For many employees in long-term positions, having enough money to retire comfortably is a big concern. The Employee Retirement Income Security Act or 1974, or ERISA, is a United States labor and tax law that creates standards for voluntary health and pension plans, as well as other types of welfare benefit plans in the private sector such as disability insurance and life insurance plans. ERISA is in place to protect the interests of employees enrolled in benefit plans, as well as their beneficiaries. Learn more about ERISA, how it affects modern businesses, and how a benefits consultant can help you develop an appealing benefits package that retains employees.
What Does ERISA Do?
ERISA was implemented to protect the retirement assets of American employees by creating rules that qualifying plans must meet to prevent the misuse of plans. Under ERISA, plans must offer participants information about plan funding and plan features on a regular basis and at no cost to the participants. The Act also sets standards for benefit accrual, participation, vesting, and funding. Laws have been passed that define how long a person must work before being eligible to participate in a plan or to receive benefits. It also states funding rules that require plan sponsors to offer plan funding.
There are many types of employee health and pension plans, including employer-sponsored health care plans that fall under ERISA. Employee organizations, private employers, and unions that offer healthcare plans to employees must follow the rules and regulations set by ERISA. In short, if you offer your employees any type of health coverage, you most likely will have to follow certain procedures and rules as a result of ERISA. As ERISA deals with both tax issues and workers’ rights, the U.S. Department of Labor and U.S. Treasury Department are responsible for overseeing legal aspects.
What Does ERISA Require?
While ERISA does have set rules, it does not tell employers which type of benefits to provide and how many benefits. Regulations are mostly associated with managing employer-sponsored health plans and pension plans. You may be required to provide or report certain information on a routine basis to ensure that you are following ERISA rules correctly. It may be required to provide a summary plan description to employees that include information about deductibles, premiums, and copays. You may also need to file an annual report with the federal government.
What Is a Defined Benefit Plan?
One of the things ERISA does is guarantees payment of various benefits if a defined benefit plan is terminated. Funded by an employer, a defined benefit plan promises an employee a set monthly benefit at the time of retirement. This type of plan will often state the benefit as a specific amount of money monthly at retirement, such as $200 per month. Other times, the benefit is calculated through an algorithm based on a number of factors, such as the employee’s age, salary, and number of years they have been employed by the business.
What Is a Defined Contribution Plan?
Another type of retirement plan is a defined contribution plan. In this plan, the employee, employer, or both make contributions on a routine basis. Unlike a defined benefit plan, a defined contribution plan does not promise employees a specific benefit amount at the time of retirement. Employees are typically responsible for choosing how contributions are invested and how much money is contributed from each paycheck. The end value of the account depends solely on how much money is contributed and how any investments perform. At retirement, the employee receives the account balance.
What ERISA Groups Are There?
There are two main types of ERISA groups which include self-funded and fully-insured. Self-funded groups are those that fund their own plans and pay for employee health care. Employers often choose to self-insure as it allows them to maintain a profit margin that insurance companies typically add as a premium. Fully-insured groups purchase insurance through an insurance company. This is the conventional way to structure employer-sponsored healthcare plans with the company paying a premium to the insurance company. Premium insurance rates are fixed for a year and are based on the amount of employees who are enrolled each month.
What Does a Summary Plan Description Entail?
When an employee becomes a participant of an ERISA health or retirement benefit plan, they are entitled to certain documents. One such document that should be provided automatically is a summary plan description, or SPD. A SPD outlines what the plan provides to participants, how it operates, how benefits are calculated, how to file claims for benefits, and when and in what form any benefits are paid. It is important to note that an insurance certificate provided by the insurance company is not an SPD. To be compliance with ERISA regulations, employers must add an “ERISA wrapper” with a Certificate of Insurance.
Contact a Professional Benefits Consultant
When businesses experience a hurdle in their benefits management process, they often turn to a benefits consultant for assistance. A benefits consultant works as a third-party professional who offers information and solutions to common workplace problems. While working with existing management, a benefits consultant can analyze your current retirement structure and determine if there are any issues with ERISA compliance. If so, a benefits consultant can also help you become compliant again.
Unlike staff, a benefits consultant can provide a business with an outside perceptive and a level of honesty that can really push your business in the right direction. Benefits consultants possess extensive knowledge of benefits products and industry standards and are able to work with budgets of all sizes. Hiring a benefits consultant can also be cost-effective as they can save employers’ time by finding solutions by a set deadline. If you are concerned about your business’s employee retirement plan options or are looking to build a stronger benefits package, you need the help of a qualified benefits consultant. Contact the professionals at the Business Benefits Group to learn more about ERISA and what it entails.