Employment Retirement
Security Act

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
19-3
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

 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
19-4
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

 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
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
19-5


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
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
19-6

 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
19-7
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

 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
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
19-8

 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
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
19-9

19-10
 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
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


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
19-11
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.