Understanding ERISA: What employers need to know

The Employee Retirement Income Security Act (ERISA) is a federal law designed to protect employees' benefits from fraud and mismanagement. This law helps ensure that benefits are managed responsibly and that employees receive clear information about their coverage and rights.

As an employer, understanding ERISA’s requirements is crucial if you offer health, retirement, or other employee benefits.

Who needs to follow ERISA?

ERISA applies to private-sector employers offering employee benefits like health plans, retirement savings accounts and disability insurance. This includes:

• Private employers (small businesses to large corporations)
• Unions offering health and pension plans
• Employee organizations offering health benefits

Note: Government employers and religious organizations are generally not required to follow ERISA requirements. However, it's important to confirm the specifics for your organization.

Key ERISA requirements for employers

While ERISA doesn’t mandate which benefits to offer, it does set standards for how these plans must be managed. As an employer, here are your main responsibilities:

1. Provide plan information to employees. You must provide your employees a Summary Plan Description (SPD). This document explains how your benefits work, including premiums, deductibles and co-pays.
2. File an annual report. Employers must file an annual report (Form 5500) with the federal government. This report provides transparency on how the plan is being managed and its financial status.
3. Prevent discrimination. Your benefits plan must be non-discriminatory, meaning you can't offer better benefits to certain employees based on factors like salary, age and position while leaving others with less.
4. Establish a claims and appeals process. Employers are required to provide a process for employees to appeal benefit decisions, ensuring fairness and transparency if claims are denied.

Steps employers can take to stay compliant

Staying compliant with ERISA is essential for protecting both your business and your employees. These key steps will help you navigate the requirements and maintain compliance with the law:

1. Review your benefit plans. Regularly review your benefit plans to ensure they meet ERISA standards for transparency, non-discrimination and reporting.
2. Consult with experts. Work with a benefits consultant or legal professional who can guide you through the rules and regulations.
3. Stay up to date. Monitor changes to ERISA or related laws (like ACA, HIPAA or COBRA) that could impact your plans.

Additional information for employers

In addition to understanding your basic responsibilities under ERISA, it's important to know the differences between fully insured and self-funded plans, as the regulatory requirements differ for each. In a fully insured plan, the employer purchases coverage from an insurer like Blue Cross and Blue Shield of Kansas, which assumes the financial risk. For a self-funded plan, your company directly funds the benefits and assumes the financial risk of paying for employee claims. 

Understanding the differences between these plan types is crucial for compliance with ERISA's reporting and regulatory requirements.

For more in-depth information, check out these resources provided by the U.S. Department of Labor: 

Employee Retirement Income Security Act (ERISA)

Reporting and Disclosure Guide for Employee Benefit Plans (PDF) 

Understanding Your Fiduciary Responsibilities Under A Group Health Plan