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CHAPTER
NINETEEN
Employment Retirement
Security Act
Myths About ERISA
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
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
19-3
Statutory Basis
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

McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
19-4
Who is Covered
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
Types of Plans to Which
ERISA Applies

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
ERISA Regulations

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
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
19-7
19-8

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.
19-9

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.
Enforcement of ERISA
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.
Management
Considerations
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

McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
19-11
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