Important Compliance Note
ERISA is a highly complex federal law, and many attorneys build entire careers specializing exclusively in ERISA compliance and employee benefit plan law. Because of this, it is essential for employers to consult qualified ERISA legal counsel when determining how these rules apply to their specific plans and circumstances.
The information provided in this section is intended for educational and informational purposes only and should not be construed as legal or tax advice. Employers should consult their own legal or tax advisors for guidance.
Most health insurance brokers do not have Errors & Omissions (E&O) coverage that extends to legal or tax guidance under ERISA, so employers should always seek advice from qualified counsel on matters of plan design, documentation, and fiduciary responsibility
Overview
The Employee Retirement Income Security Act of 1974 (ERISA) is a major federal law that establishes minimum standards for most employee benefit plans, including both retirement and health and welfare plans.
While ERISA applies broadly to both areas, this Compliance Wiki focuses exclusively on health and welfare benefit plans – the ERISA term used to describe employers’ health plans.
These plans include group medical, dental, vision, life, disability, and other similar employer-sponsored benefits.
ERISA not only sets rules for plan documentation, disclosure, reporting, and fiduciary responsibilities, but also dictates what plans can and cannot do under federal law.
It provides the legal framework within which employers may design and administer their own benefit policies – for example, determining waiting periods, eligibility standards, and contribution methods – as long as those policies comply with ERISA and related federal laws such as the Affordable Care Act (ACA).
Purpose and Scope
ERISA was enacted to ensure that employees and their families receive the benefits promised by their employers, and that the rules governing those benefits are documented in clear, accessible materials such as plan documents and Summary Plan Descriptions (SPDs).
In addition, ERISA establishes fiduciary responsibility for the plan sponsor and anyone who exercises discretionary control over the plan. This means employer plan sponsors are legally obligated to act in the best interest of plan participants and beneficiaries, ensuring that decisions about benefits, funding, and plan administration are made prudently and loyally.
It requires that covered plans provide participants with:
- Clear, written information about plan benefits and eligibility.
- Defined procedures for claims, appeals, and amendments.
- Accountability for those managing plan assets.
- Federal protections and uniform rules that preempt most state laws.
ERISA applies to virtually all employer-sponsored benefit plans – whether fully insured, self-funded, or level-funded.
However, the extent of ERISA’s regulation differs based on how the plan is funded:
- Self-funded and level-funded plans are regulated primarily under federal ERISA law.
- Fully insured plans are first subject to state insurance law, but still must comply with ERISA’s federal documentation and disclosure requirements.
Although insurance carriers provide much of the information that appears in ERISA documentation, employers are ultimately responsible for ensuring ERISA compliance and maintaining required plan documents.
Carriers do not prepare employer-specific ERISA plan documentation or guarantee compliance on the employer’s behalf.
Employers with self-funded or level-funded arrangements carry a greater compliance burden since there is no insurance carrier underwriting the plan. These employers must ensure that their plan terms, funding arrangements, eligibility rules, and administrative procedures are properly established, documented, and consistently applied.
In all cases, the plan sponsor (employer) must create and maintain documentation that accurately reflects the actual terms, funding structure, eligibility rules, and policies of its plan.
Employer Responsibility
ERISA compliance begins and ends with the plan sponsor, even when benefits are fully insured. Carriers and third-party administrators may provide policy certificates, summaries, or benefit booklets – but these do not fulfill ERISA’s documentation or disclosure requirements on their own.
Employers must supplement carrier materials with their own ERISA plan documentation that details items such as:
- Eligibility rules (e.g., waiting periods, dependent coverage, hours thresholds).
- Funding structure (employer-paid, employee contributions, or shared).
- Whether contributions are made pre-tax or post-tax, and how those contributions are handled.
- Frequency and method of premium payments.
- Continuation rules during leave, layoffs, or FMLA.
- Internal policies that affect benefit eligibility or termination.
This documentation serves as the plan’s instruction manual – both for employees and for HR and benefits staff. It ensures everyone understands how benefits are determined and applied before a dispute arises.
Why Compliance Matters
Proper ERISA compliance does more than satisfy a federal requirement – it protects employers and employees alike.
Reduces Legal Risk
ERISA provides employers with a federal framework that limits litigation to federal court and caps damages at the value of unpaid benefits. Without compliant documentation, employers risk exposure to state court lawsuits and “bad faith” claims that can carry significant penalties.
Promotes Consistency and Fairness
ERISA documentation ensures that plan rules are applied uniformly, preventing inconsistent decisions or perceived favoritism. This consistency is critical in audits, appeals, and employee disputes.
Provides Clear Employee Communication
Employees and their families rely on plan documents and SPDs to understand their rights, costs, and responsibilities. These materials form the basis for how benefits are administered – particularly during leaves of absence, eligibility changes, or termination events.
Aligns with Other Employment Laws
Well-drafted ERISA documents should also coordinate with leave laws such as the Family and Medical Leave Act (FMLA) and applicable state family leave programs. Employers should clearly outline how coverage continues or ends during various leave scenarios to ensure compliance across overlapping laws.
Key Takeaway
ERISA compliance for health and welfare plans is not optional, even for small or fully insured employers.
The employer, as plan sponsor, must:
- Maintain written ERISA plan documents that supplement carrier materials.
- Clearly describe plan funding, eligibility, and contribution rules.
- Ensure SPDs and notices are distributed on time.
- Apply plan terms consistently and fairly.
Doing so protects both the employer and employees – and fulfills the intent of ERISA which is to ensure that benefits are delivered as promised, under clear and uniform national standards.