject to ERISA if the employer does not contribute to the plan.
Speak To Our Qualified Business Insurance Agents
Reach out to the qualified agents at Pro Insurance Group in Elgin, Illinois for more information on ERISA and who it applies to. We are dedicated to serving as one-on-one advocates for all of our clients, regardless of their unique insurance needs. We also have a wide range of carrier options designed to meet our clients’ budgets.
If your company is a secular, non-governmental organization that provides employee benefits such as health insurance and retirement plans, you can benefit substantially from purchasing a fiduciary liability policy. This type of policy can protect your business from mismanagement claims and other liabilities tied to fiduciary duties. Aside from plan mismanagement, common claims filed against fiduciary entities include lack of investment diversity, conflicts of interest, improper counsel, and wrongful denial.