ERISA: Protecting employee benefits
The Employee Retirement Income Security Act of 1974 (ERISA), also known as the Pension Reform Act, was established to protect employee retirement investments and health insurance plans from unscrupulous or dishonest management. Here's what you need to know about the law — and how it applies to nonprofits.
What does ERISA require?
ERISA requires the people and companies that handle benefit plans and retirement investments to do so in a responsible way, with the financial interests of employees in mind. The law also ensures that investments are protected, even if employers go bankrupt.
ERISA provisions broadly apply to health, retirement and other employee benefits that fall into the tax category of welfare plans, including:
- Medical, dental and vision plans
- Health reimbursement and flexible spending accounts
- Disability insurance and group accident and sickness plans
- Long-term care insurance plans
- Housing assistance plans
- Welfare benefits, including 419(e) and 419A(f)(6) plans
- Unemployment and vacation benefits, including holiday or severance pay
- Apprenticeship and training programs
- Scholarship funds
- Prepaid legal services
- Retirement plans
Most of the provisions of ERISA apply to the entities that manage employee benefit plans. Plan sponsors must:
- Make regular disclosures to plan members
- Make sure that fiduciaries act in the best interests of their clients
- Ensure that plan members receive benefits even if their employers declare bankruptcy
Who does ERISA cover?
Short answer? Nearly everyone. Unless your nonprofit is a church or a governmental retirement plan, you must comply with ERISA if you offer an employee benefit plan (including any of the specific benefits listed above).
What are the key elements of ERISA compliance?
There are three main components to ERISA complaince: reporting, disclosure and paying claims.
Compliance should, for the most part, be managed by the firms or agencies administering your nonprofit's benefit plans (unless you're acting as your own administrator). This means that the burden of meeting federal requirements — including IRS forms and filings — falls to the plan administrator, not necessarily the employer. Still, it's important to clarify from the beginning who's responsible for what in terms of ensuring compliance.
As an employer, you may be required by the plan itself to take out an ERISA fidelity bond to provide coverage in the case of fraud or mishandling of funds. Your business insurance broker should be able to provide information about ERISA bond cost.
Then, you'll need to distribute plan information to employees. This information will generally be provided by the plan administrator and can be distributed to employees when the plan goes into effect (or at orientation for new hires). There's also a role for the board, who's responsible for setting policies regarding benefits and overseeing benefit administration.
Finally, it's helpful for all stakeholders to be as knowledgeable about their employee benefits plans as possible. It's in everyone's best interest to make regular checks and audits of benefit plans.
This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.
U.S. Department of Labor: ERISA fact sheet
U.S. Department of Labor: ERISA
BizFilings: ERISA requirements for employee benefit plan administration (2012)
Journal of Accountancy: Defined contribution plans for nonprofit organizations by Jamie Early (2009)
ERISA Pros: ERISA FAQs for welfare benefit plans (2016)
U.S. Department of Labor: Protect your employee benefit plan with an ERISA fidelity bond