Overview of Employee Benefits
Employee benefits are governed by a combination of federal and state law. Because of the preemptive effects of ERISA and the overriding importance of federal tax considerations, however, federal law is usually of the most important importance to employers.
The Employee Retirement Income Security Act of 1974 (ERISA) is the single most important law regulating employer-provided employee benefits. ERISA regulates reporting and disclosure, participation and vesting, funding, fiduciary responsibility, and administration and enforcement for most employee benefit plans. ERISA also contains special provisions that regulate group health plans, and require defined benefit plans to participate in a government insurance scheme.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) added provisions to ERISA and the Code intended to increase access to group health plan coverage for individuals changing jobs. HIPAA also contains important provisions setting privacy standards for personal health information, and regulating the operation of MEWAs and other group health plans.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) added provisions to ERISA, the Code, and the Public Health Service Act (PHSA) that required employers to offer continuing health coverage to individuals who experience "qualifying events." The time period over which health coverage must be offered varies depending on the qualifying event. Employees who elect COBRA continuation coverage may be charged for the cost of the premiums; however, the maximum permitted charge is determined by a statutory formula that often underestimates the real cost. See COBRA for more information.
Family and Medical Leave Act of 1993 (FMLA) is a federal law that mandates that many employers offer their employees unpaid leave for certain family events and medical emergencies.
Internal Revenue Code
Federal tax law heavily influences the design of most employee benefit arrangements. The assets of qualified plans are generally exempt from taxation until distributed. Nonqualified plans, used chiefly for executive compensation, must obey special tax provisions such as 409A to avoid tax penalties. A variety of tax code provisions give special tax benefits to health and welfare plans that meet IRC requirements. One of the most important provisions is Code section 105(h).
A number of federal agencies have the authority to regulate various aspects of employee benefits, including the Department of Labor, the Treasury Department, the Department of Health and Human Services, and quasi-governmental bodies such as the PBGC.
Although many state laws relating to benefits are preempted by ERISA, state law continues to play an important role in many situations. In particular, states retain authority to regulate insurers and third-party administrators on which many employee benefits plans rely.
See State Insurance Laws.
See State Trust Laws.
Types of Employee Benefit Plans and Arrangements
There are dozens of types of employee benefit plans and arrangements, ranging from complicate multiemployer pension plans to bicycle commuting benefit arrangements. ERISA divides benefit plans into two main groups: pension plans and welfare plans.
Correcting Plan Errors
It is rare for a benefit plan to be operated perfectly. Many benefit plan errors can be remedied informally if detected quickly. Others may require the use of government correction programs to avoid fines, penalties, or adverse tax consequences to employers or participants. See Correcting Plan Errors.