Pension and Employee Benefits
Spring 2008
Plan Operation and Administration
I. Statutory Structure of ERISA and its Regulating Federal Agencies – ERISA is divided into 4 titles and seven parts.
a. Title 1 has 7 Parts:
i. Part 1 – Statutory reporting and disclosure requirements for all employee benefit plans.
ii. Part 2/3 – Minimum participation, vesting, benefit accrual and funding rules applicable to employee pension plans
iii. Part 4 – Rules that govern fiduciaries of employee benefit plans
iv. Part 5 – Mechanisms for enforcing requirements of Title I of EIRSA through civil litigation. Also provides the preemption of state law.
v. Part 6/7 – Contains special rules applicable to health care plans
b. Title II – originally amended IRC’s requirements of participation, vesting, benefit accrual and funding of qualified retirement plans.
c. Title III – Established the authority of the DOL and Department of Treasury to enforce Titles I & II.
d. Title IV – Addresses the specific problem of inadequately funded defined benefit plans, multiemployer plans.
II. Types of Plans Subject to ERISA – Title I applies to any employee benefit plan maintained by an employer or an employee organization whose activities affect interstate commerce. ERISA §4(a).
i. Employee Benefit Plan – includes either an employee welfare plan or employee pension benefit plan. ERISA §3(3), 3(1), 3(2).
ii. Participant – ERISA §3(7)
iii. Beneficiary – ERISA §3(8)
iv. Distinction Between Pension and Welfare Benefit Plans –
1. Pension Plans – Pension plans are designed to provide retirement income to the employee or results in a deferral of income by the employee until the termination of employment or beyond
2. Welfare Benefit Plans – designed to provide other types of benefits to the employee, such as health care benefits or benefits in the event of sickness, accident, disability, death or unemployment.
v. Top Hat Plans – nonqualified plans that don’t receive favorable tax treatment that qualified plans receive under §401(a)
b. Plans Excluded from Coverage Under ERISA – If a plan is regulated under Title 1 of ERISA, Πs are limited to the claims and remedies available under ERISA. State law claims/remedies are preempted by federal law. The following types of plans are excluded from ERISA:
i. Governmental Plans – defined in ERISA §3(32)
ii. Church Plans – defined in ERISA §3(33)
iii. Plans maintained by an employer solely to comply with state workmen’s compensation, unemployment compensation, or disability insurance laws;
iv. Plans maintained outside of the US primarily for the benefit of persons who are nonresident aliens; or
v. Unfunded excess benefit plans – defined in ERISA §3(36)
vi. Plans having as participants only the partners of a partnership;
vii. Plans having as a participant only the sole proprietor of a trade or business; or
viii. Plans having as participants only an individual and the individual’s spouse, where the trade or business that sponsors the plan is wholly ow
her “employees in, or reasonably expected to be in, currently covered employment” or former employees who “have a reasonable expectation of returning to covered employment” or who have “a colorable claim” to vested benefits. In order to establish that he “may become eligible” for benefits, a claimant must have a colorable claim that (1) he will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future.
vi. Working Owners – shareholders of a corp., general partner of a partnership may both own and work in the business. If the only persons who are eligible for benefits from the plan are the partners of or the sole proprietor of the business, the plan has no employees, and is not subject to regulation under title I of ERISA. But if the working owner has another employee, besides his spouse, participate on equal terms with other employees, the working owner qualifies for ERISA protections. Yates.
vii. Waiver of Right to Participate in an Employer’s Plan – Waiver must be “knowing and voluntary”. Determination is made on a totality of the circumstances test looking at the following factors: (1) individual’s education, business experience, and sophistication; (2) parties’ respective roles in deciding the final terms of the waiver agreement; (3) the clarity of the waiver agreement; (4) the amount of time the individual had to study the waiver before executing it; (5) whether the individual had independent advice from legal counsel; and (6) nature of the consideration the individual received in exchange for the waiver.
