ERISA does not stand for “Every Ridiculous Idea Since Adam,” contrary to popular belief. Instead, it stands for the Employee Retirement Income Security Act of 1974, which is an acronym. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal legislation that governs employer-sponsored retirement and health plans. (Because IRAs are not sponsored by an employer, they are not covered by ERISA.)
ERISA sets specific restrictions on the sponsoring employer and other plan officials for retirement plans. These prerequisites are as follows:
- Providing plan participants with particular information, such as a plan summary (sometimes known as a “summary plan description”);
- Managing and investing the plan’s assets purely for the benefit of plan participants; and
- Maintaining a system for plan participants to submit claims and appeal claims that have been refused.
Certain plans were excluded from coverage when Congress passed ERISA. If required by the tax code or state law, many non-ERISA plans must nevertheless follow some or all of the ERISA standards (or equivalent rules).
- Most retirement programs in the private sector, including most 401(k) and pension plans.
- Plans in which the owner and the owner’s spouse are the only employees (such as a solo 401(k) plan).
- Section 403(b) plans sponsored by private tax-exempt companies if the company does not contribute to the plan and is only involved in the administration of employee elective deferrals.
- Employers in the government or the church fund these plans. The Thrift Savings Plan, a 401(k)-style plan for federal government and military employees, is one of them. 403(b) plans for public school or church employees, as well as section 457(b) plans, are not covered.
Although SEP-IRAs and SIMPLE-IRAs are theoretically covered by ERISA, they are exempt from the majority of its provisions.
If you’re a member of an ERISA plan, you’re generally better protected than if you’re a member of a non-ERISA plan. This is particularly true when it comes to creditor protection.
ERISA-covered plans must totally protect plan assets from creditors, regardless of whether you have filed for bankruptcy. If you have declared bankruptcy and are enrolled in a non-ERISA plan, you have limitless protection. If you haven’t declared bankruptcy, though, your level of protection is determined by state law. Some states provide protection that is comparable to that provided by federal law, while others provide less protection.
ERISA-covered plans must also give some protection to plan participants’ spouses.
Do I need an ERISA bond for a SIMPLE IRA?
Employees commonly open SIMPLE IRAs and SEP IRAs at banks, trust firms, or insurance companies, and such institutions are free from the bonding requirement if they are subject to federal or state regulators’ supervision or review and meet specific financial standards. The Pension Protection Act exempted firms registered as broker/dealers under the Securities Exchange Act of 1934 from the ERISA bonding requirement if the broker/dealer is subject to a self-regulatory organization’s fidelity bond requirements. As a result, eligible financial institution personnel who manage SEP IRA and SIMPLE IRA plan assets are not required to be covered by an ERISA fidelity bond.
Employer fiduciaries who handle SEP and SIMPLE IRA plan assets prior to the assets being held in their particular IRAs, however, are not excluded from the ERISA bonding requirement.
When do donations to SEP and SIMPLE IRAs become plan assets? Employee salary deferrals in the form of salary reduction (SAR), SEP, and SIMPLE IRAs become plan assets as of the earliest date on which they can fairly be separated from the employer’s general assets (DOL Reg. 2510.3-102).
What IRAs are subject to ERISA?
ERISA-Qualified SEP IRAs The tax benefits of the retirement contribution go to the company, not the employee. As a result, SEP IRAs are ERISA-compliant.
What plans are exempt from ERISA?
Employee Retirement Income Security Act of 1974 (ERISA) sets basic standards for retirement, health, and other welfare benefit programs, including as life insurance, disability insurance, and apprenticeship plans. The complex provisions of ERISA handle the federal income tax consequences of transactions involving employee benefit plans, with mandates that qualifying plans must adhere to in order to ensure that plan fiduciaries do not mismanage plan assets. Since it was enacted into law, ERISA has been changed several times.
ERISA, often known as the Pension Reform Act, safeguards Americans’ retirement assets. The Employee Benefits Security Administration (EBSA), a branch of the United States Department of Labor (DOL), as well as the Department of Treasury and the Pension Benefit Guaranty Corporation, are in charge of its administration.
Employer-sponsored health insurance and other benefit programs supplied to employees by private firms are protected by the ERISA statutes (only). Governmental employers and churches are exempt from the applicability of ERISA, as are corporations, partnerships, sole proprietorships, and non-profit organizations. Employers are not required to offer plans under ERISA; rather, it establishes the standards for the plans and benefits that employers choose to offer. Only if (a) the employer enables privately purchased, individual insurance policies or benefits to be pre-taxed under a 125 plan, or (b) the employer promotes the plans as “voluntary policies” offered and sold in the workplace, do ERISA requirements apply.
