ERISA

ERISA — the Employee Retirement Income Security Act of 1974 — is the federal law that governs employer-sponsored retirement and welfare benefit plans in the private sector. Congress passed it after several high-profile pension failures left long-tenured workers with nothing, and its purpose is to make sure promised benefits are actually there when employees retire.

ERISA sets minimum standards in several areas. Participation rules define who must be allowed into a plan (for example, employees meeting age and service thresholds such as 1,000 hours in a year). Vesting schedules cap how long an employer can delay giving workers full ownership of employer contributions. Funding rules require plans to set aside enough money to pay benefits, held in a trust separate from company assets. Reporting and disclosure rules entitle participants to plain-language plan documents and regular statements.

The law also imposes a strict fiduciary standard: anyone who manages plan assets or exercises discretion over the plan must act solely in the interest of participants and beneficiaries, prudently and with diversification. Nondiscrimination rules prevent plans from favoring highly compensated employees. Notably, ERISA covers private-sector plans — government and most church plans are exempt, and simply having an IRA does not bring you under ERISA.

ERISA appears throughout licensing exams. Life and health insurance exams test its corporate retirement plan standards and distribution rules, while the Series 65 tests ERISA fiduciary duties and plan rules within retirement planning. Know what ERISA covers, who it exempts, and the core participation, vesting, and fiduciary standards.