The Employee Retirement Income Security Act of 1974 (ERISA) provides protections to the retirement and pension plan assets of employers. Further, this act protects employees who are currently working, ensuring that their employers do not set unreasonable limits regarding who can and cannot participate in pension plans such as 401(k)s.
Whether an employer looking to re-work their retirement plans or an individual looking to know more about their rights, read below for a breakdown of the top things you should know about ERISA law.
Tenants of ERISA Law
ERISA requires that certain pillars are upheld to ensure transparency and security for employees. If you manage 401(k) portfolios, you must fully understand the expectations placed upon you under ERISA law.
- Minimum funding requirements
- Uniform vesting schedules
- Grievance process
- Right to sue and appeal
- Documentation and record keeping guidelines
- Information on plan changes
- Making timely distributions
- Keeping employees informed
- Establishing trust funds as needed to hold assets
- Obligation to act in the best interest of the client (fiduciary duty)
As a portfolio manager or financial advisor, keeping the above in mind allows you to act in a way that promotes compliance. As such, should a problem occur your liability will be greatly reduced.
For employees, these laws help to inform about portfolio performance and investing decisions.
ERISA is upheld by two government agencies:
- The United States Department of Labor
- The Employee Benefits Security Administration (EBSA)
For complaints concerning ERISA, these institutions can often take questions or point you in the direction of attorneys specializing in ERISA for more complicated inquiries.
As with any major act in, ERISA is overseen by several government bodies to ensure fairness and enforcement. These are:
The United States Department of Labor: develops rules regarding fiduciary responsibilities including plan reporting, rules governing breaches of fiduciary duty, and the like.
The IRS: develops rules regarding vesting— the principal behind when a third party’s rights to future profit becomes irrevocable
The Pension Benefit Guaranty Corp (PBGC): acts as a failsafe for plan participants if their employer is no longer to fully meet their financial obligations
Which Plans are ERISA Qualified?
ERISA law is not automatic, only a plan established within existing qualification guidelines are health to ERISA parameters. As such, it is important that you understand whether or not the investment accounts offered to your employees qualify for these specific protections.
Your pension plants are bound to ERISA law under the following conditions:
- You are a non-government, private industry employer
- You contribute to employee health benefits
- You contribute to employee retirement investments
Benchmarking Helps Employers Support Employees
Whether your company is new to offering ERISA-qualified plans or you are looking to ensure you are in compliance with ERISA law, benchmarking 401(k) portfolios are an important part of the process.
Under ERISA, improperly managed portfolios can cause a great deal of liability for financial advisors and companies alike. Employees have a right to know how their portfolios are being managed, what fees are being withdrawn, and whether or not their plan rates and performance is reasonable.
We know how important this is, so at Benchmark My Plan, we decided to offer the service to investors at no charge to them.
Our large network of financial advisors are ready to help you benchmark your 401k at a moment’s notice. Reaching out to us is quick and easy. Simply give us a message or call and we can connect you with an advisor that is right for your case.
Are you ready to protect your investments? Benchmark today.