The Employment Retirement Income Security Act (ERISA) is a federal law that entails how employers provide benefits plans to employees. It covers both defined benefit plans, otherwise known as pensions, and defined contribution plans like the 401(k).
Before ERISA, there was little federal protection for employees. That is because employers can decide to revoke retirement and pension promises without legal repercussions. In this article, we’ll show you how ERISA works. Do read on!
How does ERISA work?
With ERISA, the plan managers are held to higher standards when managing clients’ assets. However, there are some areas in which ERISA law sets standards for employers and plan administrators.
For instance, the plan administrators are liable to detailed reporting to the federal government every year. Also, the law stipulates how assets in retirement plans are protected. It further dictates how plan administrators act in the employees’ best interest, not their own. Furthermore, all plan participants must be provided with specific information regarding their plans.
In addition, ERISA retirement plans offer more protection from creditors than non-ERISA plans. That means that your retirement savings are probably intact and safe in the case of bankruptcy.
Erisa and Healthcare plans
Note that ERISA also governs most wide-reaching expansions of care in the U.S. healthcare system. For example, a report from the Department of Labor shows that ERISA-governed healthcare plans protect more than 136 million people in the U.S.
Like all retirement plans, ERISA is bound to lay out benefits and rules for eligibility. Also, Erisa healthcare plans must disclose premiums, co-pays, provider networks, premiums, and deductibles. It must also spell out plan portability while addressing participant privacy outlined by HIPAA.
However, the Affordable Care Act (ACA) enlisted additional protection for health care plans. That is done by mandating employers with more than 50 or more employees to offer healthcare coverage.
Takeaway
It might seem like you don’t need any working knowledge of ERISA, but it’s good to know how it works and provides numerous protections for your retirement benefits. However, most employees wonder if it’s possible to borrow from a retirement plan, such as a 401(k) plan.
Although 401(k) plans are permitted but not required to offer loans to participants. Typically, this attracts a rate of interest. The plan must also provide a process for applying for the loan and the plan’s policy for granting them.
If you’re not sure about your retirement plans and would need some expert guidance, then you’re on the right page. Feel free to get in touch by calling or, instead, fill out our contact form to book an appointment.