What Is ERISA Insurance?
When someone participates in an employer's retirement, profit-sharing and/or health insurance plans pertinent information is given to the employee about the plans features, benefits and funding. The individual will be informed about who has the fiduciary responsibilities of the plan and also where to go to file a complaint. This and other important information has been mandated by ERISA, a federal law enacted in 1974 for the benefit of plan participants.
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The Facts
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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. Originally ERISA regulated retirement plans as workers would frequently find themselves ineligible for pensions without meeting stringent age, service and contribution requirements despite long periods of employment. ERISA also protected plan participants whose money were diminished or depleted by poor handling of their retirement fund. Over the years, ERISA has been amended to govern other plans such as health insurance, profit-sharing and severance pay packages.
Benefits
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ERISA's presence guarantees the employees that their rights and money are protected while participating in their employer sponsored plan. Participants are always aware of any changes in benefits, coverage and performance ahead of time and it gives them time to adjust accordingly. ERISA entitles the plan participants the right to sue the company over benefits and breaches of fiduciary duties. If your company goes bankrupt, ERISA can guarantee certain benefits and pay through a federal company known as the Pension Benefit Guaranty Corporation.
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Significance
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Prior to 1974, workers who wanted to take care of themselves and their spouses during retirement was victims of inadequately funded plans with difficult eligibility requirements strapped to them. Many were left with no money after putting in decades of hard labor. ERISA changed the rules to make sure everyone who worked at a company who furnished a plan was able to enjoy the benefits without unfair restrictions. As ERISA expanded to cover other plans, some of their noteworthy amendments included COBRA (Consolidated Omnibus Budget Reconciliation Act), which allowed individuals and families a time period to keep their insurance coverage after leaving a company, and the Health Insurance Portability and Accountability Act (HIPAA), which protected those who had pre-existing conditions when applying for insurance.
Misconceptions
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ERISA's power is limited to governing fair practices in employer sponsored plans. ERISA cannot make any employer start a plan nor can it make the company continue it if the responsibilities to their employees were met while the plan was in action. The law does not cover group health plans sponsored by government entities or churches. It also doesn't cover foreign plans which benefits nonresidents only. ERISA also doesn't cover Worker's Compensation, unemployment and disability insurance plans.
Warning
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Although ERISA was enacted to protect those who were denied their benefits or haven't received their money from a retirement plan they were funding, certain situations are out of their hands. If a company declares chapter 7 bankruptcy, it is highly likely that the money invested will be lost as the remaining assets of the company will be liquidated under bankruptcy law. That includes deferred compensation plans. Also, if a retirement plan is through a publicly held company, the value of your account could be based on stock market activity. A plan's worth will increase or decrease by the success and failure of the plan's investment.
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