Source: http://401kmaze.com/erisa-and-your-401k-employee-retirement-income-security-act/
Timestamp: 2018-01-17 14:37:48
Document Index: 146288171

Matched Legal Cases: ['§ 219', '§ 408', '§ 410', '§ 415', '§ 4971', '§ 4974', '§ 4975', '§ 1144']

ERISA and your 401k; Employee Retirement Income Security Act | 401kmaze
Posted by 314media on 1/17/09 • Categorized as ERISA - What is this?,Other
The Employee Retirement Income Security Act of 1974 (ERISA) (Pub.L. 93-406, 88 Stat. 829, enacted September 2, 1974) is an American federal statute that establishes minimum standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans. ERISA was enacted to protect the interests of employee benefit plan participants and their beneficiaries by requiring the disclosure to them of financial and other information concerning the plan; by establishing standards of conduct for plan fiduciaries; and by providing for appropriate remedies and access to the federal courts.
Responsibility for the interpretation and enforcement of ERISA is divided among the Department of Labor, the Department of the Treasury (particularly the Internal Revenue Service), and the Pension Benefit Guaranty Corporation.
The history of ERISA can be said to have begun in 1961 when President John F. Kennedy created the President’s Committee on Corporate Pension Plans. The movement for pension reform gained some momentum when the Studebaker Corporation, an automobile manufacturer, closed its plant in 1963; the pension plan was so poorly funded that Studebaker could not afford to provide all employees with their pensions. The company created three groups. Group 1 consisted of 3,600 workers who reached the retirement age of 60. They got full pension benefits. Group 2 consisted of 4,000 workers, aged 40-59, who had ten years with Studebaker. They got lump sum payments that roughly equated to 15% of the actuarial value of their pension benefits. Group 3 was a residual group of 2,900 workers with no vested pension rights. They got nothing.
In 1967, Senator Jacob Javits proposed legislation that would address the funding, vesting, reporting, and disclosure issues identified by the presidential committee. His bill was opposed by business groups and labor unions, both of whom sought to retain the flexibility they enjoyed under pre-ERISA law.
A turning point in the history of ERISA came in 1970, when NBC broadcast Pensions: The Broken Promise, an hour-long television special that showed millions of Americans the consequences of poorly funded pension plans and onerous vesting requirements. In the following years, Congress held a series of public hearings on pension issues and public support for pension reform grew significantly.
ERISA was enacted in 1974 and signed into law by President Gerald Ford on September 2, 1974 — Labor Day. In the years since 1974, ERISA has been amended repeatedly.
Under ERISA, pension plans must provide for vesting of employees’ pension benefits after a specified minimum number of years. ERISA requires that the employers who sponsor plans satisfy certain minimum funding requirements.
ERISA also regulates the manner in which a pension plan may pay benefits. For example, a defined benefit plan must pay a married participant’s pension as a “joint-and-survivor annuity” that provides continuing benefits to the surviving spouse unless both the participant and the spouse waive the survivor coverage.
The Pension Benefit Guaranty Corporation was established by ERISA to provide coverage in the event that a terminated defined benefit pension plan does not have sufficient assets to provide the benefits earned by participants. Later amendments to ERISA require an employer who withdraws from participation in a multiemployer pension plan with insufficient assets to pay all participants’ vested benefits to contribute the pro rata share of the plan’s unfunded vested benefits liability.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provides some employees and beneficiaries with the right to continue their coverage under a health benefit plan for a limited time after certain events, such as the loss of employment.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits a health benefit plan from refusing to cover an employee’s pre-existing medical conditions in some circumstances. It also bars health benefit plans from certain types of discrimination on the basis of health status, genetic information, or disability.
Other relevant amendments to ERISA include the Newborns’ and Mothers’ Health Protection Act, the Mental Health Parity Act, and the Women’s Health and Cancer Rights Act.
During the 1990s and 2000s, many employers who promised lifetime health coverage to their retirees limited or eliminated those benefits.[1][2] ERISA does not provide for vesting of health care benefits in the way that employees become vested in their accrued pension benefits. Employees and retirees who were promised lifetime health coverage may be able to enforce those promises by suing the employer for breach of contract, or by challenging the right of the health benefit plan to change its plan documents in order to eliminate those promised benefits.
