Demystifying the Law: ERISA
If you’re employed, are recently unemployed or are receiving regular medical treatment, then ERISA, or the Employee Retirement Income Security Act of 1974, governs any health and pension benefits you receive from your employer, your COBRA health insurance coverage if you’re unemployed and even the privacy of your medical records. This article will help you better understand your rights under ERISA.
ERISA is a federal statute, passed in 1974, that created minimum standards for some employee benefits, including pension plans and health insurance. ERISA doesn’t legally require employers to provide pension plans, nor does it spell out the benefits that must be included in pension plans. However, it does set out rules for how a pension plan must be operated if a pension plan exists. Under ERISA, a Summary Plan Description (SPD) outlining benefits must be provided to or available to all employees.
Since ERISA’s creation, there have been several amendments to the law, including:
- COBRA (or the Consolidated Omnibus Budget Reconciliation Act of 1985), which allows employees and their families to continue participating in group health insurance plans after leaving a company
- HIPAA (or the Health Insurance Portability and Accountability Act of 1996), which addresses medical privacy and the coverage of pre-existing health conditions in group insurance plans
Corporate retirement plans are really nothing more that formal contracts, between an employer and its employees, to provide retirement benefits. A "qualified" retirement plan (such as a 401K plan or a profile sharing plan) is one that complies with applicable laws so taxes are deferred on contributions and earnings until withdrawn. ERISA establishes non-discrimination rules and other safeguards to protect employee benefits.
While not legally obligated to do so, employers may establish retirement plans to attract prospective employees and to keep current employees. Employers have an incentive to set up qualified plans because they get tax benefits in the process. The employer is also protected from some lawsuits. ERISA-covered plans are not subject to state regulation.
It is also possible to set up "non-qualified" plans, which means the plans do not qualify for the same tax benefits. When employers establish such plans, they are usually for highly compensated executives. An example of a non-qualified plan would include an insurance-funded deferred compensation plan.
For a pension plan to be considered an ERISA pension plan, the plan must either:
- Provide retirement income, or
- Result in a deferral of income to termination of covered employment or beyond
ERISA plans must also:
- Be established or maintained by an employer, an employee organization, or by both
- Include at least one common law employee
- Be established or maintained by an employer or an employee organization which is involved in interstate commerce
COBRA generally allows employees or certain dependents to temporarily retain group health care coverage if that coverage would otherwise be lost due to one of several "qualifying events," such as the loss of a job. COBRA provisions generally apply to private, state and municipal employers with at least 20 employees.
There are several types of qualifying events. These include:
- For corporate employees: Voluntary or involuntary termination, or reduction in the number of hours of employment
- For the spouse of an employee who has been covered by the employee’s health care plan: Voluntary or involuntary termination of employee, reduction in the number of hours of employee, divorce or legal separation from employee, death of employee, or the employee becoming eligible for Medicare
- For the child of an employee who has been covered by the employee’s health care plan: Voluntary or involuntary termination of employee, reduction in the number of hours of employee, divorce or legal separation from employee by parent of child, death of employee, employee becoming eligible for Medicare, or loss of "dependent child" status
To continue health care coverage after a qualifying event occurs, the employee or the dependent must pay for the coverage, including the portion of the premium that was previously paid by the employer. COBRA participants can be required to pay up to 102 percent of the cost of the health insurance. In other words, a 2 percent administration fee may be charged in addition to 100 percent of the cost of the insurance premium.
HIPAA is a set of rules that hospitals and medical providers must follow before disclosing confidential patient information. The Privacy Rule of HIPAA gives patients the following rights and health care providers the following responsibilities:
- You have a right to see your medical records
- You may ask to have inaccurate information corrected in your records, and if you and your health care provider disagree about the accuracy of the information, your disagreement should be noted in the records
- In most circumstances, your health information cannot be shared with others without your permission
- Your medical provider or health insurer must tell you how your health information is used, whether it’s shared and with whom it is shared
- You have the right to a yearly report showing when your information was shared and why it was shared
HIPAA covers all information about your mental and physical health, including your past treatments or conditions, future treatment plans, and even information about how you pay for medical care. HIPAA also covers identifying information, such as your name, address, telephone number and social security number.
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