Erisa Law: What Employers and Plan Participants Must Know

ERISA covers defined benefit plans and defined contribution plans such as 401(k) and 403(b) accounts. Vesting rules require cliff vesting at three years or graded vesting from year three through year six. Welfare benefit plans covered by ERISA include employer-sponsored health insurance, short-term and long-term disability, life insurance, and severance plans that satisfy ERISA's plan requirements. Employers establishing or administering covered benefit plans should seek erisa litigation legal counsel to determine which plans are subject to ERISA's requirements and to evaluate the compliance obligations that apply to each plan type.

Every ERISA plan requires a written plan document, a Summary Plan Description (SPD), and annual Form 5500 filings with the DOL and IRS. Civil penalties of up to $250 per day apply for Form 5500 failures, and COBRA continuation coverage notices must be issued for qualifying events. Employers managing ERISA reporting obligations should seek employee benefits legal counsel to prepare accurate Form 5500 filings, maintain current plan documents, and issue required participant notices within the applicable deadlines.

ERISA's fiduciary standard requires plan fiduciaries to act solely in the interest of participants, with the care and diligence of a prudent investor, to diversify investments, and to follow the plan documents. The prudent investor rule evaluates the fiduciary's conduct using a process-based standard, assessing whether the fiduciary engaged in a reasoned process for selecting and monitoring investments rather than judging outcomes alone. Plan fiduciaries evaluating their investment selection and fee oversight obligations should seek fiduciary services legal counsel to audit investment options, document the review process, and implement the investment policy statement required for prudent plan management.

ERISA's prohibited transaction rules bar plan fiduciaries from self-dealing, including sales, loans, and furnishing goods or services between the plan and a party in interest. Violations trigger excise taxes under Internal Revenue Code Section 4975 at fifteen percent of the amount involved, plus an obligation to correct the transaction within the taxable period. Employers and fiduciaries whose plan transactions may implicate the prohibited transaction rules should seek labor and employment law legal counsel to evaluate whether an exemption is available and to structure the transaction to comply.

When an ERISA plan denies a benefit claim, the plan must issue a written notice citing specific plan provisions, and the participant may appeal to a fiduciary who was not involved in the initial denial. If the plan grants discretionary authority to the administrator, courts apply an abuse of discretion standard giving significant deference to the plan's decision. Participants whose benefit claims have been denied and who have exhausted the plan's appeal process should seek labor laws legal counsel to evaluate the grounds for challenging the denial in federal court and to assess the applicable standard of judicial review.

COBRA requires ERISA group health plans of employers with twenty or more employees to offer continuation coverage to qualified beneficiaries who lose coverage through termination, reduction in hours, divorce, or a dependent child aging out of eligibility. Employers managing COBRA compliance should seek survivor benefits legal counsel to review continuation coverage procedures, verify that election notices satisfy ERISA's content requirements, and evaluate exposure for past notice failures.

Plan participants may bring civil claims under ERISA Section 502(a) to recover benefits, enforce plan terms, obtain equitable relief for fiduciary breaches, or reform a plan that contains a drafting mistake. Fiduciaries facing ERISA class action or individual breach claims should seek death benefit insurance legal counsel to evaluate fiduciary governance procedures, respond to participant complaints, and develop a litigation strategy addressing class certification and the merits.

The DOL's Employee Benefits Security Administration (EBSA) investigates ERISA violations through plan audits and complaint investigations. Loss of a plan's IRS-qualified status triggers immediate taxation of the trust corpus and elimination of employer contribution deductions. Employers who receive a DOL investigation notice or IRS audit inquiry should seek benefit fraud legal counsel to respond to information requests, evaluate the plan's compliance position, and develop a voluntary correction strategy before formal enforcement begins.