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The Facts About ERISA

Most plan sponsors are aware of ERISA, but many may not understand what this particular legislation covers. The Employee Retirement Income Security Act became law in 1974, and it specifies the rules for administering retirement and benefit plans, as well as certain “welfare” plans, which refers to benefits such as healthcare or long-term disability. ERISA covers employee pension benefit plans, including retirement and 401(k) plans, which provide retirement income to plan participants or defer income to plan participants while they’re employed with the company.

Employers aren’t required by ERISA to provide benefit plans, but more and more are finding out that if they don’t, they have trouble hiring and keeping employees. However, if an employer does provide benefits, the employer must follow the rules set by ERISA, including creating written plan documents and filing a description of the plan, and annual reports, with the Department of Labor.

Plan Fiduciaries

ERISA requires that those written documents name one or more fiduciaries for the benefit plan. Plan sponsors can name more than one fiduciary, but they must name at least one. Typically, fiduciaries are plan administrators and plan trustees, and the named fiduciary has the authority to control the administration and operation of the benefit plan. The fiduciary can employ others to provide advice about their responsibilities, such as investment managers.

ERISA also sets some very specific rules that fiduciaries have to follow:

  • They have to act in the best interests of plan participants and their beneficiaries.
  • They have to act with same care that “a prudent man” would use when acting in the same capacity, including getting expert help when necessary.
  • They have to properly diversify the plan’s investments to minimize the risk of losses.
  • They have to follow the plan documents as long as those documents are consistent with the rules set by ERISA.
  • They have to avoid prohibited transactions, such as those that offer the potential for insider abuse like transactions between the plan and the fiduciary.
  • If a fiduciary breaches these duties, ERISA says a fiduciary can be held personally liable. If the breach causes losses, the fiduciary has to restore those losses.

Talk to the Experts

The rules set by ERISA are complex and the penalties for not following them can be severe. That’s why many plan sponsors seek expert assistance to set up and administer their retirement plans. FiduciaryFirst has the detailed knowledge of ERISA and its provisions that you need to properly and prudently administer your plan. Contact us today for more information about ERISA and how it can affect your plan.

Contact Details

1060 Maitland Center Commons

Suite 360

Maitland, FL 32751

Phone: 866-625-4611

Fax: 407-740-6113

Email: info@fiduciaryfirst.com 

Disclaimer

Retirement Plan Consulting Program and other advisory services offered through LPL Financial, a registered investment advisor.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

 

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