EMPLOYEE FAQs


What is ERISA?

ERISA protects the pension benefits of millions of Americans who work in private industry so that funds placed in retirement plans during their working lives will be there when they retire.

ERISA also sets minimum standards for health and pension plans.  For example, ERISA has rules for when you must be allowed to become a participant, how long you have to work before you have a vested interest in your pension, how long you can be away from your job before it might affect your pension benefit, and whether your spouse has a right to part of your pension in the event of your death.

ERISA does the following:

•  Requires plans to provide participants with information about the plan’s features and funding.  The plan must furnish certain information regularly and automatically.  Some is available free of charge, some is not.

•  Sets minimum standards for pension plan participation, vesting, benefit accrual and  funding.  The law defines how long a person may be required to work before becoming eligible to participate in a plan, accumulate benefits, and have a vested right to pension benefits.  The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your pension plan.

•  Requires accountability of plan fiduciaries.  ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the Plan.  Fiduciaries who do not follow these rules may be held responsible for restoring losses to the plan.

•  Gives participants the right to sue for benefits and breaches of fiduciary duty.

•  Guarantees payment of certain benefits if a defined benefit pension plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.

What kind of benefit plans are governed by ERISA?

ERISA governs pension and retirement plans, including money purchase, annuity, defined benefit, profit-sharing, 401K and 403B plans, as well as health, hospitalization, life insurance, severance, accident, disability, death, unemployment, vacation, apprenticeship or other training programs, set up by employers or unions in the private sector.

What is a Qualified Domestic Relations Order?

A qualified domestic relations order is a domestic relations order that creates or recognizes the existence of an alternate payee’s right to receive, or assigns to an alternate payee the right to receive, all or a portion of the pension benefits payable with respect to a participant under a pension plan.  A QDRO deals with child support, alimony payments or marital property rights for the benefit of a spouse, former spouse, child or other dependent of a participant.

What is the difference between a defined benefit plan and a defined contribution plan?

A defined benefit pension plan promises to pay a specific benefit at retirement.  The employee does not bear any investment risk; if the plan does not have enough assets to pay the “defined” benefit, the employer must fund the plan so that the full benefit can be obtained.  Defined benefit plans are generally insured by the Pension Benefit Guaranty Corporation (PBGC).  A defined contribution plan is an individual account plan in which the employee makes a pre-determined contribution that grows tax free until withdrawal.  An employer may make contributions to the employee’s account, but is not required to make sure that the account reaches a specific balance.  Thus, the employee bears all of the investment risk.  Defined contribution plans are not insured by the PBGC.

What is a 401(K) plan?

A 401(K) plan is a type of defined contribution plan that permits you to defer a portion of your salary into an account set up by your employer.  Your employer may match some or all of your contributions.  The IRS will not tax contributions, interest, and investment income as long as they remain in your 401(K) account.

My family and I have health coverage through my employer.  I am being called to active duty in the military.  Can we keep our coverage?

Yes.  If you are on active duty for more than 30 days, you and your dependents are eligible for military health care.  In addition, you and your family can continue the health coverage you have been receiving through your employer for up to 24 months under the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Uniformed Services Employment and Reemployment Rights Act (USERRA).

I am being called to active duty in the military.  How does this affect my pension plan at work?

Vesting and accrual of benefits will continue for the time that you are serving in the military, as long as you return to your job when your service is completed.  If you participate in a 401(K) plan before leaving for military duty, your employer will, upon your return, make all contributions to your 401(K) plan that would have been made if you had been working, providing you make up any contributions that you would have made to the plan.

What is COBRA Continuation Health Coverage and What Does it Do?
 
Under certain, specified circumstances called “qualifying events,” COBRA permits a participant, dependent or former spouse who would have lost coverage under a group health plan to pay for continued coverage for a period of time. A person who elects COBRA coverage cannot be denied the coverage because of health status, and will pay the favorable group rate that the employer previously paid to cover him.  “Qualifying events” that entitle a participant or beneficiary to COBRA coverage include termination of employment, divorce, death of the covered employee and loss of dependent status.  COBRA coverage typically runs 24-36 months depending on the nature of the “qualifying event.”

What is HIPAA?

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) makes it easier for people with health concerns to obtain new health insurance.  HIPAA limits a health plan’s ability to exclude coverage for pre-existing conditions and allows certain individuals a special opportunity to enroll in a new plan.  HIPAA also protects your personal health information.

What kind of information can I obtain about my benefit plans?

Your plan administrator must give you, in writing, the relevant information that you need to understand what your plan offers you.  The most important document you are entitled to receive is a Summary Plan Description (SPD), which must be given to you when you become a participant in a plan.  The SPD will tell you what benefits you are eligible for, when you become eligible, how you enroll in the plan, and how to claim your benefits.

You are also entitled to a Summary of Material Modifications (SMM) if any changes are made to your plan, and a yearly summary of your plan’s annual tax return.

Can my creditors garnish my pension benefits?

Typically, pension benefits provided by an ERISA plan cannot be garnished before they are paid to the participant.  Once the participant receives his or her benefits, however, the benefits can be garnished as part of the participant’s assets.

Once I’ve earned pension benefits, can they be reduced or eliminated?