The term ERISA is occasionally used to refer to the entire body of legislation governing employee benefit programs, which are primarily found in the Internal Revenue Code and ERISA. Employers are not required to provide a benefits plan under ERISA, but it does regulate how such plans operate. To summarize, while establishing such plans is voluntary, once they are available, they must be handled in accordance with the different ERISA rules, which include the following:
Managed care (i.e., HMOs) and other fiduciaries (the person financially accountable for the plan’s management) must follow ERISA standards.
Reporting and Responsibility: The Employee Retirement Income Security Act of 1974 (ERISA) mandates rigorous accountability and reporting to the federal government.
Procedural safeguards: A written policy addressing how claims should be filed, as well as a written appeal process for claims that are denied, must be developed. ERISA also mandates that claims appeals be handled fairly and promptly.
Financial and Best-Interest Protection: ERISA serves as a safeguard to ensure that plan funds are safeguarded and distributed in the best interests of plan participants. When it comes to giving plan benefits to qualifying persons, ERISA also forbids discrimination.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and the Health Insurance Portability and Accountability Act of 1996 have been added to ERISA to particularly handle health insurance coverage (HIPAA).
Failure to comply with ERISA’s standards can be extremely costly, with DOL enforcement actions, penalty assessments, and/or employee lawsuits likely outcomes.
Many non-pension fringe benefit arrangements are referred to as “employee welfare benefit programs” and are regulated by ERISA. Meanwhile, crucial exclusions and “safe harbors” for certain types of employee perks are in place. The three essential parts of ERISA’s definition of a welfare benefits plan are as follows: (1) An employer shall establish or maintain a plan, fund, or program (2) for the purpose of providing the following stated benefits to participants and beneficiaries:
- Benefits if you get sick, have an accident, become disabled, die, or lose your job.
Is Ira covered by ERISA?
ERISA governs most employer-sponsored plans, such as 401(k)s. Neither do government employee plans or IRAs. ERISA was enacted in the 1970s to protect private-sector workers’ retirement income.
Is a fidelity bond the same as an ERISA bond?
ERISA bonds and fidelity bonds both safeguard a firm from employee activities that may harm the company in the future. Employees who manage or have fiduciary responsibility for the company’s retirement fund are covered by an ERISA bond. Employees who are unable to get a bond owing to worries about their personal background or employment history are covered by a fidelity bond. Employees with administrative access to the retirement fund are usually obliged by law to have ERISA bonds, but fidelity bonds are not.
Is Form 5500 required for Simple IRA?
Employers are often exempt from filing requirements and are not required to file an annual Form 5500 return. W-2 Reporting: SIMPLE IRA contributions are not reported in the “Wages, tips, and other remuneration” box of the W-2, Wage and Tax Statement PDF, but they are reported in the Retirement Plan box in box 13.
What accounts are ERISA?
Creditors are generally prohibited from seizing retirement accounts established under the Employee Retirement Income Security Act (ERISA) of 1974. Most employer-sponsored retirement plans, such as 401(k) plans, pension plans, and some 403(b) plans, are covered under ERISA. Creditors cannot access funds in these ERISA-qualified plans, even if you have millions of dollars in your retirement account and owe money or have filed for bankruptcy.
Protected funds are largely unrestricted under ERISA. However, money in an ERISA-qualified account may not be shielded from creditors in some circumstances. If you are convicted of a crime and sentenced to prison, the state may seize your assets to cover some of the costs incurred by the institution. If the creditor is a former spouse or the IRS, your retirement assets may not be protected.
How do you know if you have an ERISA plan?
Ask your employer if you are participating in a self-funded ERISA plan or if you are enrolled directly in a state-regulated HMO or insurance business. Congress was debating adding consumer protections and specified benefits to ERISA plans at the time of this writing.
What is the difference between ERISA and non-ERISA plans?
You may hear the terms ERISA and non-ERISA if you own a business. There are two sorts of retirement plans that you can provide to your employees. An ERISA plan is one to which you will contribute as an employer and which will match the inputs of participants. The requirements of the Employee Retirement Income Security Act, from which the plan gets its name, must be followed by ERISA plans. Non-ERISA plans do not require employer payments and are exempt from the Act’s requirements. Find out which insurance plan your company is required to have under federal law.
What plans are subject to Title IV of ERISA?
