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What is Employee Retirement Income Security Act ERISA
Retirement Plans, Benefits and Your Savings
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.
ERISA requires plans to provide participants with plan information including important information about plan features and funding. In addition it also does the following:
- sets minimum standards for participation, vesting, benefit accrual and funding
- provides fiduciary responsibilities for those who manage and control plan assets
- requires plans to establish a grievance and appeals process for participants to get benefits from their plans
- gives participants the right to sue for benefits under certain circumstances; and, if a defined benefit plan is cancelled or terminated, it guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation - PBGC.
In general, ERISA does not cover retirement plans established or maintained by governmental entities, churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment or disability laws. ERISA also does not cover plans maintained outside the U.S., primarily for the benefit of nonresident aliens or unfunded excess benefit plans.
The Employee Retirement Income Security Act (ERISA) requires plan administrators — the people who run plans — to give plan participants in writing the most important facts they need to know about their retirement and health benefit plans including plan rules, financial information, and documents on the operation and management of the plan. Some of these facts must be provided to participants regularly and automatically by the plan administrator. Others are available upon request, free-of-charge or for copying fees. The request should be made in writing.
One of the most important documents participants are entitled to receive automatically when becoming a participant of an ERISA-covered retirement or health benefit plan or a beneficiary receiving benefits under such a plan, is a summary of the plan, called the summary plan description or SPD. The plan administrator is legally obligated to provide to participants, free of charge, the SPD. The summary plan description is an important document that tells participants what the plan provides and how it operates. It provides information on when an employee can begin to participate in the plan, how service and benefits are calculated, when benefits becomes vested, when and in what form benefits are paid, and how to file a claim for benefits. If a plan is changed, participants must be informed, either through a revised summary plan description, or in a separate document, called a summary of material modifications, which also must be given to participants free of charge.
If participants are unable to get the summary plan description, the summary annual report or the annual report from the plan administrator, they may be able to obtain a copy by writing to the U.S. Department of Labor, EBSA, Public Disclosure Room, Room N-1513, 200 Constitution Avenue, N.W., Washington, D.C. 20210, for a nominal copying charge. Participants should provide their name, address and phone number to enable EBSA to contact them to follow up on the request.
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What is ERISA?
The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire.
ERISA is a federal law that sets minimum standards for pension plans in private industry. For example, if your employer maintains a pension plan, ERISA specifies when you must be allowed to become a participant, how long you have to work before you have a non-forfeitable interest in your pension, how long you can be away from your job before it might affect your benefit, and whether your spouse has a right to part of your pension in the event of your death. Most of the provisions of ERISA are effective for plan years beginning on or after January 1, 1975.
ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit.
ERISA does the following:
Requires plans to provide participants with information about the plan including important information about plan features and funding. The plan must furnish some information regularly and automatically. Some is available free of charge, some is not.
Sets minimum standards for participation, vesting, benefit accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and to have a non-forfeitable right to those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan.
Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.
Gives participants the right to sue for benefits and breaches of fiduciary duty.
Guarantees payment of certain benefits if a defined plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.
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