By: Editorial Staff, Date: October 10th, 2023

ERISA or Employment Retirement Income Security Act of 1974, as defined by the Department of Labor, is a federal law that sets standards for private industry in providing retirement and health plans to their employees.

Compliance with ERISA can be a major concern to some employers as they are obligated to offer benefits to their employees and there are intricate laws and regulations that they must follow. Failure of compliance can result in penalties, litigation, and damage to reputation.

This article will discuss the importance of ERISA compliance and ways to mitigate risk.


ERISA Compliance

Compliance with ERISA requires employers to:

  • Establish a written plan document and administer it accordingly.
  • Provide participants with information about the plan.
  • Ensure that the plan meets the standards for participation, vesting, and funding.
  • Act with fiduciary responsibility.
  • Establish a grievance and appeals process for participants.

Failure to Compliance

Failing to comply with ERISA can be costly since the DOL increases the monetary penalties for violations every year. Aside from the monetary penalties, fiduciaries can face criminal charges especially if the violations are not accidental.

Lawsuits are also another risk. Even if the lawsuit is dismissed, the company would still face legal expenses and reputational damage.

Common ERISA Compliance Mistakes and How to Avoid Them

  1. Inadequate Plan Documentation

ERISA requires a lot of record-keeping for all plan-related documents. These documents need to be well-organized, readily available, and regularly updated. Failure to do so can lead to compliance issues.

To avoid this, establish an effective record-keeping process and audit the documents regularly.

  1. Unable to Provide Timely Disclosures

Private industries under ERISA must provide their participants and beneficiaries with accurate information about their benefit plans. Mistakes in this area are often due to oversight or administrative errors.

Ensuring that systems and processes can track necessary disclosures within the specified timeline can help avoid this compliance mistake.

  1. Avoiding Regular Compliance Testing

Regular compliance testing is necessary to ensure that the plan does not favor other employees and doesn’t exceed the contribution limits set by ERISA. Neglecting these tests could lead to expensive correction procedures and penalties.

Adding regular compliance testing in the annual compliance calendar can help in avoiding this compliance risk.

  1. Poor Tracking of Participant Loans

ERISA has a strict rule on the administration of participant loans, which includes the maximum amount, repayment terms, and interest rates. Failure to properly track and administer these loans can lead to unexpected tax liabilities for participants.

This risk can be avoided by implementing a loan policy and tracking system.

  1. Ignoring ERISA Bonding

ERISA requires that the person handling the funds for an employee benefit plan be covered by a fidelity bond. Unfortunately, this requirement is often ignored which leads to compliance failure.

Ensuring that the organization understands and complies with these bonding requirements can help mitigate the risk of this compliance mistake.

A thorough understanding of ERISA compliance is essential for organizations managing employee benefit plans. By following the regulatory requirements and implementing best practices, companies can mitigate the risk of costly mistakes and potential legal consequences.

Join our upcoming webcast to learn more insights: ERISA: Defense Strategies to DOL Litigation and Investigations


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