The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum protection standards for individuals participating in most employer-sponsored group health and benefit plans. To achieve that purpose, ERISA places specific requirements on plan sponsors and administrators, many of which directly affect employers.
Employers and Plans Subject to ERISA
ERISA applies to most private employers, regardless of size. ERISA generally applies to all employer-sponsored group health plans, including self-insured and fully insured plans, so long as the plan is providing medical care or other ERISA-listed benefits. Below is a chart outlining plans to which ERISA may or may not apply.
|Group health and medical insurance (PPO, HDHP, HMO, POS, etc.)
||Governmental plans (federal, state, city, county and public school or school district)
|Dental and vision plans
||Plans maintained outside the U.S. for non-U.S. resident alien employees
||Health savings accounts
||Section 125 premium-only plans
||Benefits funded through payroll practice**
|Employee assistance programs (EAPs)*
*Wellness programs and EAPs are subject to ERISA if they provide medical care. See FAQ 1 for more information.
**The ERISA exceptions for these two types of plans are explained in more depth below.
With respect to benefits funded through a payroll practice (the so-called "payroll practice exception"), ERISA does not apply to benefits that are paid solely out of the employer's general assets. These benefits include overtime pay, unfunded sick pay, paid medical leave and income replacement benefits, including short-term disability or salary continuation plans. Insured plans fall outside the payroll practice exception, since payment of benefits through insurance is not payment from the employer's general assets. In addition, plans that cover former employees (retirees or otherwise terminated) also fall outside this exception.
With respect to the so-called voluntary plan exception, ERISA does not apply to certain voluntary insurance arrangements under which employees pay the full premium and the employer has minimal involvement. These types of plans include both group and individual insurance policies, including life, disability, vision, long-term care and specific illness (including extended hospital stay or cancer treatment) policies. To meet the exception, the plan must be completely voluntary for employees, the employer may not make any contributions toward the cost of coverage, the employer may not endorse or otherwise be involved in the plan and the employer must not make a profit from the plan. Basically, the employer can have no more involvement than to allow the insurer to advertise and sell the plan to its employees and to collect and remit employee salary reductions for premiums.
Assuming the plan does not satisfy one of the above exceptions, the plan would be subject to ERISA. This means that the employer, as plan sponsor, would become subject to additional compliance requirements under ERISA. Those compliance requirements include:
In addition to those ERISA requirements, there are fiduciary responsibilities that may come into play, depending on the employer's roles and involvement with the plan. A fiduciary is any person or entity that is exercising discretionary authority or control in management of the plan or plan assets, or any person or entity giving investment advice for a fee. If the employer is involved in operating the plan or in making decisions relating to the plan, then the employer may have fiduciary responsibilities with respect to its involvement. Under those responsibilities, the employer must:
- Act solely in the best interest of plan participants and beneficiaries (the duty of loyalty);
- Use plan assets for the exclusive purpose of paying benefits or reasonable expenses of plan administration (the exclusive benefit rule);
- Act with the same care, skill and prudence as would a reasonable person in similar circumstance (the prudent-actor rule);
- Diversify the plan's investments (if any) and minimize the risk of loss; and
- Act in accordance with the documents governing the plan.
Breach of a fiduciary responsibility may result in personal liability for the fiduciary, if the breach results in plan losses or in harm to plan participants. In addition, the U.S. Department of Labor (DOL) may assess civil penalties for fiduciary responsibility breaches.
Employer Action Required
Employers that sponsor ERISA group health plans must comply with the above ERISA requirements. To do so, employers should gather information relating to their plans (including insurance contracts and policies, written plan documents and employee communications relating to the plans) and review plan policies and procedures. If the employer has engaged a third-party administrator (TPA) to assist in plan administration, the TPA should be consulted to determine which, if any, ERISA obligations the TPA has agreed to perform.
Penalties for Noncompliance
Specific penalties for each ERISA requirement are outlined on each Web page related to the requirement.
Frequently Asked Questions
Q1. Are wellness programs or EAPs subject to ERISA?
A wellness program or EAP is subject to ERISA if the program offers medical care. Historically, wellness programs have been offered to encourage good health and healthy lifestyles. But wellness programs often go beyond the mere promotion of good health to provide physical examinations, cholesterol screening, flu shots, nutrition counseling and education, and similar benefits. To the extent that a wellness program provides such medical benefits, it will likely be treated as a group health plan subject to ERISA. So whether a particular wellness program is subject to ERISA depends on the nature of the services and benefits provided.
Q2. What is a governmental plan for purposes of the governmental plan exception to ERISA?
ERISA defines a governmental plan as any employee benefit plan established or maintained by the government of the U.S., by the government of any state or political subdivision thereof, or by any agency or instrumentality of any of those. While not specifically addressed in the statute or regulations, courts have held that a plan established by a state-sponsored public school or a school district would constitute a governmental plan.
Q3. What is a church plan for purposes of the church plan exception to ERISA?
ERISA defines a church plan as a plan that is established or maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches that is exempt under Internal Revenue Code (IRC) Section 501. Whether the church is exempt under IRC Section 501 would depend on whether the church has received an Internal Revenue Service determination letter stating that the church is 501-exempt. Generally, though, to qualify as a church plan, substantially all of the covered individuals must be employees or ministers (or their beneficiaries) of the church, or employees (or their beneficiaries) of a tax-exempt organization controlled by or associated with the church. Lastly, the plan must not have made an irrevocable election under IRC Section 410(d), by which the plan specifically subjects itself to the requirements of ERISA. (If the plan has made such an election, then the plan is subject to all of ERISA's requirements by virtue of the election.)
Q4. Does ERISA have any recordkeeping requirements?
Yes. ERISA does require that plans maintain sufficient records to document information that is required by the plan's Form 5500. Records must be kept and made available for examination upon request for a period of not less than six years after the filing date of the Form 5500. More information on the Form 5500 requirement can be found on the Form 5500
- ERISA § 3
- ERISA § 4
- ERISA § 104
- ERISA § 402
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