With the exception of wages and salaries, you attract and retain qualified personnel primarily through employee benefits. If you want to provide benefits, you must know the fundamentals of establishing, amending or terminating an employee benefit plan. The following section presents an extremely brief overview of the Employee Retirement Income Security Act (ERISA); the basic federal law that defines your duties in administering an employee benefit program.

ERISA1 is by far the most comprehensive and important federal law relating to employee benefit plans. It deals with establishing, operating and administering two types of employee benefit plans: welfare plans and pension plans.

This discussion of ERISA presents an extremely brief overview. Consult legal counsel for assistance in complying with this complex and technical area of the law.

ERISA consists of four titles. This topic examines only Title I’s provisions, which:

Focus primarily on protecting employee benefits.
Contain provisions requiring reporting and disclosure of plan information.
Set standards of participation, vesting, funding and fiduciary responsibilities.
Provide for administration and enforcement.
Govern the structure (for example, written form) and content (for example, minimum participation standards) of pension and welfare plans:

Plan administration (for example, fiduciary responsibility).
The plan’s interactions with other components of plan administration (for example, prohibited transactions).

Title I also states that ERISA supersedes or pre-empts all state laws relating to either pension or welfare plans.2

Plans Covered by ERISA

ERISA regulates employee benefit plans and the people (for example, employers and unions) involved in establishing and maintaining these plans. The term “employee benefit plan” includes both employee welfare benefit plans and employee pension plans.3

Section 3(1) of ERISA defines “employee welfare benefit plan” to mean:

Any plan, fund or program established or maintained by an employer, an employee organization or both, to the extent that the plan, fund or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise:

Medical, surgical or hospital care or benefits; or benefits in the event of sickness, accident, disability, death or unemployment; or vacation benefits, apprenticeship or other training programs or day care centers, scholarship funds or prepaid legal services.
Any benefit described in section 302(c) of the Labor Management Relations Act, 1947 (other than pensions on retirement or death, and insurance to provide pensions).

The most common types of plans affected by the reporting and disclosure requirements are:

Retirement or pension plans.
Profit-sharing and 401(k) plans.
Thrift and savings plans.
Money purchase plans.
Employee stock ownership plans.
Qualified stock bonus plans.
Employee welfare benefit plans.
Life insurance.
Medical, hospital and surgical benefits, including vision, dental and EAPs.
Severance plans.
Accident insurance.
Short- and long-term disability plans.
Supplemental unemployment payments.
Paid legal services.

ERISA excludes certain employee benefit plans from coverage, including plans:4

Sponsored by governmental entities.
Sponsored by religious organizations.
Maintained solely for the purpose of complying with workers’ compensation laws, unemployment compensation laws or state disability insurance laws.
Maintained outside the United States primarily for the benefit of nonresident individuals.
Maintained solely to provide benefits in excess of the limitations in contributions and benefits imposed by ERISA.

Fiduciary Requirements Imposed by ERISA

ERISA imposes a fiduciary duty on plan administrators that requires them to act in the best interests of the beneficiaries of the plans they administer. The scope of that duty, as defined by the courts, must guide anyone who fills that role, whether they are an organization’s employee or an outside plan administrator.

Plan administrators that fail to carry out their fiduciary duties can face personal liability. Lawsuits against plan administrators for breach of fiduciary duty are on the rise. Plan administrators with concerns about compliance should consult legal counsel.

Advising Individual Employees of Changes in Benefits

Organization representatives, particularly HR personnel, must disclose information to the workforce when that information impacts the value of their benefits.

For example, when considering amending an ERISA plan, an employer fiduciary must truthfully answer employee questions about the substance of a potential change in benefits if you are seriously considering a change. Serious consideration takes place when a specific proposal is being discussed for purposes of implementation by senior management with the authority to implement the change. It is sufficient that the plan be considered by those members of senior management with responsibility for the benefits area of the business and who will make recommendations to the board of directors about benefits operations.5

An employer fiduciary cannot actively misinform its plan beneficiaries about the availability of future retirement benefits to induce the beneficiaries to retire earlier than they otherwise would, regardless of whether future plan changes are being seriously considered. Further, even before serious consideration begins, an employer fiduciary has a duty to not actively misinform its employees in an attempt to induce them to retire earlier than they otherwise would.6 That duty does not require that an employer fiduciary become a personal adviser or counselor to individual employees, except in limited circumstances.

ERISA Reporting and Disclosure

Title I of ERISA imposes the following reporting and disclosure provisions:

You must furnish employees with understandable and reasonably comprehensive summaries of employee benefit plans (summary plan descriptions), updates when major changes are made and summaries of annual reports on the financing and operation of the plans.
You must give employees, at their request, a report on the status of their vesting and accrued pension benefits. If they leave your organization on a temporary or permanent basis, give them the report.
Employee benefit plans must annually report certain detailed financial and actuarial data to the IRS and submit audited financial statements to federal agencies.

Nondiscrimination and ERISA

Employers and plan sponsors are generally free to adopt changes or terminate an employee benefit plan if they do not deprive participants or beneficiaries of vested benefits. However, ERISA makes it unlawful to terminate, fine, suspend, expel, discipline or discriminate against a covered benefit plan participant or beneficiary for the purpose of interfering with any plan rights.

For example, in the context of the sale of a business, a buyer and seller agreed that employees who were actively at work with the seller on the closing date of the sale or employees on a nonmedical, nonextended leave, vacation or a personal day off, would automatically transfer to the buyer’s payroll and be covered by its benefits plans.

If an employee was on a medical leave, workers’ compensation leave or other extended leave at the time of the sale, their employment and benefits would terminate and they would be eligible for transfer and benefits only if returning to active employment. The court ruled that this exclusionary provision in the buy/sell agreement violated ERISA’s nondiscrimination provision.7

1. 29 U.S.C. 1001 et seq.

2. ERISA sec. 514

3. ERISA sec. 4(a)

4. ERISA sec. 4(b)

5. Bins v. Exxon Company U.S.A., 220 F.3d 1042 (9th Cir. 2000)

6. Wayne v. Pacific Bell, 238 F.3d 1048 (9th Cir. 2001)

7. Lessard v. Applied Risk Management, 307 F.3d 1020 (9th Cir. 2003)

Health and Retirement Benefits