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Employee

Employee Retirement Income Security Act (ERISA)

William R. Perry
EH 1030-06B Fundamentals of Research Writing
Professor Amy Laptad
January 14, 2008

Employee Retirement

Employee Retirement Income Security Act (ERISA)


Introduction
Congress enacted the Employment Retirement Income Security Act (ERISA) in 1974, a
federal law to protect the interest of individuals who decide to participate in Employee Benefit
Plans, Defined Contribution Plans, Defined Benefit Plans and expanding the protections
available to health benefit plan participants and beneficiaries. This act will ensure that an
employee will receive their pensions providing that the employer honors what has been invested
by the employee. Investing in a companys retirement plan can benefit the employee if he or she
is committed to taking a portion of their salary and invest it over the time of their employment
with a company. Employees should understand and become familiar with the different
requirements, plans, and changes that are available to them. This paper is designed to inform
employees and citizens of the different types of plans and to address some of the issues related to
ERISA by answering the following questions:
1.

Who is covered under ERISA?

2. What are the primary types of plans?


3. Are there amendments to ERISA?
Understanding the different types of plans that are available and what affects they will have on
individuals will lesson the burden of frustration when the time comes for employees to retire and
maintain the same standard of living. All Americans, regardless of their age, must be allowed to
participate in such programs to help minimize the conditions of dependency and

Employee Retirement

isolations that could occur without this aide. The quality of life for Americans in their later
years will become crucial, because they will be dependent on these plans to help in needed
services for their future. Vesting is very important to ensure that employees are prepared for the
future: According to Wessel (2006), Either employees are fully vested after five years of
service; or they are partially vested, 20 percent at a time, starting after three years of service,
making them fully vested after seven years.
Who is covered under ERISA?
Full-time as well as part-time employees are both covered by the Employment
Retirement Income Security Act; there are also minimum age and service standards required for
eligibility. ERISA is provided protections for individuals who have voluntarily establish pension
plans and health plans in private industries. It does not cover plans maintained by nonemployees
or any alien outside the United States for the benefit of non-residence; nor does it cover plans
that are established by government agencies or churches. It does not apply to plans administered
by federal, state, or local governments. In September, 1969, (Beland, 2005, p. 134), President
Nixon requested that Congress ensure that affixing the benefit schedule to the cost of living
for employees will help in an effort to thwart unfairness. There is no law that requires an
employer to establish a pension plan; however, ERISA requires that if an employee establishes a
plan it must meet certain standards. In an opposing viewpoints resource center document
(MacLean 2007) wrote that states can regulate insurance or provide state benefits. What they
cant do is interfere with decisions of employers to have, or not have, an ERISA plan. If an
employee losses their job, ERISA provides protection to health benefit plan participants and

Employee Retirement

beneficiaries. This will allow employees and families with the right to continue their health
coverage for a limited time after certain events.
What are the primary types of plans?
There are two primary types of plans associated under the Employment Retirement
Income Security Act, welfare plans and pension plans. A welfare plan provides benefits for:
a.

Medical, surgical or hospital care

b. Unemployment benefits
c. Disability or death
d. Holiday and severance pay plans
Pension plans generally fall into two categories, defined benefit plan, and defined
contribution plans. In an article written by The National Center for Employee Ownership
(NCEO) ( In 2004, the IRS issued a private letter ruling stating that the 25%
contribution limit for repaying an ESOP loan is separate from and in addition to the 25%
limit for other defined contribution plans; this applies only to C corporations, n.d.).
Employees earn benefits based on their career earnings, years of service and they receive
income as guaranteed income in a traditional defined benefit plan. Employees receive
contributions in a personal account and their benefit will be based on the overall value of
their account upon retirement. Pension plans provides retirement income to employees,
or results in the deferral of income until retirement or thereafter. According to Weston
(2006) states that employees should check your plans repayment policies (p. 143).

Employee Retirement

Are there Amendments to ERISA?


There have been a number of amendments that have expanded the protection
available to employees and beneficiaries; they are the Consolidated Omnibus Budget
Reconciliation Act (COBRA), and the Health Insurance Portability and Accountability
Act (HIPPA). COBRA provides employees and their families the right to continue their
health coverage for a limited time; an example would be if an employee losses his/her
job. HIPPA provides protection for employees and their families who have preexisting
medical conditions or might otherwise suffer health coverage based on facts relative to
the individuals health. (Perry, W. personal communication, October 24, 2007). The
coverage that I received when I was diagnosed with Sleep Apnea in 2007 was a result
from diagnosis through the Carolina Pulmonary and Critical Care, P.A. The overall
coverage was funded through Tricare and protected with the Health Insurance Portability
and Accountability Act (HIPPA), which is one of the amendments under ERISA.
HIPPA also ensures that laws dealing with anti-fraud have been passed through ERISA,
which could result in federal prison time up to 20 years or life in prison. Gales 2006
book stated that: Becoming alert to health care fraud requires no lifestyle changes or
complicated details, says the BlueCross BlueShield Associations Hollis. (p. 78-79)
Conclusion
Being retired from an establishment or company is a lifetime dream for all
employees as they prepare themselves for lifes challenges after working for so many
years. For many older citizens, continuing to work past the normal retirement age will

Employee Retirement

not be an option if they have not invested enough monies in their retirement accounts or
pension and benefit plans for the future. Analysts are mixed and not sure if the economy
will go into a recession, however; as we strive to retire we must be prepared. Employees
can prevent this from happening by, increasing employment opportunities, increasing the
allowable mandatory retirement age, creating new programs so that employers retain and
possibly re-enter older workers back into our labor force; including the private and
community service sectors. It is very important and beneficial that an employee is aware
of all the different types of plans available, and that they understand what they are
entitled to under the Employment Retirement Income Security Act.

Employee Retirement

References
Beland, D. (2005) Social Security: History and Politics from the New Deal to the
Privatization Debate. Lawrence, Kansas
Gale, T. (2006) Does the United States Need a National Health Insurance Policy? :
Farmington Hills, MI, p. 78-79.
MacLean, P. (2007, August 27). ERISA, Health Care Clash in States. The National Law
Journal.NA. Opposing Viewpoints Resource Center. Thomson Gale. COLUMBIA SOUTHERN
UNIV. 11 Jan. 2008: http://find.galegroup.com/ovrc/infomark.do?&contentSet=IACDocuments&type=retrieve&tabID=T004&prodId=OVRC&docId=A168004385&source=gale&s
rcprod=OVRC&userGroupName=oran95108&version=1.0
National Center for Employee Ownership (2005). A Comprehensive Overview of
Employee Ownership. Retrieved January 10, 2008 from http://www.nceo.org/
Wessel, H. (2006, February 21). Before ERISA, there were far Fewer Protections.
Orlando Sentinel (Orlando, FL): NA. Opposing Viewpoints Resource Center. Thomson Gale.
COLUMBIA SOUTHERN UNIV. 11 Jan. 2008
http://find.galegroup.com/ovrc/infomark.do?&contentSet=IACDocuments&type=retrieve&tabID=T004&prodId=OVRC&docId=CJ142340823&source=gale&
srcprod=OVRC&userGroupName=oran95108&version=1.0

Weston, L. (2006). Deal With Your Debt: Upper Saddle River, New Jersey