The Pension Benefit Guaranty Corporation (PBGC) released a new form and instructions this week for fiduciaries who want to know if their retirement plan is covered by Title IV of the Employee Retirement Income Security Act (ERISA).
The plan termination insurance program for defined benefit pension plans is governed by Title IV of ERISA. Title IV of ERISA is utilized to assess liability for PBGC termination premiums, among other things.
According to the PBGC, the form and instructions were produced after getting permission from the Office of Management and Budget (OMB), and the form was intended to streamline and simplify the coverage determination process. Employers may also use the form to get an opinion letter regarding whether a plan in the process of being developed is likely to be covered by PBGC in certain circumstances, as part of a one-year pilot experiment, according to the guidelines.
The four plan types for which coverage determinations are most frequently requested, according to the PBGC, are church plans, as defined in ERISA Section 4021(b)(3); plans established and maintained exclusively for the benefit of plan sponsors’ substantial owners, as defined in Section 4021(b)(9); and plans established and maintained by professional services employers, as defined in Section 4021(b)(13), that have covered no more than 25 active employees since September 2, 1974.
What benefits are not subject to ERISA?
There are a few exceptions and types of benefits that ERISA does not cover. Sick-pay plans and short-term disability / medical leave plans are examples of these exceptions if:
- The money comes from the company’s general assets, not pre-funded accounts or insurance plans.
If the employer does not sponsor or contribute to the plan, several types of voluntary group insurance plans in which employees pay all premiums to insurers through payroll deductions may not be covered by ERISA.
The recent cases from the Supreme Court are ending a trend in case law. These days, plan language is king. So, how can plaintiff’s attorneys protect their clients’ recoveries and their own fees and costs?
Of course, the first question you should ask is whether the plan is subject to ERISA. Except where the employer is a government or a church entity, ERISA governs employer-employee programs. Individual plans are not governed by ERISA. If it’s an employer-employee plan, the next step is to figure out how to fund it. A self-financed ERISA plan is one that is funded by contributions from both the employer and the employee, and thus preempts state law. The plan is a fully insured ERISA plan and is subject to state law if it is funded by purchased insurance coverage. The plan language in the Summary Plan Description can be used to determine financing status (SPD). Whether the plan is self-funded or fully insured is determined by the funding strategy mentioned in the SPD. The name and title of a plan might also give you a sense of whether it is self-funded or fully insured. The plan is most usually self-funded if it is a named employer group or an ASO (administrative services organization) (federal law applies). If the plan has a specific insurance carrier or is labeled as an HMO, POS, or PPO, it is almost certainly fully insured (state law applies).
The tips above aren’t always conclusive in determining whether or not a plan is subject to ERISA, but they can help you figure it out. Both the SPD and the Master Plan Document are important documents to review (MPD). How do you obtain these crucial documents? You must request them from the plan administrator (not the TPA or the recovery provider (Rawlings, Ingenix, ACS, etc.). On the administrative page of the Summary Plan Description, the plan administrator is normally identified. “Upon written request of any participant or beneficiary, the administrator shall furnish a copy of the most recent updated summary, plan description, and annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated,” according to 29 U.S.C. 1024(b)(4). Ensure that you receive ALL of these materials. Most recovery vendors or plan administrators will try to give you with merely the SPD and a claims summary. Accept those materials, but keep requesting the remainder of your request (the full plan documents). Also, double-check that the MPD and SPD you receive are identical. Administrators frequently update the SPD rather than the MPD. The SPD and the MPD must both state the same thing. Cigna v. Amara, 131 S.Ct. 1866; Cigna v. Amara, 131 S.Ct. 1866; Cigna v. Am (U.S. 2011).
If your request for ALL documentation is ignored, the plan administrator may be subject to fines under the United States Code. According to 29 U.S.C. 1132(c)(1)(b), “any administrator who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary by mailing the material requested to the requesting participant or beneficiary’s last known address within 30 days after such request (unless such failure or refusal results from matters reasonably beyond the control of the administrator) may in the court’s discretion be fined.” To put it another way, if the plan administrator does not respond to your request for the full plan documentation within thirty days, fines begin to accrue at $100.00 per day after that. Under 29 CFR 2575.502(c), these fines can be increased to $110.00 per day (1). See, for example, Leister v. Dovetail, Inc., No. 05-2115 (c. Dis. Oct. 22, 2009), in which the court fined $377,600.00 for 3,776 days of non-compliance, and Huss v. IBM Medical and Dental Plan, No. 07 C 7028 (N.Dis.Ill. Nov. 4, 2009), in which the court fined $11,440.00 for 104 days of non-compliance.
