Understanding ERISA Obligations

What Is ERISA?

The Employee Retirement Income Security Act (ERISA) sets standards for most voluntarily established employee benefit plans in the private sector. It applies to both pension/retirement plans and welfare benefit plans, such as health, disability, and life insurance.

Plans Covered by ERISA

ERISA generally covers:

• Health insurance plans
• Retirement plans (401(k), pension, profit-sharing)
• Life insurance plans
• Disability insurance plans
• Apprenticeship plans

ERISA generally does not cover:

• Plans maintained by government entities
• Church plans (unless they elect ERISA coverage)
• Workers' compensation, unemployment, or disability plans maintained solely to comply with state law
• Plans maintained outside the United States for nonresident aliens

Employer Obligations

Plan Documents

Every ERISA plan must have a written plan document that describes:

• Plan benefits and how they are calculated
• Eligibility requirements
• Funding mechanisms
• Claims and appeals procedures
• Amendment and termination procedures

Summary Plan Description (SPD)

Employers must provide participants with an SPD that explains plan terms in plain language:

• Within 90 days of becoming a participant
• Updated when material modifications are made
• Must include specific information required by ERISA

Reporting

Depending on plan size and type:

• Form 5500: Annual report filed with the Department of Labor
• Summary Annual Report: Distributed to participants
• Participant benefit statements: For retirement plans

Fiduciary Responsibilities

Anyone who exercises discretion in managing a plan or its assets is a fiduciary. Fiduciary duties include:

• Acting solely in the interest of participants and beneficiaries
• Acting with the care and skill of a prudent expert
• Diversifying plan investments
• Following the plan document
• Paying only reasonable plan expenses

Claims and Appeals

ERISA requires:

• Written notification of claim denials within specified timeframes
• Specific information about why a claim was denied
• A full and fair review of denied claims on appeal
• Compliance with specific timing requirements

Penalties for Non-Compliance

• Failure to file Form 5500: Daily penalties that can be substantial (employers should check current DOL and IRS penalty schedules, as amounts are adjusted periodically)
• Failure to provide SPD: Daily penalties per participant (employers should verify current amounts with the Department of Labor)
• Fiduciary breaches: Personal liability for losses to the plan
• Potential DOL investigations and enforcement actions

Best Practices

1. Maintain current plan documents and SPDs
2. File Form 5500 on time every year
3. Understand who your plan fiduciaries are
4. Review service provider fees regularly
5. Document all plan administration decisions
6. Respond to DOL inquiries promptly and thoroughly