The Employee Retirement Income Security Act of 1974 (ERISA) establishes minimum standards for health insurance plans offered by employers in the United States. It covers a wide range of plans, including group health plans, pension plans, and other employee benefit plans. ERISA applies to employers with 50 or more employees and provides protections for participants in these plans. The act ensures that participants are informed about their plan benefits, have access to benefits, and are protected from unfair or arbitrary decisions by plan administrators. ERISA also sets minimum standards for plan funding and solvency, ensuring that participants will receive their benefits when they are due.
Employee Welfare Plans
Under the Employee Retirement Income Security Act (ERISA), employee welfare plans are group health plans that provide medical, dental, vision, prescription drug, and other types of health coverage to employees and their dependents.
ERISA covers the following types of employee welfare plans:
- Health plans
- Dental plans
- Vision plans
- Prescription drug plans
- Disability plans
- Life insurance plans
- Severance plans
ERISA also covers certain types of church plans, government plans, and plans maintained outside the United States.
ERISA does not cover plans that are established primarily to provide deferred compensation to employees. These plans are covered by the Internal Revenue Code (IRC).
The following table summarizes the key differences between ERISA and IRC plans:
| Feature | ERISA Plans | IRC Plans |
|---|---|---|
| Purpose | Provide benefits to employees and their dependents | Provide deferred compensation to employees |
| Coverage | Health plans, dental plans, vision plans, prescription drug plans, disability plans, life insurance plans, severance plans | Pension plans, profit-sharing plans, stock bonus plans, employee stock ownership plans |
| Regulation | Department of Labor (DOL) | Internal Revenue Service (IRS) |
Defined Benefit Plans
Defined benefit plans are a type of retirement plan in which the employer promises to pay a specific monthly benefit to the employee upon retirement. The amount of the benefit is typically based on factors such as the employee’s salary, years of service, and age.
- Traditional pensions are a type of defined benefit plan that provides a monthly benefit to the employee for life after retirement.
- Cash balance plans are a type of defined benefit plan that provides a lump sum of money to the employee upon retirement. The employee can then use this money to purchase an annuity or invest it in other assets.
- Target benefit plans are a type of defined benefit plan that aims to provide a specific retirement benefit to the employee. The employer makes contributions to the plan based on the employee’s age and years of service.
Defined benefit plans are subject to ERISA’s reporting and disclosure requirements. This means that the plan administrator must provide participants with information about the plan, including the amount of benefits they have accrued and the vesting schedule.
| Type of Defined Benefit Plan | Description |
|---|---|
| Traditional pension | Monthly benefit for life after retirement |
| Cash balance plan | Lump sum of money upon retirement |
| Target benefit plan | Specific retirement benefit goal |
Group Health Insurance
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans, including group health insurance plans. ERISA covers both insured and self-insured plans, as well as plans that provide medical, dental, vision, and prescription drug coverage.
To be covered by ERISA, a group health insurance plan must meet the following requirements:
- It must be established or maintained by an employer or employee organization.
- It must provide benefits to employees or their dependents.
- It must be funded through employer or employee contributions.
ERISA does not cover all group health insurance plans. The following are some examples of plans that are not covered by ERISA:
- Plans that are provided by churches or religious organizations.
- Plans that are provided by governments.
- Plans that are provided by employers with fewer than 50 employees.
ERISA has a number of provisions that protect the rights of employees and their dependents. These provisions include requirements for:
- Disclosure of plan information.
- Fiduciary responsibility.
- Claims and appeals procedures.
ERISA also provides for the establishment of a federal agency, the Employee Benefits Security Administration (EBSA), to enforce the law. The EBSA investigates complaints, conducts audits, and takes enforcement actions against employers and plan administrators who violate ERISA.
| Type of Plan | Covered by ERISA |
|---|---|
| Group health insurance plans | Yes |
| Plans provided by churches or religious organizations | No |
| Plans provided by governments | No |
| Plans provided by employers with fewer than 50 employees | No |
Retirement Savings Plans
ERISA covers several retirement savings plans, including:
- 401(k) plans
- 403(b) plans
- 457(b) plans
- SIMPLE IRAs
- SEP IRAs
These plans allow employees to save for retirement on a tax-advantaged basis. Contributions to these plans are typically made through payroll deductions, and employers may also make matching contributions.
The table below summarizes the key features of each type of retirement savings plan covered by ERISA:
| Plan Type | Contribution Limits | Eligibility | Vesting Requirements |
|---|---|---|---|
| 401(k) plans | Employee: Up to $22,500 in 2023 ($30,000 for those age 50 or older) Employer: No limit |
Employees must be at least 21 years old and have worked for the employer for at least one year | Employee contributions are always 100% vested. Employer matching contributions may be subject to a vesting schedule. |
| 403(b) plans | Employee: Up to $22,500 in 2023 ($30,000 for those age 50 or older) Employer: No limit |
Employees must be employed by a public school, college, or university | Employee contributions are always 100% vested. Employer matching contributions may be subject to a vesting schedule. |
| 457(b) plans | Employee: Up to $22,500 in 2023 ($30,000 for those age 50 or older) Employer: No limit |
Employees must be employed by a state or local government or a tax-exempt organization | Employee contributions are always 100% vested. Employer matching contributions may be subject to a vesting schedule. |
| SIMPLE IRAs | Employee: Up to $15,500 in 2023 ($17,500 for those age 50 or older) Employer: Must make a matching contribution of at least 2% of the employee’s compensation |
Employees must be employed by a small business with fewer than 100 employees | Employee contributions are always 100% vested. Employer matching contributions are 100% vested after two years of service. |
| SEP IRAs | Employee: No limit Employer: Up to 25% of the employee’s compensation, or $66,000 in 2023 ($73,500 for those age 50 or older) |
Employees must be self-employed or employed by a small business | Employee contributions are always 100% vested. Employer contributions are 100% vested immediately. |
Well, folks, that’s the scoop on insurance plans covered by ERISA. I know it can be a bit of a legal maze, but I hope this article has shed some light on the matter. If you’re still scratching your head, don’t hesitate to reach out to your plan administrator or an insurance professional. And remember, whether you’re a couch potato or a thrill-seeker, it’s always a good idea to have the right coverage. Thanks for joining me, folks! Stay tuned for more insurance adventures in the future.