What is ERISA?


The abbreviation ERISA stands for the Employee Retirement Income Security Act of 1974 which came into force to protect the rights of the participants in pension plans offered by employers.

Only qualified employee benefit retirement plans are subject to ERISA. Arrangements such as governmental pension plans, individual retirement plans or plans that do not qualify for tax deductions, do not have to comply with the ERISA regulations.

ERISA Standards and Requirements

ERISA guarantees security for the participants in employee retirement plans in the following way:

  • It safeguards the pension assets from potential mismanagement by the employer.
  • ERISA ensures that all participants are treated equally under the plan, regardless of whether they are highly compensated employees or not.
  • It establishes standards for participation, funding and vesting. In addition to this, it determines the eligibility requirements for participation, benefit-accumulation and settlement options.
  • ERISA provides that a plan fiduciary is named who, as a trustee, has to manage the plan in the participants' best interest. Fiduciaries are not permitted to sell assets or earn from investments under the plan.
  • The Act of 1976 holds plan fiduciaries accountable for the management of the funds under the plan. If a loss of benefits occurs under the retirement plan, the plan participants have the right to sue the fiduciaries for breach of duty.
  • ERISA puts limits to the length of the vesting period - the period of time before employees obtain the right to retain their retirement plan and to benefit from these plans even after they leave their jobs. Under ERISA regulations, this period cannot exceed five years for cliff vesting, and seven years - for graded vesting.
  • ERISA stipulates that plans employee pension provide detailed information about the plan provisions upfront and free of charge.
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