Compliance Reminder
ERISA is a complex federal law, and employers should always seek guidance from qualified ERISA counsel when applying these rules to their own benefit plans. This content is provided for informational purposes only and does not constitute legal advice.
Overview
ERISA applies broadly to most private-sector employers that offer employee benefits. It establishes federal standards for how benefit plans are created, administered, and communicated to employees.
While ERISA covers both retirement plans and health and welfare benefit plans, this section focuses on health and welfare plans – which include group medical, dental, vision, life, disability, and other employer-sponsored benefits.
ERISA’s scope is intentionally broad, ensuring consistent protections for employees and families (plan participants) regardless of where they live or work. However, certain types of employers and plans are exempt from ERISA coverage, as described below.
Who Is Covered
In general, ERISA applies to any private-sector employer – including corporations, partnerships, LLCs, and nonprofits – that maintains one or more employee benefit plans for its employees.
This includes:
- Employers of any size, even those with only one eligible employee.
- For-profit and nonprofit entities.
- Private colleges, hospitals, and charities (if not affiliated with a church).
- Partnerships and sole proprietorships that sponsor employee benefits.
ERISA governs plans that are voluntarily established by an employer, not plans mandated by law.
Employers are not required under ERISA to offer health or welfare benefits – but once they choose to do so, those benefits must meet ERISA’s standards for documentation, disclosure, and fiduciary oversight.
However, under the Affordable Care Act (ACA), Applicable Large Employers (ALEs) – those with 50 or more full-time equivalent employees – are required to offer coverage that meets specific affordability and minimum value standards.
Who Is Exempt
Certain types of employers and benefit programs are not subject to ERISA, including:
Governmental Employers
Plans sponsored by federal, state, or local governments are generally exempt from ERISA. These include plans for public school systems, cities, counties, and state agencies.
Note: Government-affiliated entities should carefully evaluate whether they meet the “governmental plan” definition under ERISA, as hybrid or quasi-public organizations may not qualify for exemption. Employers in this situation should seek legal guidance to confirm status.
Church and Religious Organizations
Plans established or maintained by churches or church-affiliated organizations, whose primary purpose is religious congregation, are also exempt unless they elect ERISA coverage voluntarily. These plans are often regulated under separate church plan rules and may be subject to limited federal oversight.
Certain Voluntary or Individual Arrangements
Programs in which the employer has minimal involvement – such as purely voluntary insurance offerings where employees pay the full cost and the employer’s role is limited to payroll deduction – may be exempt under ERISA’s “Voluntary Plan Safe Harbor.”
However, this safe harbor is narrowly defined, and most employer-sponsored benefit plans do not meet the exemption. Even limited employer actions (such as endorsing the plan or including it in company materials) can trigger ERISA applicability.
Understanding “Welfare Benefit Plans”
ERISA uses the term “employee welfare benefit plan” to describe most non-retirement benefit programs, including employer-sponsored plans that provide medical care, disability, life, or similar benefits.
In practice, for brokers and employers, this term covers group health, dental, vision, life, disability, FSA, and HRA plans, along with certain wellness programs that provide medical care.
For health and welfare purposes, this includes:
- Group medical, dental, and vision plans
- Health reimbursement arrangements (HRAs)
- Health care flexible spending accounts (FSAs)
- Short-term and long-term disability plans
- Group life and AD&D insurance
- Employee assistance programs (EAPs) that provide counseling
- Certain wellness programs offering medical care
Essentially, if a benefit plan provides medical care or income replacement and is sponsored by the employer, it likely qualifies as an ERISA welfare benefit plan.
Plans Typically Not Subject to ERISA
Some employer benefit programs are not subject to ERISA because they are governed by tax law under the Internal Revenue Code (IRC) rather than by the Department of Labor (DOL). Even though these programs are not ERISA welfare plans, they still require formal documentation and must comply with IRS regulations and nondiscrimination rules.
Common examples include:
- Cafeteria Plans (Section 125 Plans) – Tax-favored arrangements that allow employees to pay for certain benefits on a pre-tax basis. Governed by tax law, not ERISA. However, any ERISA-covered benefits offered through the cafeteria plan (such as group health, dental, or Health FSA coverage) must still meet ERISA documentation and disclosure requirements.
- Health Savings Accounts (HSAs) – Not ERISA plans when the employer’s involvement is limited to payroll deductions, forwarding contributions, and providing general information.
- Dependent Care FSAs and Dependent Care Assistance Plans (DCAPs) – Governed by Section 129 of the Internal Revenue Code. Not ERISA plans, but require a written plan document.
- Transit and Parking Reimbursement Plans – Governed by Section 132(f) of the Internal Revenue Code.
- Adoption Assistance and Tuition Reimbursement Programs – Governed by tax provisions, not ERISA.
- Paid Time Off (PTO) or Vacation Pay – Considered payroll practices, not benefit plans.
- On-site Medical Clinics – Excluded from ERISA when they provide only first aid or minor treatment for workplace injuries.
Note: While these programs are generally not ERISA plans, employers usually reference them in ERISA Summary Plan Descriptions (SPDs) or wrap documents to provide employees with a comprehensive overview of their total benefits package.
This helps employees understand how pre-tax benefits and ERISA-covered plans coordinate, and ensures all programs are properly documented and communicated, even when regulated under tax law rather than ERISA.
Voluntary Plan Safe Harbor
A voluntary benefit program may be exempt from ERISA if all of the following are true:
- Participation is completely voluntary for employees.
- The plan is funded entirely by employees, with no employer contributions.
- The employer’s involvement is limited to payroll deductions and premium remittance.
- The employer does not endorse or promote the plan beyond allowing access.
Example:
If an employer simply offers payroll deduction for an employee-paid accident insurance policy – and does not endorse, promote, or subsidize it – that arrangement may qualify for safe harbor and be exempt from ERISA.
However, even minimal employer endorsement (such as listing the benefit alongside other company plans or recommending participation) can invalidate the exemption and make the plan subject to ERISA. Employers in this situation should seek legal counsel to determine ERISA applicability for such plans.
Key Takeaway
ERISA applies to nearly all private-sector employers offering health and welfare benefits, regardless of size or funding method.
While government and church plans are generally exempt, most other employer-sponsored benefits are governed by ERISA’s documentation, disclosure, and fiduciary standards.
Employers should:
- Confirm whether each benefit program is subject to ERISA.
- Understand that self-funded plans are regulated primarily under federal law, while fully insured plans must comply first with state insurance laws and then with ERISA’s federal documentation and disclosure rules.
- Avoid assuming that “voluntary” benefits are automatically exempt – employer involvement often triggers ERISA coverage.
Proper classification at the start helps employers structure benefits correctly, maintain compliance, and ensure consistent protection for employees nationwide.