If you are the employee of a private-sector company, chances are you are affected by ERISA. You may have heard the name before, and you may even be familiar with what it is and how it works. However, many employees who are affected by it every day are still unaware of how it does so.
ERISA is short for the Employee Retirement Income Security Act of 1974. It is a piece of legislation which provides minimum standards regarding company-run pension plans and dictates how federal income tax affects benefit packages. It was created to provide employees with a degree of retirement-plan protection, and to regulate a field that involves millions of Americans.
Under ERISA, companies are not legally required to provide pension plans for their employees. It also does not require that companies provide a certain level of benefits. However, the law does set certain standards for companies that do have such programs.
For example, there must be a vesting option for employees. After a certain number of years on the job, their pension plan must mature. Additionally, employers who choose to offer such programs must meet certain minimum thresholds.
Employee vesting allows workers to take advantage of such programs after a relatively short period of employment. Usually, one becomes fully vested after three years, or after a two-six year graded schedule.
As with the pension programs, ERISA does not mandate that a company provide its workers with health-insurance coverage. However, it does establish rules for operating a health plan if the company decides to establish one.