Definition: ERISA (Employee Retirement Income Security Act)
The Employee Retirement Income Security Act of 1974 (ERISA) is a US federal law that defines the minimum standards to be followed by companies in the private sector for designing pension plans for employees. The Employee Benefits Security Administration (EBSA) of US Department of Labor’s (DOL) enforces ERISA.
ERISA, per se, does not require employers to establish a pension plan compulsorily. It only mandates that the existing plans must meet certain basic criteria. The law normally does not specify the exact amount of pension benefit to be paid to the employees; it only outlines the rules involving the same. ERISA directs plans to maintain transparency in terms of providing participants with authentic information regarding the plan, its features and funding. It also defines minimum standards for participation, vesting, benefit accrual, fiduciary accountability and legal redressal mechanism. Basic mandatory minimum standards related to health insurance/ benefits are also covered under ERISA in the same manner. The laws basically are designed to protect employees from mismanagement, exploitation and misuse by employers/ fiduciaries (agents).
In US, employees are guaranteed payment of certain benefits through the Pension Benefit Guaranty Corporation, a federally chartered corporation, even if the defined plan is terminated.