Let’s pretend that you’ve gotten all of the needed plan documentation and that the plan appears to be controlled by ERISA. What can you do to help your client save money while also protecting your fees and costs? Attack the language of the plan! According to the Supreme Court, the plan text must define a specific fund, distinct and apart from the member’s assets, from which the plan may recover, as well as the share of that fund to which the plan is entitled. Mid Atlantic Medical Services, Inc. v. Sereboff, 126 S.Ct. 1869 (2006). A distinction in plan language is required for a plan to recover from a Covered Person, according to the court in Popowski v. Parrott. The court compares the subrogation language of two distinct plans. “The Plan has a lien on any sum obtained by the Covered Person, whether or not specified as reimbursement for medical expenditures,” according to the United Distributors Plan. This lien will stay in place until the Plan is fully paid off. The Covered Person…must refund to the Plan the benefits provided on his or her behalf from the third-party or insurer’s recovery.” 461 F.3d 1367, at 1373 (Popowski v. Parrott) (11th Cir. 2006). “However, if the Covered Person receives a settlement judgment, or other payment relating to the accidental injury or illness from another person, firm, corporation, organization, or business entity paid by, or on behalf of, the person or entity who allegedly caused the injury or illness, the Covered Person agrees to reimburse the Plan in full, and in first priority, for any medical expenses paid by the Plan relating to the injury or illness,” according to the Mohawk Plan. 1374 is the id. The United Distributors Plan claims that their lien is derived from a separate fund, i.e. a third-party or insurer’s recovery. This is appropriate wording that will be followed. The Mohawk Plan, on the other hand, does not name a specific fund, simply that they will be reimbursed if a recovery is made. It is unclear if the money comes from the recovery or the Covered Person’s personal assets.
The Supreme Court’s recent judgment in U.S. Airways v. McCutchen established that the Plan’s language is controlling. U.S. Airways v. McCutchen, 569 U.S. If the Plan recovery extends to first-party coverage, such as uninsured or underinsured motorist coverage, the language should state so. If the Plan is silent, such recoveries may be impossible to achieve. In addition, “where the plan is silent on the allocation of attorney’s fees, the common fund concept provides the appropriate default in certain circumstances.” To put it another way, if US Airways wanted to deviate from the well-established common-fund rule, it had to expressly state so in its contract…” Id at 12 a.m. In short, study the Plan documents carefully to see if the Plan outlines the Plan’s recovery rights in detail. Is it true that recovery takes precedence above attorney’s fees and costs? Is there a fund identified in the Plan that is separate from the Covered Person’s personal assets? Is the Plan’s language sufficient to overturn the “made whole” doctrine?
Ok. The plan is governed by ERISA, the plan administrator has sent you all of the required documents, the plan language is solid in terms of first right of recovery, it establishes a fund separate and distinct from the covered person’s personal assets, it avoids the “made whole” doctrine, and it avoids the common fund doctrine. Is that all there is to it? Have you been your client’s finest advocate for naught? Perhaps not. You are negotiating with a recovery agency, not the plan administrator, when you settle a case and obtain a final lien amount. The recovery agent is a person that looks and acts just like you. They most likely have a huge caseload and are ready to make a deal. Their companies may set monthly or quarterly goals for bringing in recovery and settling liens. Be forthright and truthful. Give them all the numbers, including the total settlement, fees, costs, out-of-pocket expenses, additional liens, and so on. Let them know if you’re lowering or eliminating fees. Threats and resentment are significant roadblocks to resolving these liens. Make an effort to be approachable and reasonable. Furthermore, in your opinion, terrible cases can be advantageous when negotiating ERISA liens. Let them know whether any of the injuries alleged in this case are pre-existing. Let them know if there are any liability issues that could limit a recovery at trial. Most recovery suppliers are willing to accept a 50/50 split of the covered person’s net recovery if there is limited liability and first party coverage. In addition, for recovery suppliers, a three-way split is sometimes the default setting, i.e. one-third for you, one-third for your client, and one-third for the plan.
Helpful tips for navigating ERISA:
Ensure that all of your requests for plan papers are fulfilled. Start tolling the penalty if you haven’t already.
Is the plan language sufficient to overcome equity standards and the common fund doctrine? Is first-party coverage included? Is there a specific fund from which the plan might be able to recover?
If all else fails, communicate with the recovery vendor in a timely and professional manner to ensure the best potential outcome for your client.
For plaintiff lawyers, ERISA isn’t the end of the world. All we have to do is be a little more careful with our language planning and a little more inventive with our negotiation abilities.