A better understanding of ERISA for Detroit employers

Detroit employers may have heard of the federal law called ERISA but may not fully understand what it is about. The Employment Retirement Income Security Act was enacted in 1974. ERISA was intended to protect employees with respect to their benefit plans, specifically concerning the disclosure of financial information, standards of conduct, and allowing access to the courts where appropriate. It is important to note that ERISA does not provide insurance plans for employees; rather it regulates how the plans are handled. The employer provides the retirement package but ERISA oversees the process as a whole.

The underlying idea behind ERISA was to ensure that employees, when they retired, still received the income they were expecting from their retirement plan. ERISA established a consistent, nationwide regulatory regime that applies to these plans. Before the enactment of ERISA, these plans were regulated at the state level, and the rules varied from state to state. This caused hardship to companies that operated in multiple states: they had to keep on top of the special rules for each one. ERISA abolished this chaotic state of affairs.

Because ERISA has been in existence for quite some time, and because times have changed over the years, so has ERISA. Although on its face, ERISA seems to be a good thing for employees, there are those that feel that ERISA has not done the job that it was intended to do. This is especially true when speaking about the fiduciary duties as it relates to ERISA. In the years since the enactment of ERISA, many employers have established defined contribution plans, in which a third party, not the employer, has the fiduciary duty. This tension may lead to court involvement when employees believe they did not receive what they were promised.

ERISA appears to have stood the test of time and is still helpful for employers today.

Source: Pensions & Investments, "ERISA at 40: The landmark legislation that promised security in retirement has fallen far short of its expectations," Hazel Bradford, Sept. 1, 2014