HR PEO Blog

ERISA

Thursday, 11 September 2014 10:14

Happy 40th Anniversary ERISA

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The Employee Retirement Income Security Act of 1974 (ERISA) was signed into law on Labor Day, September 2, 1974 by President Gerald Ford.  This federal law provides protection to participating employees in employer sponsored health and retirement plans.

Forty years ago many employers offered employees retirement packages and pensions. Where an employee would work for many years at a company, get the symbolic gold watch and a monthly pension check for the remainder of their lives. These pensions are known as defined benefit (DB) plans. 

Before ERISA, if the business closed or filed bankruptcy, what would happen to the pensions? They would go away with no way for the employee to afford to retire.  That’s where ERISA stepped in, to ensure that employees have retirement plans that they can count on without worrying if their next monthly pension check would arrive in their mailbox.

In today’s economy, corporations very rarely offer the golden goose defined benefit (DB) pensions, and it now falls on the employee’s shoulders to prepare for retirement through retirement plans, like IRA’s and 401(k)’s.  These plans are where the employee defers a percentage or fixed amount per paycheck into a retirement account, and the employer may offer a matching percentage of each payroll deferral. These plans are known as defined contribution (DC) plans, and are also governed by ERISA. 

ERISA shortened vesting periods (maximum of 5 years for vesting schedules), protecting participating employee’s rights to collect retirement benefits they had earned, without having to work for decades to have a financially secure retirement. ERISA also created the Pension Benefit Guaranty Corporation as a safety net in case a pension plan sponsor failed.

ERISA provides a set of rules and guidelines for employers and plan sponsors, replacing a vast array of state and federal laws that were insufficient to provide guidance and protection. That set of rules encouraged growth in defined benefit (DB) plans that occurred in the decades after ERISA's enactment. ERISA also provided a clear outline of fiduciary responsibilities for employers and plan sponsors for both defined benefit (DB) and defined contribution (DC) plans.

StaffScapes has partnered with MassMutual’s Retire SMART  to assist both employers and employees with retirement planning.  StaffScapes can help employers with ERISA compliance and employees plan and prepare for retirement through our 401(k) plans.  Please contact us so that we can assist you in all of your benefit compliance needs.

 

Section 406(a) states that a plan fiduciary may not engage the plan in an activity or transaction if he or she knows, or should know that the action directly or indirectly involves the:

  • Sale, exchange, or lease of any property between the plan and a party in interest

  • Lending of money or extending of credit between the plan and a party in interest

  • Furnishing of goods, services, or facilities between the plan and a party in interest

  • Transfer of a plan asset to a party in interest

  • Use of assets by, or for the benefit of, a party in interest

  • The acquisition or holding on behalf of the plan of any employer security or employer real property in excess of ERISA Section 407 limits