Before ERISA, some defined benefit pension plans required decades of service before an employee’s benefit became vested. It was not unusual for a plan to provide no benefit at all to an employee who left employment before retirement (age 65 or perhaps age 55), regardless of the length of the employee’s service.
As of 2007, employees’ benefits in a defined benefit pension plan must become vested at 100% after five years or under a seven-year graded-vesting schedule (20% a year for each year of service beginning with the third year of service and ending with 100% after seven years).
Under the Pension Protection Act of 2006, employer contributions made after 2006 to a defined contribution plan must become vested at 100% after three years or under a six-year graded-vesting schedule (20% a year for each year of service beginning with the second year of service and ending with 100% after six years). Different rules apply with respect to employer contributions made before 2007. Employee contributions are always 100% vested.
Under ERISA, minimum funding requirements were established for defined benefit plans. By their nature, defined contribution plans are always fully funded, even if the employee has not yet become vested in the employer contributions.
Before the Pension Protection Act (PPA), a defined benefit plan maintained a “funding standard account”, which was charged annually for the cost of benefits earned during the year and credited for employer contributions. Increases in the plan’s liabilities due to benefit improvements, changes in actuarial assumptions, and any other reasons were amortized and charged to the account; decreases in the plan’s liabilities were amortized and credited to the account. Every year, the employer was required to contribute the amount necessary to keep the funding standard account from falling below $0 at year-end.
In 2008, when the PPA funding rules went into effect, single-employer pension plans no longer maintain funding standard accounts. The funding requirement under PPA is simply that a plan must stay fully funded (that is, its assets must equal or exceed its liabilities). If a plan is fully funded, the minimum required contribution is the cost of benefits earned during the year. If a plan is not fully funded, the contribution also includes the amount necessary to amortize over seven years the difference between its liabilities and its assets. Stricter rules apply to severely underfunded plans (called “at-risk status”).
The PPA has different funding requirements for multiemployer pension plans, which preserve most of the pre-PPA funding rules including the funding standard account. Under PPA, increases and decreases in the plan’s liabilities will be amortized, but the amortization period for benefit improvements adopted after 2007 will be shortened. As with single-employer plans, multiemployer pension plans that are significantly underfunded are subject to restrictions. The restrictions, which may limit the plan’s ability to improve benefits or require the plan to reduce employees’ benefits, vary depending whether a pension plan’s funding status is termed “endangered”, “seriously endangered”, or “critical”. The restrictions accompanying each deficient funding status are progressively more severe as funding status worsens.
ERISA Section 514 preempts all state laws that relate to any employee benefit plan, with certain, enumerated exceptions. The most important exceptions — i.e. state laws that survive despite the fact that they may relate to an employee benefit plan — are state insurance, banking, or securities laws, generally applicable criminal laws, and domestic relations orders that meet ERISA’s qualification requirements.
A major limitation is placed on the insurance exception, known as the “deemer clause”, which essentially provides that state insurance law cannot operate on employer self-funded benefit plans. The Supreme Court has created another limitation on the insurance exception, in which even a law regulating insurance will be pre-empted if it purports to add a remedy to a participant or beneficiary in an employee benefit plan that ERISA did not explicitly provide.[3]
Hawaii Prepaid Healthcare Act exemption
ERISA contains an exemption specifically regarding the Hawaii Prepaid Healthcare Act, which was enacted by that state a few months before ERISA was signed into law. As a result, private employers in Hawaii are bound by the rules of that state law in addition to ERISA. The exemption also freezes the law in its original 1974 form, meaning the Hawaii legislature is not able to make non-administrative amendments without Congressional approval.[4][5]
Title I protects employees’ rights to their benefits. The following are some of the ways in which it achieves that goal:
The addition of various requirements for a pension plan to be tax-favored (“qualified”), including:
the plan must offer retirees the option of a joint-and-survivor annuity,
benefits under the plan may not discriminate in favor of officers and highly-paid employees,
and plans are subject to the pension funding and vesting rules described above.
