Pension and Employee Benefits OutlineSpring 2009
1. What is ERISA about? [ERISA §2]
ERISA §2(b) = Protection of interstate commerce and beneficiaries by requiring disclosure and reporting, setting standards of conduct, etc., for fiduciaries
It is hereby declared to be the policy of this chapter to protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.
ERISA §2(c) = Protection of interstate commerce, the Federal taxing power, and beneficiaries by vesting of accrued benefits, setting minimum standards of funding, requiring termination insurance
It is hereby further declared to be the policy of this chapter to protect interstate commerce, the Federal taxing power, and the interests of participants in private pension plans and their beneficiaries by improving the equitable character and the soundness of such plans by requiring them to vest the accrued benefits of employees with significant periods of service, to meet minimum standards of funding, and by requiring plan termination insurance.
ERISA – Employee Retirement Income Security Act of 1974
Title I – 7 parts
Part 1 – reporting and disclosure requirements for all employee benefit plans
Part 2-3 – contain the minimum participation, vesting, benefit accrual and funding rules applicable to employee PENSION plans ONLY
Part 4 – contains the rules that govern fiduciaries of employee benefit plans
Part 5 – mechanisms for enforcing the requirements of Title 1 through civil litigation. Also provides for the preemption of state law
Part 6 -7 – contain the special rules applicable to health care laws. COBRA and HIPAA
Title II – IRC
Title III – Administrative provisions (not covered)
Title IV – Created the Pension Benefit Guaranty Corporation (PBGC)
2. What is an “employee benefit plan”? [ERISA §3(3)]
ERISA §3(3) = The term “employee benefit plan” or “plan” means an employee welfare benefit plan or an employee pension benefit plan or a plan that is both an employee welfare benefit plan and an employee pension benefit plan.
Must have an Employee Benefit Plan in order for ERISA to apply.
Two types of EBP:
ERISA §3(1) àWelfare Plan
ERISA §3(2)(A) à Pension Plan
3. What is a “welfare plan”? [ERISA §3(1)]
ERISA §3(1) = The terms “employee welfare benefit plan” and “welfare plan” mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 186(c) of this title (other than pensions on retirement or death, and insurance to provide such pensions).
ERISA §3(1) Welfare Plan
5 factors for a welfare plan
(1) Plan, Fund, or Program
(2) Established or Maintained
(3) By an Employer
(4) For the Purpose of providing welfare benefits or severance plans
(5) To Participants
4. What is a “pension plan”? [ERISA §3(2)(A)]
ERISA §(2)(A) = Except as provided in subparagraph (B), the terms “employee pension benefit plan” and “pension plan” mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program — (i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.
ERISA §3(2)(A) Pension Plan
5 factors for a pension plan
(1) Plan, Fund, or Program
(2) Established or Maintained
(3) By an Employer
(4) For the Purpose of providing retirement or income deferral
(5) To Employees
5. Define Key Terms
ERISA §3(5) = The term “employer” means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.
ERISA §3(6) = The term “employee” means any individual employed by an employer.
ERISA §3(7) = The term “participant” means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.
ERISA §3(8) = The term “beneficiary” means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.
Darden Caseà Supreme Court’s definition of employee =
Test = If employer entity has the ability to control the employee entity’s working functions (eg, place, time, etc) then the entity is an employer under common law.
This is a common law test; NOT a contractual test. Can’t just look at K.
6. Are there exceptions from ERISA? [ERISA § 4(b)]
ERISA §4(b) = Exceptions for certain plans
ERISA shall not apply to any employee benefit plan if–
(1) Such plan is a governmental plan (as defined in ERISA §3(32));
(2) Such plan is a church plan (as defined in ERISA §3(33)) with respect to which no election has been made under section 410(d) of title 26;
(3) Such plan is maintained solely for the purpose of complying with applicable workmen’s compensation laws or unemployment compensation or disability insurance laws;
(4) Such plan is maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens; or
(5) Such plan is an excess benefit plan (as defined in ERISA §3(36)) and is unfunded. à (See “top hat” #18)
Reg. §2510.3-2(c) – Bonus Programs
Reg. §2510.3-2(d) – IRAs
Reg. §2510.3-3(b) – Sole Proprietorship (no empl
consisting of L Corporation, T Corporation, N Corporation, and the GHI Partnership.
ABC Partnership owns 75 percent of the only class of stock of X and Y Corporations; X owns all the remaining stock of Y, and Y owns all the remaining stock of X. Since inter-organization ownership is excluded (that is, treated as not outstanding) for purposes of determining whether ABC owns a controlling interest of at least one of the other organizations, ABC is treated as the owner of stock possessing 100 percent of the voting power and value of all classes of stock of X and of Y for purposes of paragraph (b)(1)(ii) of this section. Therefore, ABC is the common parent of a parent-subsidiary group of trades or businesses under common control consisting of the ABC Partnership, X Corporation, and Y Corporation.
9. Controlled Group = “Single Employer” [IRC §414(b)]
IRC §414(b) = Employees of controlled group of corporations.
All employees of all corporations that are members of a controlled group of corporations shall be treated as employed by a single employer.
10. Substantive provisions required when you do have an ERISA plan document:
ERISA §402(a)(1) = Every employee benefit plan shall be established and maintained pursuant to a written instrument. Such instrument shall provide for one or more named fiduciaries that jointly or severally shall have authority to control and manage the operation and administration of the plan.
ERISA §403(a) = All assets of an employee benefit plan shall be held in trust by one or more trustees.
ERISA §402(b)(3) = Provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan.
Written [ERISA §402(a)] Trust [ERISA §403(a)] Procedure for Amending [ERISA §402(b)(3)]
Additional Requirements [ERISA §402(b)] à
ERISA §402(b) = Every employee benefit plan shall:
(1) Provide a procedure for establishing and carrying out a funding policy and method consistent with the objectives of the plan and the requirements of this title;
(2) Describe any procedure under the plan for the allocation of responsibilities for the operation and administration of the plan;
(3) Provide a procedure for amending such plan and for identifying who has authority to amend the plan; and
(4) Specify the basis on which payments are made to and from the plan.
Federal courts will recognize the existence of a plan that is not established in writing if the plan has the characteristics of an employee benefit plan. However, this may be a breach of fiduciary duty.
Existence of a written plan document often precludes claims by plan participants that oral statements by a plan fiduciary have amended the terms of the plan.