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| Starting a small business? How to make a business plan? How to starting a new business? Starting up your own business, working for yourself? Small business administration, hey, what's that? Read here to help You starting your own business.
SMALL BUSINESS HANDBOOK: LAWS, REGULATIONS AND TECHNICAL ASSISTANCE SERVICES5. EMPLOYEE BENEFIT PLANSEmployee Retirement Income Security Act (ERISA), 29 USC §1001 et seq., 29 CFR §2509 et seq.Who is CoveredThe provisions of Title I of ERISA are intended to require compliance from most private sector employee benefit plans. Employee benefit plans are voluntarily established and maintained by an employer, an employee organization, or jointly by one or more such employers and the employee organization. Employee benefit plans which are pension plans are established and maintained to provide retirement income or to defer income to termination of covered employment or beyond. Employee benefit plans which are welfare plans are established and maintained to provide, through insurance or otherwise, health benefits, disability benefits, death benefits, prepaid legal services, vacation benefits, day care centers, scholarship funds, apprenticeship and training benefits, or other similar benefits.In general, ERISA does not cover plans established or maintained by governmental entities or churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment or disability laws. ERISA also does not cover plans maintained outside the United States primarily for the benefit of nonresident aliens or unfunded excess benefit plans. Basic Provisions/RequirementsERISA sets uniform minimum standards to assure the equitable character of employee benefit plans and their financial soundness to provide workers with benefits promised by their employers. In addition, employers have an obligation to provide promised benefits and satisfy ERISA's requirements on managing and administering private pension and welfare plans. The Department's Pension and Welfare Benefits Administration (PWBA), together with the Internal Revenue Service (IRS), carries out its statutory and regulatory authority to assure that workers receive the promised benefits. The Department has principal jurisdiction over Title I of ERISA, which requires persons and entities who manage and control plan funds to:Carry out their duties in a prudent manner and refrain from conflict-of-interest transactions expressly prohibited by law, for the exclusive benefit of participants and beneficiaries Comply with limitations on certain plans' investments in employer securities and properties Fund benefits in accordance with the law and plan rules Report and disclose information on the operations and financial condition of plans to the government and participants Provide documents required in the conduct of investigations to assure compliance with the law The IRS administers Title II of ERISA, which includes vesting participation, discrimination and funding standards. Reporting and DisclosurePart 1 of Title I requires the administrator of an employee benefit plan to furnish participants and beneficiaries with a summary plan description (SPD), describing in understandable terms, their rights, benefits and responsibilities under the plan. Plan administrators are also required to furnish participants with a summary of any material changes to the plan or changes to the information contained in the summary plan description. Generally, copies of these documents must be filed with the Department. In addition, the administrator must file an annual report (Form 5500 Series) each year containing financial and other information concerning the operation of the plan. Plans with 100 or more participants must file the Form 5500. Plans with fewer than 100 participants file the Form 5500-C at least every third year and may file a Form 5500-R, an abbreviated report, in the two intervening years. The forms are filed with the Internal Revenue Service, which furnishes the information to the Department of Labor. Welfare benefit plans with fewer than 100 participants that are fully insured or unfunded (i.e., benefits are provided exclusively through insurance contracts where the premiums are paid directly from the general assets of the employer or the benefits are paid from the general assets of the employer) are not required to file an annual report under regulations issued by the Department. Plan administrators must furnish participants and beneficiaries with a summary of the information in the annual report.The Department's regulations governing reporting and disclosure requirements are set forth at 29 CFR §2520.101-1 et seq. Fiduciary StandardsPart 4 sets forth standards and rules governing the conduct of plan fiduciaries. In general, persons who exercise discretionary authority or control regarding management of a plan or disposition of its assets are "fiduciaries" for purposes of Title I of ERISA. Fiduciaries are required, among other things, to discharge their duties solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. In discharging their duties, fiduciaries must act prudently and in accordance with documents governing the plan, to the extent such documents are consistent with ERISA. Certain transactions between an employee benefit plan and "parties in interest," which include the employer and others who may be in a position to exercise improper influence over the plan, are prohibited by ERISA. Most of these transactions are also prohibited by the Internal Revenue Code ("Code"). The Code imposes an excise tax on "disqualified persons"
ExemptionsBoth ERISA and the Code contain various statutory exemptions from the prohibited transaction rules and give the Departments of Labor and Treasury, respectively, authority to grant administrative exemptions and establish exemption procedures. Reorganization Plan No. 4 of 1978 transferred the authority of the Treasury Department over prohibited transaction exemptions, with certain exceptions, to the Labor Department.The statutory exemptions generally include loans to participants,
the provision of services necessary for operation of a plan for
reasonable compensation, loans to employee stock ownership plans,