The imposition of maximum limits on the annual benefit that may be paid from a qualified defined benefit pension plan and the annual contribution that may be made to a qualified defined contribution pension plan.
Revision of the rules concerning the maximum tax deduction allowed with respect to a contribution to a pension plan.
The imposition of an excise tax if the employer fails to make a required contribution to a pension plan or engages in transactions prohibited by ERISA.
Title IV created the Pension Benefit Guaranty Corporation (PBGC) to insure benefits of participants in underfunded terminated plans. It also describes the procedures that a pension plan must follow in order to terminate.
An employer may terminate a single-employer plan under a standard termination if the plan’s assets equal or exceed its liabilities. If the assets are less than the liabilities, the employer must contribute the amount necessary to fully fund the plan. A standard termination is sometimes referred to as a voluntary termination because the employer has chosen to terminate the plan.
If any assets remain in the plan after a standard termination has been completed, the provisions of the plan control their treatment. In some plans, the excess assets revert to the employer; in other plans, the excess assets must be used to increase participants’ benefits.
An employer may terminate a single-employer plan under a distress termination if the employer demonstrates to the PBGC that:
the employer is facing liquidation under bankruptcy proceedings,
the costs of continuing the plan will cause the business to fail, or
the costs of continuing the plan have become unreasonably burdensome solely because of a decline in the employer’s workforce.
If the PBGC finds that a distress termination is appropriate, the plan’s liabilities are calculated and compared with its assets. Depending on the difference between the two values, the termination may be treated as if it had been a standard termination or as if it had been initiated by the PBGC.
PBGC may initiate proceedings to terminate a single-employer plan if it determines that:
the employer has not made its minimum required contributions to the plan,
the plan will not be able to pay benefits when due, or
PBGC’s long-term cost can be expected to be unreasonably higher if it does not terminate the plan.
It may be amended so that participants receive no credit for future service,
All contributing employers may withdraw from the plan or stop making contributions to it, or
It may be converted into a defined contribution plan.
In 2005, Public Law 109-8[1] amended the Bankruptcy Code, by exempting most organised retirement plans, even those not subject to ERISA, and accorded them protected status, claimable as exempt property by a debtor declaring bankruptcy under the U.S. Bankruptcy Code.
Portions of ERISA are codified in various places of the United States Code, including 29 U.S.C. ch.18, and Internal Revenue Code sections § 219 and § 408 (relating to the Individual Retirement Account) and sections § 410 through § 415, and § 4971, § 4974 and § 4975. A cross-reference between the sections of the ERISA law and the corresponding sections in the U.S.Code can be found at http://www.harp.org/erisaxref.htm.
Department of Labor 2003 “interpretive bulletin,” Field Assistance Bulletin 2003-3, May 19, 2003, concerning allocation of expenses in a defined contribution plan. See http://www.dol.gov/ebsa/regs/fab_2003-3.html
Employers use ERISA to deny benefits
LA Times, 21 August 2005,
Frequently Asked Questions, ERISA-Governed Disability Claims
“The Safety Net She Believed In Was Pulled Away When She Fell” (registration required)
Text of the Employee Retirement Income Security Act – 29 U.S. Code Chapter 18
^ Costello, Daniel (October 18, 2004). “Not a future they expected“. Los Angeles Times. Archived from the original on 2004-10-19. Retrieved on 2008-04-12.
^ Schultz, Ellen E. (November 10, 2004). “Companies Sue Union Retirees To Cut Promised Health Benefits“. The Wall Street Journal p. 1. Retrieved on 2008-04-12.
^ Aetna Health Inc. v. Davila, 542 U.S. 200 (2004)
^ Hawaii Institute for Public Affairs. “Prepaid Health Care Act“. Retrieved on 2007-11-08.
^ Cornell University Law School. “§ 1144“. Retrieved on 2007-11-08.
Retrieved from “http://en.wikipedia.org/wiki/Employee_Retirement_Income_Security_Act“
Categories: 1974 in law | Employee Retirement Income Security Act
Tagged as: Employee Retirement Income Security Act, ERISA
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