The Employee Retirement Income Security Act (ERISA) was enacted in 1974 to protect the rights of employees under retirement plans offered by their employers.

In addition to safeguarding retirement funds from employer mismanagement, ERISA requirements also cover the following:

  • Fiduciary responsibility - the plan's trustee must manage plan assets and make decisions in the best interests of the plan participants. The trustee cannot sell assets to the plan or earn commissions from plan investments. Also, plan assets must be kept separate from company assets. Regarding investment options under ERISA:

    • Fiduciaries for the plan must follow the Prudent Investor standard discussed in the Handling Client Funds section.

    • Sufficient investment options must be available under the plan so that plan participants can create an adequately diversified portfolio.

    • An investment policy statement is recommended to serve as a guideline for investment decisions to be made. The statement may include comments on risk tolerance, investment philosophy, time horizons, asset classes and expectations regarding rates of return.


      Look Out!
      It is essential for an IA to understand investment policy statements. Either the plan participants or the plan trustees may sue an IA who does not follow the guidelines of this statement. The IA could be liable for breach of fiduciary duty, even if the plan assets have outperformed the market.

  • Nondiscrimination - all plan participants must be treated equally under the plan, and highly compensated employees must not benefit to a greater degree than non-highly compensated employees.

  • Vesting - plan benefits may require a vesting period before the employee earns the right to the benefit if he/she leaves the company. ERISA regulations limit the length of such a vesting period to a reasonable schedule.

Not all employer plans are subject to ERISA. For example, governmental retirement plans are exempt from ERISA requirements. IRAs are not subject to ERISA, since an IRA is not considered an employer plan. Also, nonqualified plans, which do not qualify for tax-deductible contributions, are not subject to ERISA.



Nonqualified Retirement Plans

Related Articles
  1. Financial Advisor

    Are You ERISA Compliant? Follow This Checklist

    Following a checklist can make achieving compliance with Employee Retirement Income Security Act of 1974 (ERISA) requirements much less burdensome.
  2. Investing

    401(k) Lawsuits: How Employers Are Protecting Themselves

    Some companies are making it harder for employees to sue over retirement fund problems. Here is what you need to know about the trend.
  3. Retirement

    403(b)s Among Plans Not Covered by New Fiduciary Rule

    Some retirement plans, including 403(b)s, are not covered by the DOL's new fiduciary rule. Here's what it means.
  4. Financial Advisor

    How Do Pension Funds Work?

    Traditional private pension funds are well regulated by the government through ERISA and the PBGC. Alternative investments are aiding portfolio returns.
  5. Retirement

    Why Retirement Plan Sponsors Could Face Litigation

    A Supreme Court decision makes it easier for retirement plan participants to sue their employers. Apathy is not a strategy for plan sponsors.
  6. Retirement

    New Rule Opens Door for State-Run Retirement Savings Plans

    The Department of Labor is enticing state governments to set up state-run retirement plans for private-sector workers, but some aren't happy with how.
  7. Retirement

    What You Should Know About the New Fiduciary Rule

    These key questions and answers clarify the DOL's new fiduciary rule and how it impacts individual investors saving for retirement.
  8. Financial Advisor

    4 Compensation Plans for Wealthy Earners

    Here's what advisors need to know about non-qualified deferred compensation plans.
  9. Financial Advisor

    How to Follow Investment Committee Best Practices

    More plan sponsors are forming investment committees to fortify their fiduciary standards. These are best practices for investment committees to follow.
  10. Retirement

    Do You Have a Crummy 401(k)?

    High-cost, outdated plans can keep your retirement portfolio from thriving. Here's what to do – and the 2015 Supreme Court case that could help.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center