Introduced in 1974, the Employee Retirement Income Security Act (ERISA) is a federal law regulating how employers provide benefits plans to employees. ERISA sets the minimum standards for most voluntarily-established health and retirement plans in the private industry to help protect plan participants and their beneficiaries. The Act also helps ensure that plan fiduciaries do not misuse plan assets and act in the best interest of employees. Fiduciaries that fail to follow the principles of conduct may be held responsible for the recovery of losses to the plan.
What Is ERISA?
ERISA is administered by the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA). The laws under ERISA apply to private-industry, non-government employers that offer employer-sponsored health insurance and other types of benefit plans to employees.
Although ERISA does not require employers to offer benefit plans to employees, it sets standards for certain types of benefits that employers who choose to offer benefits must follow under law. ERISA provides a range of protections to employees, mostly related to retirement plans and health plans. If a plan administrator fails to act in investors’ best interest, they can be held financially responsible for any losses.
Who Must Abide by ERISA?
ERISA has protective laws that apply exclusively to employer-sponsored health insurance coverage and certain other benefits provided to employees by private employers. Sole proprietorships, non-profit organizations, partnerships and corporations are generally subject to ERISA, but churches and governmental employers are not.
ERISA laws apply to privately purchased individual insurance benefits or policies under certain conditions. This includes when an employer authorizes individual insurance policies to be pre-taxed under a section 125 plan or endorses a policy as a “voluntary policy” marketed and sold directly in the workplace.
What Employers are Covered by ERISA?
If an employer offers a health plan that the employer establishes for the primary purpose of providing benefits to employees and their beneficiaries, the employer would generally need to comply under ERISA. Most employers with two or more employees who offer a group-sponsored health plan must comply with ERISA’s disclosure and notice requirements and the reporting requirements in certain situations.
Some benefits that are subject to ERISA include medical, vision and dental. Others include life insurance, AD&D, short-term disability, long-term disability, health reimbursement arrangements and health flexible spending accounts.
Are Any Businesses Exempt from ERISA?
Not all types of businesses must meet the rules and requirements set out under ERISA. Certain enterprises are exempt from these standards. This includes any plans that are established or maintained by churches for their employees and government entities. It also includes plans that are maintained with the sole purpose of complying with applicable workers’ compensation, disability or unemployment laws. ERISA also does not cover plans that are maintained outside of the U.S. for the benefit of unfunded excess benefit plans or non-resident aliens.
Government, Church and Other Statutory Exemptions
Church and governmental plans are exempt from ERISA mandates, including rules relating to funding, vesting, disclosure, reporting and fiduciary responsibility. This includes all church-affiliated employers. However, it is important to remember that because church plans do not benefit from preemption under ERISA, they are subject to state law.
When Congress crafted ERISA, one of the Act’s primary goals was to reduce abuses in the system pertaining to private employee pensions. It was decided that all local and state governments should be free to decide how to protect their employees best.
“Payroll Practice” Exemptions
Certain regulatory exemptions apply under ERISA relating to payroll practice. One such exemption outlines how certain payments are exempt when made as part of an employer’s standard payroll practice. This generally includes payment of wages, shift premiums, overtime pay, and weekend or holiday premiums. It also provides income replacement benefits or sick pay and holiday, vacation, jury duty or similar forms of payment. For payroll practice exemption, the amount paid out must be taken from the employer’s assets and paid directly to employed individuals.
Voluntary Plans Exemption
The regulations under ERISA also exempt some voluntary employee pay-all arrangements. Under this type of agreement, the employer allows an insurance company to sell voluntary policies to employees who agree to pay the full coverage cost. Employees then pay the premiums via payroll deductions and the employer is permitted to send the deductions to the insurance company.
Talk With New City Insurance About Who Is Subject to ERISA
If a business is considering offering benefits to employees that may fall under ERISA rules and regulations, it is important to know what the Act entails. To learn more about who is subject to ERISA or speak with an experienced insurance agent, contact New City Insurance’s insurance professionals today.