What Is ERISA?

What plans are covered by ERISA?

The Employee Retirement Income Security Act of 1974, as amended (ERISA), technically covers any “employee benefit plan”, so long as it is established or maintained by an “employer” or by an employee organization, or by both, and covers at least one “employee”. An employee benefit plan, in turn, includes two categories of plans: “employee pension benefit plan” and “employee welfare benefit plan”.

For ERISA purposes, however, the “employer” is any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan, and sole proprietors and partners are not treated as employees.

What employers are subject to ERISA?

We need to be careful about distinguishing the term “employer” for ERISA purposes and for qualified plan purposes (under section 401(a) of the Internal Revenue Code of 1986, as amendment (Code)) because the definitions differ slightly. As is true for many plans covered by ERISA, other federal statutes also must be taken into account in establishing or maintaining such plans, and the Code is a significant one of those other statutes, especially with respect to most employee pension benefit plans.

Thus, for Code purposes, the employer is any employer (under common law principles) of employees covered by the plan and may be any form of entity, including a corporation, S corporation, partnership, sole proprietorship, limited liability company or partnership, tax-exempt organization or governmental entity. Here, sole proprietors and partners are treated as “employees”. Generally, if another entity is related to the employer in what is known as an affiliated service group or controlled group of businesses, the group is considered one “employer” for purposes of the plan.

For ERISA purposes, however, the “employer” is any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan, and sole proprietors and partners are not treated as employees.

Under ERISA, an employee benefit plan provides “welfare” benefits to employees, which encompasses a finite list of benefits.

What is an employee pension benefit plan under ERISA?

Under ERISA, a plan provides pension benefits if it provides retirement income or results in a deferral of income by employees for periods extending to termination of covered employment and beyond. This would include all types of “qualified plans” under the Code, e.g., profit sharing plans (including 401(k) plans), money purchase plans, defined benefit plans, stock bonus plans, ESOPs. It also includes nonqualified plans that meet this definition, such as SERPs and other executive compensation arrangements and Code section 403(b) plans (as long as there is enough employer involvement to be considered “established or maintained” by the employer). Since ERISA’s passage, this category of plans has been the main focus of employers and practitioners alike, because the rules applying to them under ERISA and the Code have been more extensive, both in terms of substance (affecting eligibility, vesting, distributions, fiduciary compliance, etc.) and disclosure and reporting (plan documentation, Form 5500 filings, summary plan descriptions,  etc.).

If health insurance is being provided by an employer through a plan for one or more employees, whether on an insured or self-funded basis, then it is covered by ERISA

What is an employee welfare benefit plan under ERISA?

Under ERISA, an employee benefit plan provides “welfare” benefits to employees, which encompasses a finite list of benefits. It includes medical, surgical, or hospital care benefits. It also includes benefits in the event of sickness, accident, disability, death or unemployment, vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, and prepaid legal services. In the past, ERISA itself required primarily only reporting and disclosure rules for this category of plans, rather than substantive rules, but other statutes have more recently added more and more substantive rules here as well.

Legal issues relating to the design and compliance requirements of employee benefit plans abound and are constantly growing.

Does ERISA apply to health insurance?

If health insurance is being provided by an employer through a plan for one or more employees, whether on an insured or self-funded basis, then it is covered by ERISA, since it would constitute an employee welfare benefit plan providing medical, surgical and/or hospital care for such employees. This is an area where, besides ERISA itself and the Code (through cafeteria plans rules, etc.), an ever-increasing array of statutes have been adding rules and requirement—COBRA, HIPAA and PPACA, just to name a few.

To stay on top of all of this, it is crucial for employers maintaining any employee benefit plans to have qualified ERISA counsel to rely upon.

What legal issues do you usually see, in regards to employee benefits?

Legal issues relating to the design and compliance requirements of employee benefit plans abound and are constantly growing. The applicable law is complex and ever-evolving. Almost every year since ERISA was enacted in 1974 (and sometimes twice or more per year), Congress has passed legislation changing its provisions or adding new ones. Pension plans alone have three government agencies (the IRS, DOL and Pension Benefit Guaranty Corporation) constantly issuing regulations and other guidance to keep up with those changes, and now group health plans have even more government agencies involved. Add to that an evolving body of case law dealing with the remaining issues. To stay on top of all of this, it is crucial for employers maintaining any employee benefit plans to have qualified ERISA counsel to rely upon.

John Skapars, Esquire

Skapars & Associates, p.c.

2 Tower Drive

Dover, MA 02030

508-785-0250

www.skapars.com

About John and his Firm

Since the passage of ERISA in 1974, Z. John Skapars has concentrated his legal practice exclusively in ERISA and other employee benefits matters, including: qualified and nonqualified retirement plans; SERPs and other executive compensation; Title I and Title IV (PBGC) practice; governmental and nonprofit 403(b) and 457 plans; and health (ACA) and other welfare benefit plans. During those 45 years, John has represented public corporations and private enterprises, ranging in size from those with over 10,000 employees to small medical practices, which has provided him with uniquely extensive experience in all aspects of defined benefit pension plans (including their design, implementation, administration and termination); submissions for IRS qualified plan determination letters and IRS error corrections (VCPs, Audit CAP closing agreements, etc. under the IRS EPCRS program); assistance with IRS, DOL and PBGC plan audits; and counseling of employers, fiduciaries and service providers on ERISA fiduciary duties and prohibited transactions. His practice also includes ERISA litigation and merger and acquisition transactional support, as well as providing employer legal compliance with health care reform.

In 1993, John co-founded what is now his boutique employee benefits law firm of Skapars & Associates, P.C. John is honored to be rated AV Preeminent® by Martindale-Hubbell™.