ERISA may or may not be a term commonly known by your average American consumer. While many have heard the term at some point in their lives, there are several that simply do not know what it means. For starters, ERISA is an abbreviation - meaning Employee Retirement Income Security Act. It is a federal U.S. law for tax and labor that establishes minimum level standards for private industry pension plans. This law was enacted in 1974 as a means of reform for the industry. The overall purpose of the Act was to protect plan participants and beneficiaries through three major avenues. First, requiring the disclosure of financial and other plan information to beneficiaries by plan providers helps to provide some transparency. Next, the Act established base standards by which plan fiduciaries must conduct themselves. Finally, the Act provided for certain remedies against those violating this reform and also granted access to federal courts by claimants under a federal law. While many think the Act was focused in on pension plans, it is actually a governing law over related retirement plans and insurance policies for health, life, disability and accidental death & dismemberment (AD&D). The overall goal is to protect employees’ rights to benefits offered by employers.
As discussed in previous blog articles, we stressed the fact that there are many positives and negatives regarding obtaining life insurance through an employer. The current existence of ERISA may be seen as either, depending on which side of an incident your are on, but have a strong statutory law to rely on is mostly a good thing. To be clear, not all employer provided plans and benefits fall under ERISA’s regulation. However, if you find yourself working with a life insurance policy that is covered by the Act, you may find it beneficial that the provider of this policy is heavily regulated by the federal law. Nearly all employer-sponsored benefits will be covered by ERISA, but it is important to take note that the following types of plans are not covered by the Act:
- Individual Insurance Policies - these are policies that someone purchases outside the regular benefits offered by an employer, such as something purchased through a mail advertisement.
- Voluntary Insurance Policies - some employers offer plans, but participation in such a plan is entirely voluntary and employees pay their own premiums without employer support. Sometimes these plans are hard to differentiate, but employers will usually clarify.
- Business Owner Insurance - these types of policies revolve around the business owner covering losses, not usually tied to an employee/employer related plan for coverage.
- Religious Organization Insurance - insurance for nonprofits, charities, religious organizations and other types of entities like this are generally not included under ERISA.
- Government Sector Insurance - policies for public sector employees issued by government entities are usually not included under ERISA.
If you are offered a life insurance policy as a work benefit by your employer, and your entity does not qualify under one of these exceptions, then there is a good chance your policy would fall under ERISA. By understanding how ERISA works, you are more likely to succeed when legal troubles arise if a claim is ever denied on your end.