What Is ERISA?

You may know that your 401(k) plan must be ERISA compliant, but do you know what ERISA is? The Employee Retirement Income Security Act of 1974 is a federal law that sets minimum standards and requirements for retirement plans to protect the interests of plan participants and their beneficiaries. 

As we discuss the Employee Retirement Income Security Act, plan administrators will better understand their duties regarding the company’s retirement plan and plan participants will gain additional knowledge of their rights under ERISA. 

How does ERISA work?

The purpose of ERISA is to protect the rights of plan participants by setting minimum standards for things like administration, eligibility, and vesting by which plans must operate. ERISA requires plan administrators to communicate plan information to all plan participants in writing. Topics such as plan rules, financial information, and documents detailing the operation and management of the plan must be covered in the document. 

Some of this information is provided by the plan administrator on a regular basis while other types of information are provided upon request. 

Documents that should be made available automatically are as follows: 

Summary Plan Description (SPD)– The plan administrator is legally required to provide this document to all participants free of charge within 90 days of eligibility and again at least every five years.

Information included in the SPD includes details about when you can begin participating in the plan, how long it will take to become fully vested, and how benefits are calculated and paid to the participants or beneficiaries. 

• Summary of Material Modifications (SMM) – This document should be provided to plan participants as notification of material plan changes. This document must also be given to plan participants free of charge, generally within 210 days following the close of the plan year. 
• Summary Annual Report (SAR) – This report provides participants with a summary of the plan’s annual finances. The report is typically a summary of information that has been filed by the plan administrator on Form 5500 and is required to be distributed no later than 9 months after end of the plan year, or two months after filing Form 5500. 

Any request for plan information should be made in writing.  

Who doesn’t ERISA cover?

While ERISA helps participants of employer-sponsored retirement plans, it’s important to note that there are types of businesses that ERISA does not protect including: 

• Churches 
• Government entities 
• Plans maintained outside of the United States

Many small business owners may feel intimidated by all the rules set forth by ERISA.

It’s important to follow ERISA guidelines when administering a plan. Plan administrators must provide annual plan disclosures, they must also notify employees timely if the plan has material changes, and administrators must make deposits on time. 

If the plan administrator has trouble managing the paperwork and responsibilities that come with plan operation, businesses can work with a third-party plan fiduciary to provide certain services for them. However, the company plan administrator must still fulfill their fiduciary responsibilities to the plan participants.