Employee Retirement Income Security Act (ERISA)

In 1958, the Welfare and Pension Plans Disclosure Act required that employers file details of plans where funds were paid into private plans for the benefit of workers. With the Employee Retirement Income Security Act of 1974(ERISA), Congress added protection for those who are to receive pension benefits. ERISA also covers employee welfare benefit plans, including medical, surgical, sickness, disability, and death benefits.

ERISA covers over 45 million workers and family members who are enrolled in private plans. The Act requires that those administering a pension fund must handle it so as to protect the interests of the workers. The fact that the employer contributed all or part of the money does not effect compliance with the law. Under the Act, plan administrators must make detailed reports to the Secretary of Labor.

Pension plans that are established or maintained by an employer, or employee organization, such as unions, who are engaged in commerce or any activity affecting commerce. Plans that are exempt under the law are: certain church plans, government plans and plans maintained outside the United States for the benefit on nonresident aliens. The number of employees does not effect application of the law, but some plans covering less than 100 employees are exempt from certain reporting requirements. Employers do not have to establish a pension plan(unless required by a union contract, for instance) but if they do, they must follow ERISA.

Vesting refers to the right of employees to draw out their money. Prior to ERISA many pension plans did not vest until an employee had worked 20 to 25 years. An employee who was able to work 18 years got nothing. Under ERISA empoyers must select one of two vesting formulas. Either 100% vesting after 5 years of service, with no vesting prior to 5 years, or gradual vesting over 7 years with 20% vesting per year after 3,4,5,6 and 7 years. Note: Special rules apply to multi-employer benefit plans and employees need not be fully vested until they complete 10 years of service.

Payments into a plan must be large enough to meet future obligations. The Treasury Department is authorized to issue regulations, opinions, variances, and waivers regarding funding. ERISA establishes an insurance plan to protect employees if a company goes out of business.

By law, ERISA requires that information about a pension plan must be provided to the US Department of Labor, the IRS, the Pension Benefit Guaranty Corp., participating employees and their beneficiaries.
Reports that must be made to employees and beneficiaries include:
• A summary plan description within 90 days after an employee becomes a participant.
• A summary of any changes must be provided within 210 days after the end of the plan year in which the changes take place.
• An updated summary plan every 5 year or, if the plan has not been changed, a summary must be provided every 10 years.
• A summary of the annual report.
• A statement of the nature, form and amount of vested benefits on termination of employment (this requirement applies only to multi-employer plans).
• A statement of total accrued benefits and percentage vested at the time of termination (this requirement applies only to multi-employer plans).
• A written explanation of the terms of any joint and survivor annuity and the effect of taking an election against such an option.

Employees also have the right to:

• Review the plan description, the latest annual report, and other documents at the office of the administrator.
• The right to receive upon written request a statement of total benefits accrued and vested.
• The right to receive upon written request the latest plan description, the latest annual report, documents establishing the plan, and terminal reports, if any.
• The right to review a denied claim.
• The right to bring a civil action to enforce any rights.
• Protection from alienation or assignment of benefits.
• Protection from discharge, discipline, fine, or discrimination for pursuing any right to which he or she is entitled under ERISA.


An employer who fails to comply with a request for information may be fined up to $100 per day. Failure to file information forms with the Department of Labor is punishable by a fine of up to $1000 per day.

The employer is viewed as fiduciary under the law. This means the employer stands in the position of a trustee and must exercise the highest degree of care in handling and protecting the funds in the pension plan. In addition to bringing a civil suit, there are special statutory penalties written into the law. If the plan is underfunded, the Secretary of Labor is authorized to recover the amount necessary to properly fund the plan plus an additional 20% as a civil penalty. This can be a substantial amount and serves as a powerful enforcement tool.

Under certain state’s law, it is a misdemeanor for an employer who promises in writing to make payments to an employee retirement or welfare plan, to fail to make any payment within 60 days of its due date. The “writing” can be in a contract with an individual worker, a collective bargaining agreement, by agreement with the plan, or presumably could be contained in an employment manual or other written source. (See Mo. Rev. Stat. 285.100 to 285.105) [top]

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