By Thomas D. DeMatteo
Vice President & General Counsel
ABC Companies

ERISA, the acronym for the Employee Retirement Income Security Act, is the law that regulates employee benefit plans. The key word is plans. It does not regulate the types of benefits provided to employees.

ERISA places benefits into two categories, pension plans or welfare plans. First you must determine if there is a plan. A plan is a regularly conducted employer-based program whose purpose is to afford benefits to employees.

Under ERISA, a plan is treated like a separate entity that may sue or be sued, enter into contracts, engage consultants, own property, have employees and the like. Second, you must then categorize the plan as a pension plan or welfare plan. Pension plans are either a defined benefit plan or a defined contribution plan.

In a defined benefit plan, an employee is entitled to a set retirement income based on a formula, such as years of service multiplied by average salary. In a defined contribution plan, employees are not promised a set retirement income but receive a contribution toward a retirement benefit, whose value will be ultimately determined upon retirement (i.e. 401-K plans, profit-sharing plans and so on).

A welfare benefit plan typically provides medical or other non-retirement benefits. Examples of welfare plans are hospital care, dental care, scholarship programs, severance pay programs, or pre-paid legal services.

As an owner, officer or director of a company, you may be liable as a fiduciary for the administration of a plan. The plan states that individuals responsible for the operation of a plan are called fiduciaries. Examples are trustees, investment managers, and administrators of the plan.

Another group of individuals that may incur liability are called "parties in interest." Anyone who has the ability to influence plan affairs may be considered a party in interest.

Typical examples include plan fiduciaries, employees, officers and counsel for the plan, service providers to the plan, the employer and employer's union, certain direct and indirect owners of the company and possibly relatives or affiliated companies of any of the above.

The law of employee benefit plans and the administration thereof is very complex. ERISA also includes lengthy tax and non-discrimination rules. When shopping for legal help in this area make sure you get someone with significant ERISA experience and not just a general employment law specialist.

Footnote: Employee Retirement Income Security Act of 1974, et. seq.
Footnote: Conison, Jay, Employee Benefit Plans, West Publishing (1993).

Thomas D. DeMatteo also is an adjunct professor of law at Hamline University School of Law