What is ERISA and how does it protect workers?

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Protection for your retirement savings—and more.

© chones/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

If you have a workplace retirement plan, ERISA may help protect it. The Employee Retirement Income Security Act of 1974 sets standards for many employer-sponsored retirement plans, such as 401(k)s, as well as many workplace health plans. The law provides workers access to information about their benefits while also establishing rules for how plans are managed.

ERISA doesn’t guarantee investment gains or prevent every retirement plan problem. But it does create important safeguards intended to protect workers from mismanagement, abuse, and lack of transparency.

The Employee Retirement Income Security Act, commonly referred to as ERISA, was passed by Congress in 1974 to establish federal standards for employer-sponsored benefit plans. Lawmakers enacted ERISA after concerns grew that workers were losing promised retirement benefits because of poor management, company abuses, and underfunded pension plans.

High-profile failures, including the collapse of automaker Studebaker-Packard Corporation in the 1960s, left many workers with far less retirement income than they had expected. In some cases, employers promised generous benefits without setting aside enough money to pay for them. ERISA reduced the risk to workers by establishing minimum standards for retirement and health benefit plans.

For retirement plans, ERISA sets rules governing vesting schedules, plan disclosures, fiduciary responsibilities, and claims and appeals processes. The law also includes protections intended to safeguard plan assets and improve transparency for workers who participate in employer-sponsored plans.

ERISA also applies to many health benefit plans, like the health insurance you get through your employer. These protections include requirements for summary plan descriptions, fiduciary oversight, appeals procedures, continued health coverage if you lose your job, and protections against discrimination based on health factors.

Legislation passed after 1974, such as the Affordable Care Act, amended and expanded ERISA’s health plan protections.

ERISA generally applies to private-sector workers who participate in employer-sponsored retirement or health benefit plans. If your employer offers a covered plan, you are typically entitled to ERISA’s disclosure, fiduciary, and claims protections.

Employers aren’t required to offer retirement and health benefit plans, but if they do, they often must follow ERISA rules. Plans commonly covered by ERISA include:

Traditional defined benefit pension plans were a major reason why Congress enacted ERISA in the first place. These plans promise workers a monthly retirement benefit based on factors such as salary and years of service, and ERISA established funding, disclosure, and fiduciary standards intended to protect participants from losing promised benefits.

Today, most workers are more likely to encounter ERISA in connection with defined contribution plans, such as 401(k)s. These plans allow employees to contribute money directly from their paychecks and may include employer matching contributions.

Many workers are also likely to see ERISA-related disclosures when choosing a health plan each year during open enrollment. If your employer offers an ERISA-covered health plan, federal rules generally prohibit higher premiums or coverage discrimination based on health factors.

Understanding your protections under ERISA can help you better resolve problems if an employer or plan administrator mismanages your plan or violates regulations designed to reduce your risk.

Employers and retirement plan administrators must adhere to a fiduciary standard that requires them to act in participants’ best interests. ERISA also requires plans to provide information about plan features, investments, fees, and funding. Other protections include:

Like retirement plans, employer-sponsored health plans covered by ERISA must follow fiduciary standards. Later laws, including those protecting newborns and mothers, mental health parity requirements, and the Patient Protection and Affordable Care Act (2010), expanded ERISA’s health plan protections. If an employer’s health plan administrator violates these ERISA protections, participants have the right to sue. Other common protections include:

ERISA doesn’t apply to every benefit plan. Plans generally exempt from ERISA include:

ERISA also doesn’t guarantee investment performance. If your 401(k) loses value because of market declines, ERISA generally doesn’t protect you from those losses. Further, health savings accounts (HSAs) aren’t usually covered under ERISA, even if they are paired with an ERISA-covered health plan.

Employers aren’t required to offer benefit plans, and ERISA generally doesn’t require companies to maintain the same benefits indefinitely. As long as employers follow regulations, they may change or terminate an ERISA-covered plan.

ERISA establishes federal standards for many employer-sponsored retirement and health plans. The law requires fiduciaries to act in participants’ best interests, mandates disclosures, and gives workers important protections and legal rights.

ERISA doesn’t apply to every retirement account, and it doesn’t guarantee investment performance or prevent market losses. Understanding what ERISA covers—and what it doesn’t—can help you make more informed decisions about your workplace benefits.