ERISA, the Employee Retirement Income Security Act, governs any “employee welfare benefit plan” that is “established or maintained by an employer” for the purpose of providing benefits to the plan’s participants and their beneficiaries. This includes some, but not all, voluntary plans, despite the fact that the employer may not make a single dollar contribution to the plan.
Intent doesn’t determine whether ERISA governs a voluntary plan or not. As a result, you may create an ERISA plan unknowingly and learn about it only after a lawsuit is filed.
What’s So Bad About ERISA?
One of the basic purposes of ERISA is to protect promised benefits. To help accomplish that goal, the statute and regulations require sponsors of ERISA plans to provide summary plan descriptions (SPDs), adhere to ERISA claims procedures, and to file an annual Form 5500 financial status report. These, and other requirements, make administering an ERISA plan more complex than other plans.
By understanding ERISA rules, you can structure your plans to ensure compliance and keep your company out of hot water. Plans that do not fall under ERISA avoid ERISA’s fiduciary provisions and do not require SPDs, ERISA claims procedures or Form 5500 filings.
To determine whether your voluntary plan falls under ERISA, start with the Department of Labor’s rules detailing “safe-harbor exemptions” from ERISA regulations. To fall within the safe harbor:
- The employer can make no contributions.
- Employee participation must be voluntary.
- The employer’s function must be limited to collecting premiums through payroll deductions and remitting them to the insurer.
- The employer cannot receive consideration in connection with the program (other than reasonable compensation for administrative services performed).
In addition, to avoid problems, employers must avoid all actions that could lead employees to believe the plan is employer-sponsored. For information on ERISA compliance, please contact us.