What ERISA really means for employers’ benefit plans

Ensuring regulatory compliance with complex local, state and federal requirements presents significant challenges for employers across the U.S. Among those federal regulations is the Employee Retirement Income Security Act of 1974, better known as ERISA. 

Despite its name, ERISA’s reach extends far beyond retirement plans into many other areas of employee benefits — including disability leave. Here, I’ll provide an overview of ERISA, review the primary responsibilities of benefit plan administrators and unpack some commonly misunderstood ERISA terminology.

ERISA 101

As the R suggests, ERISA was enacted into federal law to address the advent of 401(k) retirement plans in the 1970s. But many other employee benefits that provide income security fall under the scope of the act, too. ERISA serves as the legal foundation for private-sector employee benefit programs (such as retirement and welfare) and, in most cases, preempts relevant state laws. Its dual purpose is to ensure employees receive the benefits they’re promised, while offering key protections to the employers/organizations administering those benefits.

Along with many retirement plans, welfare benefit plans subject to ERISA include medical, pharmacy, dental, vision and short- and long-term disability, among others. In each case, the administering employer must state the plan’s intended benefits and beneficiaries, its source of financing and the procedures for applying for and collecting benefits.

Church, governmental and tribal employee benefit plans generally do not fall under the purview of ERISA; neither do statutory plans (like state disability insurance), workers’ compensation or unemployment compensation.

What’s required of employers?

Documentation of benefit plan details and distribution of that information to employees are key elements of ERISA compliance. Regardless of size, employers are required to maintain a plan document (sometimes referred to as a “wrap”) that establishes the plan’s legal terms, conditions and administrative processes. The Department of Labor (DOL) mandates that a condensed, plain-language version of the plan document, called a summary plan description (SPD), be distributed to employees at various intervals.

Though referred to as a “summary,” each SPD must include more than 50 mandatory elements and specific language regarding ERISA, HIPAA, the Affordable Care Act (ACA) and other federal requirements. Additionally, significant plan changes must be communicated to affected employees via a summary of material modifications (SMM) 210 days (or, in the case of benefit reductions, 60 days) in advance. Other notices and filing may be required, depending on the type of ERISA plan.

In addition to distribution of notices and information, ERISA dictates that plan administrators must:

• File Forms 5500 (if there are at least 100 plan participants at the start of the plan year)
• Avoid prohibited transactions
• Follow the outlined claims procedures
• Comply with ERISA fiduciary rules, which means administering the plan in accordance with its terms and with the sole purpose of providing benefits

What’s a fiduciary, and why is it important?

The word “fiduciary” is most often associated with banking, but when it comes to ERISA benefit plans, a fiduciary is any person or entity responsible for part of a plan — not just the financials. ERISA fiduciaries include plan administrators (usually, employers and their insurance carriers) and all those with discretionary authority or control over the management of the plan and its assets or administration.

Many employers incorrectly assume they’re not the administrator of their benefit plans. We often hear things like, “Our plan doesn’t have one,” and, “We have a third party administrator.” (Service providers like TPAs generally avoid being plan fiduciaries, serving only as fiduciaries for specified functions, such as claim reviews and appeals.) Every ERISA plan has an administrator; if one isn’t named in the plan document, then it’s probably the employer themselves. 

Why does this matter? Because plan fiduciaries can be personally liable for civil penalties assessed by the DOL, losses resulting from breaches of fiduciary duty and more. They can be named in lawsuits and even subject to criminal prosecution. Fiduciary liability may extend to an employer’s board of directors and everyone who makes decisions on behalf of their benefit plans.

Best practice recommendations

Here’s some practical guidance for complying with regulatory requirements and alleviating concerns about ERISA fiduciary liability:

• Name a plan fiduciary in your plan document or establish a fiduciary committee whose function is clearly outlined
• Conduct fiduciary training so everyone understands their responsibilities
• Consider purchasing fiduciary insurance
• Ensure benefit plan decisions are informed, reasoned and based on governing plan documents
• Maintain diligent records of all decisions made
• Carefully vet service providers to ensure they have the right experience and expertise to support your employees and your goals — while protecting your plan assets

Navigating the ins and outs of disability benefit plan compliance can be difficult, but our team of experts is here to help. We work diligently to ensure clients’ plans are administered properly and all nuances are handled appropriately. If we can assist your organization with disability and absence plan compliance, please contact us via our website.

Some of this content was presented at the DMEC Compliance Conference in April 2025. Special thanks to Anne Sanchez, Shareholder at Littler, for her partnership on the presentation and contributions to this blog. >> Learn more — explore our disability and absence management solutions