and investment with certain financial institutions regulated by
other State or Federal agencies. (See ERISA section 408 for the
conditions of the exemptions.) Administrative exemptions may be
granted by the Department on a class or individual basis for a wide
variety of proposed transactions with a plan. Applications for
individual exemptions must include, among other information:
The Department's exemption procedures are set forth at 29 CFR §2570.30 through 2570.51. EnforcementERISA imposes substantial law enforcement responsibilities on the Department. Part 5 of ERISA Title I gives the Department authority to bring a civil action to correct violations of the law, gives investigative authority to determine whether any person has violated Title I, and imposes criminal penalties on any person who willfully violates any provision of Part 1 of Title V.Continuation Health CoverageContinuation health care provisions were enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). These provisions cover group health plans of employers with 20 or more employees on a typical working day in the previous calendar year. COBRA gives participants and beneficiaries an election to maintain at their own expense coverage under their health plan at a cost that is comparable to what it would be if they were still members of the employer's group. Employers and plan administrators have an obligation to determine specific rights of beneficiaries with respect to election, notification and type of coverage options. (See 29 USC §§1161 through 1168). Plans must give covered individuals an initial general notice informing them of their rights under COBRA and describing the law. Plan administrators are required to provide specific notices when certain events occur. In most instances of employee death, termination, reduced hours of employment, entitlement to Medicare, or bankruptcy, it becomes the employer's responsibility to provide a specific notice to the plan administrator.The Department has limited regulatory and interpretative jurisdiction over COBRA provisions. Its responsibility includes the COBRA notification and disclosure provisions. Jurisdiction of the Internal Revenue ServiceThe IRS has regulatory and interpretative responsibility for all provisions of COBRA not under DOL's jurisdiction. (See IRS proposed regulations in the Federal Register of June 14, 1987 (52 FR 22716).) In addition, ERISA provisions relating to participation, vesting, funding and benefit accrual, contained in parts 2 and 3 of Title I, are generally administered and interpreted by the Internal Revenue Service.Assistance AvailablePWBA has numerous general publications designed to assist employers and employees in understanding their obligations and rights under ERISA. Publications -- a listing of PWBA booklets and pamphlets -- is available by writing to: Publications Desk, PWBA, Division of Public Affairs, Room N-5511, 200 Constitution Ave., NW, Washington, DC 20210.In addition, employee benefit plan documents and other materials are available from the PWBA Public Disclosure Room. This facility may be used to view and to obtain copies of materials on file. Materials include: summary plan descriptions, Form 5500 Series reports, Master Trust reports, 103-12 Investment Entity Reports, Common or Collective Trust or Pooled Separate Account direct filings, Apprentice and Other Training Plans notices, "Top Hat" plan statements, advisory opinions, announcements and transcripts of public hearings and proceedings. The PWBA Public Disclosure Room is open to the public Monday through Friday, from 8:30 a.m. to 4:30 p.m. Copies of materials are available at a cost of 15 cents per page by ordering in person or writing to: PWBA Public Disclosure Room, U.S. Department of Labor, Room N-5507, 200 Constitution Ave., NW, Washington, DC 20210. Given the complexity of ERISA requirements, employers may seek the assistance of an attorney, CPA firm, investment or brokerage firm, and other employee benefit consultants in complying with the law. PenaltiesPWBA has authority to assess civil penalties for reporting violations and prohibited transactions involving a plan under ERISA Section 502(c). A penalty of up to $1,000 per day may be assessed against plan administrators who fail to or refuse to comply with annual reporting requirements. Section 502(i) gives the agency authority to assess civil penalties against parties in interest who engage in prohibited transactions with welfare and nonqualified pension plans. The penalty can range from five percent to 100 percent of the amount involved in a transaction. A parallel provision of the Code directly imposes an excise tax against disqualified persons, including employee benefit plan sponsors and service providers, who engage in prohibited transactions with tax-qualified pension and profit sharing plans. Finally, the Department is required under Section 502(l) to assess mandatory civil penalties equal to 20 percent of any amount recovered with respect to fiduciary breaches resulting from either a settlement agreement with the Department or a court order as the result of a lawsuit by the Department.Relation to State, Local and Other Federal LawsPart 5 of Title I provides that the provisions of ERISA Titles I and IV supersede state and local laws which "relate to" an employee benefit plan. ERISA, however, saves certain state and local laws from ERISA preemption, including certain exceptions for state insurance regulation of multiple employer welfare arrangements (MEWAs). MEWAs generally constitute employee welfare benefit plans or other arrangements providing welfare benefits to employees of more than one employer, not pursuant to a collective bargaining agreement.In addition, ERISA's general prohibitions against assignment or alienation of pension benefits does not apply to qualified domestic relations orders. These orders must be made pursuant to state domestic relations law and award all or part of a participant's benefit in the form of child support, alimony, or marital property rights to an alternative payee (spouse, former spouse, child or other dependent). Plan administrators must comply with the terms of such orders. |
