Who wants their job to offer benefits? Now, who wants to actually administer and manage those benefits? Employee benefits are a great way not only to help employees in every aspect of their lives and show your appreciation for them in ways other than just their paycheck, but they also serve as a great recruitment tool and can help bring in top talent to your organization. Of course, to offer benefits, you also have to offer benefits: this means performing benefits administration. Now, benefits administration certainly isn’t the most difficult thing in the world, but it does come with its own set of unique challenges. As a business owner or HR leader within your company, benefits administration can take up a large portion of your time and create a large portion of unnecessary stress.
At Payday HCM, we’re very familiar with the stress and difficulty that can accompany benefits administration. We frequently receive questions from our clients regarding benefits administration and ways that they can make it easier. One crucial component of benefits administration, as well as HR as a whole, is compliance. Whether it’s the Affordable Care Act or another piece of legislation, ensuring your business is compliant is essential to thorough benefits administration. And, if you’re in the market for benefits and have been thinking about compliance, you’ve likely come across the Employee Retirement Income Security Act, or ERISA. But what exactly is ERISA, and what does it do?
Well, in this article, we’ll be going over the ins and outs of the Employee Retirement Income Security Act (ERISA), providing a general overview of what it is and what it takes to remain ERISA compliant. We’ll start with some background information on how ERISA came to be before moving into more detailed information on what ERISA does, who it applies to, and how you can remain compliant. By the end of this article, you’ll have a better understanding of how to ensure your benefits are not only comprehensive but compliant as well.
In this article, you will learn:
What is the ERISA?
Before we get into the details of what ERISA is and how it affects your business’s compliance, we’ll go into some background of ERISA and how it came about.
Origins of ERISA
Prior to the passage of the Employee Retirement Income Security Act, the IRS was largely in charge of regulating private retirement plans. The Revenue Act of 1921 and the Revenue Act of 1926 created favorable tax treatments for employer pension funds, allowing these funds to be deducted from their corporate income, as well as for pension funds to accumulate tax-free.
Over the years, concerns over mismanagement and abuse of pension funds led to stricter reporting requirements and regulations. The Revenue Act of 1942 introduced disclosure requirements, and the Welfare and Pension Plans Disclosure Act required employers and unions to provide plan descriptions and financial reports to the government. This Act also gave the Department of Labor oversight of private pension plans.
The scope of the WPPDA, however, was somewhat limited—concerns over abuse and mismanagement still remained. Eventually, these concerns would culminate in the passage of the Employee Retirement Income Security Act of 1974, introducing not only new reporting requirements and regulations but also certain standards of practice for institutions that manage pension funds.
Introduction of ERISA and the EBSA
ERISA would introduce a number of different changes that would affect how businesses go about offering not just retirement plans, but group health insurance plans and other benefits as well (but we’ll get into that a little later). As previously mentioned, the legislation was aimed at preventing mismanagement of pension funds.
ERISA would largely be overseen by the Employee Benefits Security Administration, known in 1974 as the Pension and Welfare Benefits Program, and is an agency of the DOL. The EBSA’s oversight of the ERISA would evolve and expand as the scope of the ERISA would also evolve and expand with a number of amendments over the years.
What Does ERISA Do?
Now that we have a better understanding of the origins of ERISA and its intended purpose, we can dive into the details of the kinds of rules and regulations created by ERISA.
ERISA Overview
ERISA mainly provides protection to employees with pension funds provided to them by their employer. ERISA's guidelines surrounding pension plans apply to fiduciaries, with fiduciaries being defined in ERISA as anyone “who exercises discretionary control or authority over plan management or plan assets,” according to the Department of Labor.
ERISA has a number of requirements that must be met by plan administrators and employers, including:
- Quarterly Statements: Benefits statements must be administered to plan participants each quarter.
- Plan Document: ERISA requires responsible fiduciaries to adhere to pension plan documents at all times.
- Participant Fee Disclosure and Notice of Changes: All plan participants must receive an annual disclosure of participant fees, as well as 30 to 90 days' notice of any plan changes.
- Opportunity to Enroll: All eligible participants must be given the opportunity to enroll, complete with enrollment instructions and a Summary Plan Description.
It’s important to note that employers can opt to work with a third-party plan administrator to assist with pension management and ERISA compliance. However, if it is an employer-sponsored pension plan, this means the employer still has a fiduciary responsibility to ensure all of these requirements are met (and, in turn, can be held accountable if they are not).
ERISA and Healthcare Plans
Of course, some of ERISA’s provisions don’t just apply to private pension plans. Similar to the requirements listed above that require employers or plan administrators to issue certain notices or statements regarding an employee’s pension plan, ERISA also dictates that employers or plan administrators issue certain statements regarding health insurance benefits.
In short, ERISA grants participants certain “participant rights,” including the right to disclosure of plan information, a fair and timely claims process, and continuity of group health coverage. The Consolidated Omnibus Budget Reconciliation Act (COBRA) created an addition to Title I of ERISA, which provides employees the option of continuing their benefits coverage if certain events occur that would otherwise cause them to lose coverage.
Portions of the Affordable Care Act are also managed by the EBSA. The ACA introduced a number of changes to private health insurance plans, most notably requiring applicable large employers (those with fifty or more full-time employees) to offer health insurance coverage that is both affordable and offers minimum essential coverage.
Who is Subject to ERISA?
Now that we’ve established what ERISA is and the kind of requirements that fall under ERISA, we’ll go over who is covered by ERISA and ways to stay compliant.
Employers Subject to ERISA
ERISA essentially covers most private employers, including corporations, small businesses, partnerships, and some non-profits. Of course, the key here is that ERISA covers retirement and healthcare plans, meaning if an employer doesn’t offer these kinds of benefits, then they aren’t subject to any of ERISA’s requirements.
There are some more specific exceptions to ERISA, however. These exceptions include any retirement or healthcare plans offered by governmental entities, churches, or plans that exist solely to comply with certain workers’ compensation, disability, or unemployment laws. ERISA also does not cover benefit plans that are maintained outside of the United States.
ERISA Compliance and Penalties
As an employer who offers healthcare or retirement benefits, it’s important to maintain compliance with ERISA. This means ensuring all of the necessary notices go out to employees and any necessary statements or filings are issued as well. If working with a third-party administrator, it’s crucial to ensure they are performing all of these functions.
In situations where employers fail to meet the compliance requirements outlined by ERISA, government agencies like the EBSA or IRS may step in and issue fines based on what they find. ERISA also provides employees with the power to sue any fiduciaries responsible for plan management in the scenario of mismanagement.
Understand ERISA, Maintain Compliance
It’s no secret that employee benefits are equal parts important and, at times, difficult to administer. Given the number of different rules and regulations that dictate certain requirements employers must follow in regards to benefits, it can be difficult to keep track of them all. At the same time, though, not keeping up with these regulations can not only bring penalties in the form of costly fines, but also potentially harm your employees’ experience and ability to use their benefits. Being ERISA compliant is only one piece of the puzzle, but with the information provided here, you’ll still be one piece closer to completing the compliance puzzle.
Managing benefits can be a handful. For businesses looking to offer a comprehensive benefits package, it can be a daunting task. Offering your employees something like a retirement plan shouldn’t feel like another job on top of the one you’re already working, whether that’s as your business’s HR manager or as a business owner. What actually goes into offering a good retirement plan, like a 401(k), though? Check out our article for the ins and outs of a 401(k) to learn more about what they are and how you can offer one to your employees.
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