ERISA, the Employee Retirement Income Security Act of 1974, is a federal regulatory regime that governs private employer retirement, health care benefits and certain other employee benefit plans. It is a massive web of legislation, Department of Labor regulations and IRS regulations. ERISA also borrows from and incorporates securities regulations on investments (such as in 401k plans).
ERISA grew out of the bankruptcy of automobile manufacturer Studebaker in 1963. The bankrupted manufacturer could not afford to pay promised pension benefits. Many of its employees lost their jobs with little or no pension. ERISA rejected the idea that employees promised a pension worked on a whimsical promise of future pay. Instead, ERISA looks at benefits as part of an employee’s compensation earned today.
ERISA does not require employers to offer benefit plans
ERISA does not mandate employers offer benefits (except health insurance obligations under Obamacare). It does not regulate all benefit plans. It does, however, cover the benefit plans within which most employees in America participate. For all its complexity ERISA has two important goals. One, to insulate participant benefits from the financial stability of the plan sponsor (whether a employer-sponsored plan or a union-sponsored plan). Two, to ensure fair and reasonable plan administration.
Participants are insulated from the financial stability of the plan sponsor in many ways. For example, in retirement plans this generally means any accrued benefit that has become vested must be fully funded by the sponsor. Plans generally must be held in trust so that the sponsor cannot take the money back for its own use nor can it be touched by its creditors.
Granted, the financial stability of the sponsor will always have some effect on plan benefits. If the sponsor goes bankrupt, no additional benefits are likely to accrue in the plan. A sponsor can reduce the rate of future accruals, company match, increase health plan premiums and even stop a plan altogether if it can no longer afford to support the plan in its current capacity. However; ERISA sets out rules for how and when any of these events can occur.
If employers offer benefit plans then ERISA establishes a set of rules to protect employees
ERISA also lays out a very complex web of rules that require sponsors to administer the plans fairly and for the benefit of the participants. Plans must specify what classes of employees have access to what plans or what subsets of benefits under what plans. All employees meeting the requirements must have the opportunity to participate. Your boss cannot exclude you from an ERISA plan because he hates you, you wrecked his car, you smell bad, etc.
Plans also may give greater benefit to the management or top earners. Administrators cannot make arbitrary decisions about plan management. There are many deadlines, forms, documents and other requirements plans must comply with to make sure it treats participants fairly.
Because ERISA is so complex, it is always possible for a sponsor to either intentionally or negligently fail to meet its duty to participants. Sometimes there is merely disagreement over what ERISA or a plan requires of the sponsor. The resulting effect can be a partial or total loss of benefits. Time may or may not be a critical factor in challenging an ERISA violation.
The best way to protect yourself if you feel you are being denied benefits due under an ERISA plan is to seek the counsel of an employment attorney with experience dealing with ERISA.
The goal of ERISA was to create a uniform, nationwide legal structure for employee benefit plans. This would eliminate the problem of managing the patchwork of differing state laws on insurance and pension plans for most employees. It would also set clear standards for the duties of employers to administer plans.
Prior to ERISA plan administrators operated under state laws which set wildly different rules between states even when employers operated in multiple states. Under state law an employer could declare bankruptcy in federal court and effectively wipe away employee benefits as a lower tier obligation of the company. (This is what happened to Studebaker employees.)
Of course, ERISA is not a full scale guarantee for workers. As we saw more than twenty-five years later, Enron employees suffered a similar fate due to other financial hijinks around ERISA-protected plans. Rather, ERISA developed a framework for the duties and benefit protections that would set a low bar for employers and plan administrators.
ERISA vs. state law
ERISA by statutory language and Supreme Court precedent has established ERISA as overriding state law on most employee benefit issues. The continuing complexity of benefit plans and the rules to establish a minimum degree of uniform regulation has created a dense web of complex regulation over a technical area of law. Most attorneys who work on ERISA issues with employee benefits are extremely specialized in this field to help navigate this dense web.
One might not believe it would be so difficult to establish a federal law that requires employers to administer benefit plans with fair dealing but, perhaps unsurprisingly, employers and their financial allies go to great lengths to find creative interpretations that require yet even more regulation to shore up these ridiculous interpretations. Employers then complain of compliance costs to comply with regulations they necessitated.
Employee benefits attorney for ERISA issues
Due to the complexity of ERISA issues, few plaintiff-side attorneys have a deep understanding of these issues. 401k plans, pension plans, health care plans and other ERISA-governed benefit plans all involve complex regulation. If you have questions about whether your benefit plan is being administered fairly and within ERISA compliance then you should talk to an employment attorney experienced with ERISA issues. Attorneys familiar with ERISA can evaluate the plan rules and operation to determine whether there are potential claims. ERISA also requires workers to follow a specific claims process. Your employee benefits attorney can help guide you through that process.