Tag Archives: employee benefits

FAQs on Employee Benefits–A Primer

As promised in my previous post, the following is a primer-like summary of employee benefits for the communicator who seeks the basics, or needs simply to brush up on the nuts and bolts of this topic. I believe that the Q&A approach is a good fit for these types of summaries, so here goes:

 

Q: What laws apply to employee benefits?

A:  Three major laws pertain and apply to employee benefits: ERISA (29 USC § 1001 et seq.), Internal Revenue Code (IRC) (26 USC § 1 et seq.), and the Age Discrimination in Employment Act, otherwise known as ADEA (29 USC § 621 et seq.).

The IRC determines how and when workers are taxed on employer-provided benefits. It also decides how and when employers can take deductions for benefits provided to employees. Also, this law is the source of the non-discrimination rules that apply to many employee plans.

ERISA is perhaps the most well-known law as employee benefits go. Part labor law, part tax law, ERISA sets a floor for standards governing plan participation and benefit requirements. As discussed in the previous post, ERISA also imposes fiduciary responsibilities on plan officials, and establishes rules for the enforcement of employee rights (gives employees a right to sue the employer for various causes of action).  In addition, it is indeed a tax law, containing several provisions actually incorporated into the IRC. ERISA includes special provisions for an insurance program for defined benefit (DB) plans, standards for continuation of healthcare coverage after detaching from employment (COBRA) and health-plan portability and access rules (HIPPA).

Finally, the ADEA applies to employee benefit plans, but primarily in theory. The impact of the ADEA on plans is currently being hashed out in courtrooms across the country. It’s worth noting that all three of these laws share duplicate provisions.

Q:  What plans are not subject to (exempt from) ERISA?

A:  Under ERISA § 4(b) and other sections, the following plans are generally exempt:

• plans sponsored by federal, state or local governments
• plans sponsored by churches
• workers’ compensation, unemployment compensation or disability insurance laws
• plans maintained outside the U.S. primarily for nonresident aliens
• unfunded executive compensation plans that provide additional benefits to
executives and other high-paid employees.
Note: Even though these governmental, church and executive compensation plans are not
subject to ERISA, IRC requirements continue to apply to these plans, and must be observed in order to preserve the tax-exempt treatment, where available, for plan participants.

Q:  Exactly what are “employee benefits?”

A:  At the risk of moving a few steps backward here, a clarification is probably important. Employers typically provide their workers with a variety of benefits in addition to wages and salaries. These are commonly called “fringe benefits.” Fringe benefits include all types perks, such as reduced fares on public transportation to club memberships and tuition reimbursement. They also include access to and contributions to pension and healthcare plans. Thus, pension and healthcare plans are a form of “fringe benefits” many employers choose to offer.

In general, when we hear the term “employee benefits,” we think only of the organized, managed and employer sponsored plans such as pension plans, 401(k) retirement savings plans and healthcare plans. Typically, the term refers to employer-sponsored plans subject to ERISA, and which have special rules as pertains to taxation.

Q:  When is a “plan” really “a plan” according to ERISA?

A:  Keeping in mind that ERISA generally only applies to employer-sponsored plans in the private sector, in order for a plan to be considered a “plan” under ERISA, an employer must a) intend to create a plan and b) be involved in the plan administration, among other factors. See Donovan v. Dillingham, 688 F2d 1367 (1982). An employer who simply allows access to a plan and somehow facilitates or assists in taking deductions from employees’ pay so they can participate has not actually established a plan under ERISA. The key point to take away from this is (and particularly from a legal perspective) is that some plans, while they appear to be a “plan” under ERISA, may not even be subject to ERISA after a thorough analysis of the facts.

Fact is, ERISA requires the employer (ER) to establish an ongoing administrative scheme for it to be a plan recognized/subject to ERISA. Further, the term “Plan” is not interchangeable with the plan documents, which enumerate and inform about the components of the plan itself. While this distinction may seem picky, most employee-benefit lawyers would heartily agree that this is indeed an important, basic difference.

Q:  What are the primary types of plans?

A:  Under ERISA, a plan is either a “welfare plan” or a “pension plan” that covers at least one employee.

Q:  What is a “welfare plan?”

A:  No, it’s not free money handed out because someone demonstrated need. Under ERISA, a welfare plan is a plan that provides benefits for:

• medical, surgical or hospital care
• sickness, accident, disability or death
• unemployment benefits
• vacation benefits
• apprenticeship or training programs
• day care centers
• scholarship funds (if funded)
• prepaid legal services
• holiday and severance pay plans.

Q:  What is a “pension plan?”

A:  Under ERISA § 3(2)(A), a pension plan is a plan that:
• provides retirement income to employees, or
• results in the deferral of income until retirement or thereafter.
(ERISA excludes severance pay and supplemental pay plans from this category.)

If you have not dozed off or overdosed on caffeine while trying to read this, I’ll do my best to present related topics and answer Qs on this as they come in. Thanks for reading; hope this helps you in your own writing/drafting travels.

