The Impact of ERISA on Employees

If you work in the private sector, the Employee Retirement Income Security Act of 1974 (ERISA) probably has an impact on you. It is possible that you have heard of ERISA and understand how it operates, Many employees who are affected by ERISA everyday are totally unaware of its role in their lives.

First drafted in 1974, ERISA refers to legislation that dictates the minimum standards company-run pension plans must offer to their employees and how federal income tax impacts company benefit packages. The goal of ERISA is to provide protection for retirement plans and provide regulation for the financial future of millions of Americans.

Pension Plans

Although ERISA does not legally require an employer to develop a pension plan for its employees or provide a specific level of benefit coverage, it does mandate standards for the companies currently providing employee benefit programs.

Under ERISA, for example, a company with a pension plan must provide a vesting options for its employees. This means that after working a certain number of years, an employee’s pension plan will mature. ERISA also requires companies that offer pension plans to meet specific threshold minimums.

Vesting

Based on ERISA regulations mandated by ERISA, an employee will be vested after a relatively short period of time. In fact, workers are usually fully vested after three years or on a two-six year graduated schedule.

Health Care Benefits

As with retirement programs, ERISA does not require companies to offer employee health insurance coverage. However, if the employer does provide a health care plan, ERISA sets the guidelines for its operation.

Although pension plans are less common these days, millions of Americans still receive their health insurance through their employer. In this way, ERISA has a wide-scale impact on the American workforce, even if one is not part of an employer-sponsored pension program.


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