The Employee Retirement Income Security Act (ERISA) is a federal law that sets minimum standards for most voluntary private-sector pension and health plans to protect plan participants and beneficiaries.
ERISA requires plan sponsors to provide participants with clear information about plan features and funding, and it imposes fiduciary duties on those who manage plan assets. The statute also requires plans to maintain a grievance and appeals process that participants can use to pursue benefits.
Participants who are harmed by breaches of fiduciary duty have the right to seek relief under ERISA's provisions. For guidance on planning for retirement benefits and how employer-sponsored plans fit into a broader strategy, see The Importance of Retirement Financial Planning and Employee Benefits.
Important ERISA changes
Over time Congress amended ERISA to expand protections for health plan participants and beneficiaries. One significant amendment is COBRA, which allows certain workers and their families to continue group health coverage for a limited time after job loss or other qualifying events.
Another major change is HIPAA, which created protections for people with preexisting medical conditions who seek health coverage. Other notable amendments include the Mental Health Parity Act, the Newborns' & Mothers' Health Protection Act, and the Women's Health & Cancer Rights Act.
Definition of responsibilities
- Act in the interest of plan participants and beneficiaries for the sole purpose of providing benefits.
- Follow plan documents that are consistent with ERISA.
- Carry out duties in a prudent manner.
- Hold plan assets in trust.
- Pay only reasonable plan expenses.
Prudent administration requires appropriate expertise. Fiduciaries who lack necessary skills should retain qualified professionals and document the rationale for those choices.
Documentation of decisions and regular review of plan terms help demonstrate that fiduciaries are following plan documents and acting prudently.
Employer liability information
Fiduciaries who fail to follow ERISA standards may face personal liability for restoring losses to the plan and surrendering any profits gained through misuse of plan assets. Proper documentation and careful procedures can reduce the risk of liability.
Employers may hire service providers to perform plan functions, but they remain responsible for selecting and monitoring those providers. For information about insurance products that can help manage fiduciary risk, see Fiduciary Liability Insurance.
Maintain written service contracts that clarify responsibilities, regularly monitor provider performance, and keep records of those monitoring activities to limit exposure.
If you need help reviewing plan responsibilities or options, consider talking with a licensed professional and talk to your agent.
Frequently Asked Questions
What is ERISA?
ERISA is a federal law that establishes minimum standards for private-sector pension and health plans and protects participants' rights under those plans.
Who counts as a fiduciary under ERISA?
A fiduciary is anyone who exercises discretionary control or authority over plan management, plan assets, or administration and must act in participants' best interests.
What does COBRA do for employees?
COBRA allows eligible employees and their families to continue group health coverage for a limited period after certain qualifying events like job loss.
How can employers reduce fiduciary liability?
Employers can reduce risk by documenting decisions, using written service agreements, carefully selecting and monitoring providers, and seeking expert advice when needed.