The Employee Retirement Income Security Act – ERISA

by Investing School on January 5, 2013

Legislation passed in 1974 to protect the pensions of employees when their employer offers a pension plan, the Employee Retirement Income Security Act – ERISA sets the standards for employee health insurance and other benefits offered by employers. While ERISA does not require employers to provide pensions or health insurance, it does dictate how those services are managed if provided voluntarily.

Among the rules stated by ERISA, it is stated that when an employer does offer a pension plan they must establish a vesting date. That means that the employer must determine how long the employee must work before the pension is guaranteed. Once the period of vesting is complete the employer can no longer reduce the amount of the employee’s pension.

There are other rules as well. The employer must provide full disclosure by providing regular and automatic information packets. The information informs participants about features and funding of the plan.

Fiduciaries must be accountable and follow standard principles of conduct. If they don’t they can be held responsible for any losses to the plan. ERISA also gives participants the right to sue for any breaches in fiduciary duties. If the company folds or the pension plan must be terminated it is guaranteed by the Pension Benefit Guaranty Corporation ensuring that employees don’t lose their investments.

ERISA was drafted as a response to numerous irregularities. One such case involved the Teamsters Pension Fund which had a history of providing inappropriate loans to casinos in Las Vegas.

ERISA also determines how employers offer heath insurance. Pre-existing conditions can not be behind denial of benefits, long term illnesses must be covered and COBRA must be provided for employees who are terminated.

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