Generally not.  The general rule is that a plan can not take away or reduce benefits once they are “vested” (earned).  Only in limited circumstances can a plan reduce benefits that you have already earned.

What happens if my claim for benefits is denied?

If your plan denies your benefits claim it must notify you of the denial in writing, and set forth the reasons that it rejected your claim.  The plan must provide you with a “reasonable opportunity” to request a review of the denial.  In requesting review of a claims denial, you may submit to the plan any documents or information that would help prove your claim.

If the plan still rejects your claim, after your appeal you may institute legal action “to recover benefits due...enforce [your] rights under the terms of the plan...[or] obtain other appropriate equitable relief”.

Does my employer have to tell me if it is going to reduce my benefits in the future?

If the plan administrator decides to reduce future, unearned benefits for your defined benefit or money purchase plan, notice must be given to all affected participants prior to the pending reduction.
 

EMPLOYER FAQs


What is ERISA?

ERISA, the Employee Retirement Income Security Act of 1974, sets forth rules for most group retirement and health benefit plans offered by private employers.  ERISA addresses, among other things, the information and documents that plans must provide to their participants, the obligations of plan fiduciaries and administrators, penalties for violating fiduciary obligations, and the rights of participants to sue for benefits and other relief.  ERISA also guarantees payment of benefits for certain defined benefit plans through the Pension Benefit Guaranty Corporation.

What is the EBSA?

The EBSA (Employee Benefits Security Administration) is the employee benefits arm of the United States Department of Labor.  The EBSA will audit a plan if it has reason to suspect that the plan fiduciaries have violated ERISA’s fiduciary responsibility or prohibited transaction rules.  The EBSA has the power to require that violations be corrected, to direct an offending fiduciary to reimburse the plan for losses caused by his actions and assess penalties against the plan.

What is the penalty if an employer files the 5500 tax return for its 401K plan late?

The penalty for filing the 5500 tax return late is $1,100.00 per day.  However, there is a delinquent filer program which we can use to help you substantially reduce the penalty.

Who is a plan fiduciary and can a fiduciary be held liable for a breach of duty?

A person is a fiduciary for a plan “to the extent” he or she exercises any discretionary authority or control over management of the plan or the assets of the plan.  A fiduciary who breaches his/her fiduciary responsibility to a plan is personally liable to the plan for any losses caused by his/her breach of duty.

What happens if your company stops contributions to a mulitemployer (union) defined benefit pension plan?

An employer who ceases to make contributions to a defined benefit multiemployer plan may be assessed a portion of any unfunded liability of the plan which is called withdrawal liability.  Trades or businesses related to the employer who ceases to contribute to a multiemployer plan may also be responsible to pay the assessment even though they had no relationship with the union and plan in question.

Can a plan fiduciary do anything to correct a violation of fiduciary duties that has occurred?

Yes.  The DOL has enacted a voluntary fiduciary correction program which permits correction of certain prohibited transactions if the improper acts were not criminal in nature, and the EBSA is not already investigating the matter.  By voluntarily correcting a breach, a fiduciary or plan sponsor can mitigate penalties that might otherwise be enacted by the EBSA.

What is a Qualified Domestic Relations Order (QDRO)?

A QRDO is a court order that gives someone other than the plan participant a right to receive part or all of the participant’s pension benefits.  A QDRO is typically connected to an action for child support, alimony, or other marital property rights, and provides an interest in the pension benefits to a spouse, former spouse, child or other dependent of the participant.

One of my employees is returning from active duty with the uniformed services.  Must I reemploy him in the same position he held before he left?

Under the Uniformed Services Employment and Reemployment Rights Act (USERRA), an employee who has been absent from his job for less than five years because of uniformed service may timely request, and receive, reinstatement in his former position.  The employer must make the prior position available even if the employee was replaced.

Must an employer notify its employees if it plans to reduce future benefits?

Yes.  The employer or plan administrator of a retirement plan must give all plan participants  advance notice of a pending reduction of future benefits for a money purchase or defined benefit plan.

Can the IRS retroactively disqualify a pension plan and, if so, what does this mean for the employer?

The IRS may retroactively disqualify a pension plan for failure to comply with the tax rules for qualified retirement plans.  If this should happen, the employer  may be retroactively liable for certain taxes.

Can an innocent error in the design or operation of a qualified pension plan result in disqualification of the plan?

Yes, the IRS may determine that a plan is not qualified, or may disqualify a previously qualified plan if the design or administration of a plan violates its rules and regulations.

What can an employer do to protect the plan from disqualification if it makes an innocent error?

The IRS permits plans that fail to meet qualification requirements to correct their errors under its voluntary correction programs. Generally, an employer must apply under a voluntary correction program before the IRS discovers the problem.

Are fiduciaries for retirement and other plans subject to liability even if they act in good faith?

Unfortunately, the answer is yes.  For example, the “Prohibited Transaction” rules are “bright line” violations of ERISA because of one’s “status” as a fiduciary or “party-in-interest.”  If a fiduciary participates in a prohibited transaction, even innocently, he may be liable for breach of fiduciary duty.  The U.S. Department of Labor has increased its scrutiny of plan fiduciaries in a number of areas.