What is ERISA?

ERISA (the Employee Retirement Income Security Act of 1974) is a set of federal laws and regulations that govern welfare benefit plans and qualified retirement plans. Employers must have a written plan document and are required to deliver a summary of it, a Summary Plan Description (SPD), to their participants—regardless of how many employees participate. The SPD is the main vehicle for communicating plan rights to participants.

ERISA (Employee Retirement Income Security Act) is a federal law that governs both qualified retirement plans (pension, profit sharing, and 401(k) plans) and welfare benefit plans (e.g., group life, health, dental, and disability insurance plans and other fringe benefit plans). ERISA is enforced primarily by the Department of Labor (DOL). This article deals with the basic compliance requirements for welfare benefit plans only.

Almost every employer and employee benefit plan is subject to ERISA including benefits that are not provided through insurance, such as Health Care Flexible Spending Accounts and Severance Pay Plans. Even voluntary insurance programs may be considered ERISA plans, depending on the extent of an employer’s involvement in the plan. There are very few exceptions to ERISA.

Does ERISA Apply to You?

Most employee benefit plans are subject to ERISA’s requirements—whether they are insured or self-insured. Almost every employer, regardless of its size or number of employees, must comply with ERISA. The only exceptions are church and government plans. Although there are very few exceptions to ERISA’s applicability, a great many employers are not in compliance, and most are not even aware of it.

Common Misconceptions

Experienced insurance brokers, consultants, Human Resources and benefits professionals, accountants, and attorneys often hold several misperceptions about ERISA. One is that a cafeteria plan is a wrap plan because it allows various component benefit plans to be pre-taxed. However, a cafeteria plan is not a wrap plan. An employer must prepare a compliant ERISA “wrapper” in order to have a wrap plan.

Another misconception is that an insurance company’s group insurance policy or Certificate of Insurance is an SPD. However, Certificates of Insurance are often not SPDs because they rarely contain all of the required ERISA language.

In most cases, only an SPD wrapper plus the Certificates of Insurance and component benefit plans constitutes a compliant SPD.

A third common misunderstanding relates to who is responsible for preparing, filing, and delivering SPDs and Form 5500s. Most employers believe that their insurance broker, insurance carrier, accountant, or lawyer takes care of these responsibilities. However, this is usually not the case. ERISA compliance is solely the employer’s responsibility.