What is ERISA?

On Behalf of | Aug 8, 2023 | Long-Term Disability/ERISA

When planning for your retirement, it is critically important that the investments you make are relatively stable. Of course, virtually all investments carry some element of risk. However, there is a marked difference between investing in an employer-sponsored retirement plan and betting your savings on a “hot” stock market tip. 

The stability of employment-sponsored retirement plans exists thanks in no small part to the Employment Retirement Income Security Act of 1974, which is commonly referred to as ERISA. If you work for an employer in the private sector and you voluntarily opted into the terms of your employer-sponsored retirement plan, chances are that your investment is safeguarded primarily by the standards set forth in ERISA. 

What safeguards does ERISA provide?

ERISA sets minimum standards for qualifying plans, including mandatory disclosure requirements. For example, plan participants are entitled to receive information about the features of their chosen plan and details concerning how that plan is funded. 

Additionally, this law sets standards for qualifying funds themselves, from matters related to vesting and funding to participation and accrual of benefits. Those who manage such funds are held to specific fiduciary standards under ERISA as well.

Finally, ERISA establishes a foundation for participants to lodge complaints, to file appeals in the event of claim denials and a guarantee of payment via the Pension Benefit Guaranty Corporation (PBGC) in the event that a plan is terminated. 

With all of this said, the provisions of law – any law – are only as solid as the public’s ability to understand and make use of their rights under it. ERISA allows plan participants to sue for wrongfully denied benefits and for damages in the event that breaches of fiduciary duty occur. But, for participants to exercise these rights, they must understand what ERISA is and what it entitles them to receive.