Employee Benefits for the (Non-Lawyer) Communicator

My 20-something years as a senior-level communicator serving large corporate clients have led me to some strange places indeed. There was the time I was hired to write the announcement speech for a secret product launch which was to include two “endings” so that the executive speaker could choose the one most appropriate, based on the audience’s (employees’) reaction. Then there was the time I was entrusted with drafting a series of “confidential” documents outlining a marketing strategy that would ultimately be vetted through no fewer than 43 people (not kidding), leaving me to wonder who didn’t know about this particular plan. In short, I’ve been fortunate in that I’ve not wanted for intrigue and interest during most of this journey so far.

There’s intrigue, and then there’s harsh complexity. That’s where the subject of employee benefits comes in. In the marketing communications arena, I’ve habitually viewed those communicators who can tackle this subject matter with even moderate fluency as the rock stars of our profession. Why? Employee benefits are like the second cousin of fixed income securities: they are complex, rarely intriguing, lack any hint of excitement and are almost always dry and loaded with tedium. Usually, only communicators with superior attention to detail and a solid grasp of the regulatory backdrop dare to tread on this subject, and with good reason.

After obtaining a law degree it occurred to me that my ability to swiftly and effectively communicate on this complex topic was supported by a more robust understanding of the regulatory environment that drives this arena. As such, the following is the first in a series of a few short articles for those non-lawyer communicators seeking a clear, simple roadmap to this rather annoyingly complicated landscape.

ERISA – What it Is

To know employee benefits you have to begin with ERISA. The Employee Retirement Income Security Act is a federal law, to be blunt, administered by the Employee Benefits Security Administration (EBSA). The provisions of Title I of ERISA cover most private sector employee benefit retirement plans. Such plans are voluntarily established, and maintained by the employer. Sometimes, they are maintained by more than one employers, or even an employee organization, for example. These plans include pension plans (defined contribution or defined benefit), simplified employee pension plans (SEPs) and 401(k) plans, as well as profit-sharing and stock-bonus plans, along with employee stock ownership plans, or ESOPs.

The most important thing to start with is that ERISA does NOT apply to plans established or maintained by government entities or churches for their employees. Plans maintained solely to comply with workers’ comp, unemployment or disability laws are also NOT subject to ERISA. Finally, ERISA does not cover plans maintained outside the U.S.

What it Does

What ERISA does is set uniform minimum standards to ensure that employee-benefit plans are established and maintained in a fair and financially sound manner. Think of it as a regulatory “floor.” Employers can deliver above and beyond what ERISA mandates, but not below the standards set forth in the law.

Here’s a general smattering of what ERISA does:

  • Requires plans to tell plan participants what’s going on with the plan, and on a regular basis.
  • Sets minimum standards for participation, vesting, benefit accrual and funding.
  • Requires plan fiduciaries to be accountable (more on that shortly).
  • Gives plan participants the right to a cause of action to sue for benefits and/or breaches of fiduciary duty. (For non-lawyers: you cannot sue unless federal law [or, if applicable, state law] unless there is a basis for the cause of action. Meaning–there has to be either a statutory or a case-law/common law basis for a cause of action. A cause of action is “Negligence,” “breach of contract,” or “breach of fiduciary duty,” or the like.)
  • Guarantees payment of certain benefits if a plan goes under, through the Pension Benefit Guaranty Corporation.

ERISA also sets forth requirements that obligate employers to provide promised benefits, and which guide employers when managing and administering private retirement and welfare plans.

Who’s The Boss?

EBSA, along with the Department of Treasury’s Internal Revenue Service (IRS), has the statutory and regulatory authority to ensure that workers receive the benefits they are promised. EBSA has principal jurisdiction over Title I of ERISA, which requires persons and entities that manage and control plan funds to do so according to various standards and duties. They must:

  • Manage plans for the exclusive benefit of participants and beneficiaries;
  • Execute duties prudently and refrain from any activity that constitutes a conflict of interest;
  • Comply with limitations on certain plans’ investments in employer securities and properties; 
  • Fund benefits in line with the law and plan rules;
  • Report and disclose plan info both to participants and to the government; and
  • Comply with investigations whenever necessary.

ERISA also sets forth standards and rules for plan fiduciaries. Individuals who exercise discretionary authority or control over plan management or disposition of plan assets are “fiduciaries” for the purposes of Title I of ERISA. The discharge of these duties must be executed solely in the interest of plan participants and beneys and for the exclusive purpose of providing benefits and mitigating reasonable expenses of administering the plan. In general, fiduciaries are required to “act prudently” and in accordance with plan documents. 

I hope this basic foray into ERISA can benefit at least some of you communicators out there faced with a project involving employee benefits. Next up in the series: FAQs on employee benefits – making sense of the offerings. Thanks for reading, and as always, comments/suggestions welcome!