What is ERISA?
Most employees work all of their adult lives attempting to save for retirement. Some are wildly successful in putting away vast sums of money to coast through retirement. Others barely break even toward the end of their lives. In planning for retirement, it is important for workers to know their rights with regard to their employer-provided benefits plans. The federal law known as the Employee Retirement Income Security Act (ERISA), also colloquially known as the Employee Benefit Security Act, was enacted on September 2, 1974. The law helps workers protect their retirement investments by establishing minimum standards for employer-provided pension plans.
What ERISA Does
ERISA is a law that helps businesses and employees monitor and regulate their retirements benefit plans. While ERISA does not require employers to either establish pension plans or provide a minimum level of retirement benefits, it does ensure that businesses that do provide such benefits to their employees do so fairly. Once a business establishes a pension plan for its employees, ERISA regulates the operation of that plan for the benefit of employees. ERISA applies to all employers, regardless of the number of employees that the business maintains.
The primary regulation requirement in ERISA is the minimum funding requirement. In addition with the Pension Benefit Guarantee Corporation, these requirements help ensure that pensions do not simply disappear if the plan is cancelled or otherwise comes under financial trouble. As a result, people who have invested in retirement benefits plans are guaranteed to receive at least a pro rate share of the pension plan’s assets even if the plan ultimately fails.
ERISA Pension Vesting Requirements
Under ERISA, an employee’s pension must vest after a specific term of years rather than at the federal retirement age. As a result, many employees will technically have their pensions vest prior to reaching age 65, and therefore may have the option to retire early if they have worked with the business providing the pension plan for a long enough period of time. An employee’s contributions to the pension plan are always 100% vested, but under ERISA, pension plans in which an employer contributes money or matches employee contributions must become 100% vested on a 2nd-6th year graduating schedule. In other words, employer contributions become 100% vested after six years.
ERISA and Bankruptcy Protections
ERISA plans have protection in bankruptcy proceedings ensuring that the beneficiaries are able to save their pensions for retirement. These bankruptcy protections provide ERISA pension plan beneficiaries the same bankruptcy protections as spendthrift trusts. This means that no creditor can access an employee’s ERISA-protected pension plan until the employee receives money from the pension. Any money kept in the pension cannot be reached by bankruptcy creditors, which keeps an employee’s retirement savings safe until their golden years.