Which Retirement Accounts Does ERISA Cover?

The Employee Retirement Income Security Act (ERISA) was passed in order to protect Americans' retirement savings plans. But do you know which ones? First, let's test your knowledge.

Which of the following accounts does ERISA cover?

A. Individual Retirement Account (IRA)

B. State employee pension plan

C. Corporate defined-benefit plan

D. Coverdell savings account

And the Answer Is...

The correct answer is "C." ERISA covers most employer-sponsored retirement plans. But public employee plans, such as the state pension plan in answer "B," are exempt from coverage.

Nor is the IRA, the "A" choice above. An individual retirement account is not offered by an employer and is exempt from ERISA.

As for choice "D," we cheated: A Coverdell savings account is a college savings account, not a retirement plan.

Accounts Covered by ERISA

ERISA was enacted in 1974 to protect the retirement income of workers by holding the fiduciaries of plans accountable to certain standards and rules.

ERISA can cover both defined-benefit and defined-contribution plans offered by employers. Common types of employer-sponsored retirement accounts that fall under ERISA include 401(k) plans, pensions, deferred-compensation plans, and profit-sharing plans.

It does not cover retirement plans set up and administered by government entities and churches, such as many 403(b) plans.

In addition, ERISA laws don't apply to Simplified employee pensions (SEPs) or, as mentioned above, IRAs.

ERISA also covers some non-retirement accounts such as employee health and welfare benefit plans. Some common examples include health maintenance organization (HMO) plans, health reimbursement accounts (HRAs), flexible spending accounts (FSAs), disability insurance, life insurance, and certain welfare benefit plans.

ERISA Requirements

Plans covered under ERISA are often referred to as qualified plans. In order to qualify under ERISA, plan sponsors must meet a number of federal requirements regarding funding, vesting, participation, and the accrual of benefits.

Plan sponsors must also give detailed reports to the government. In addition, they are required to provide plan participants with documents detailing how the plan works and the benefits it offers.

The Employee Benefits Security Administration, a unit of the Department of Labor (DOL), oversees and administers ERISA.

ERISA Protections

In addition to keeping participants informed of their rights, ERISA also grants participants the right to sue for benefits and breaches of fiduciary duty.

To ensure that participants do not lose their retirement contributions if a defined plan is terminated, ERISA guarantees payment of certain benefits through a federally chartered corporation known as the Pension Benefit Guaranty Corporation.

The Bottom Line

ERISA was implemented to protect the retirement plan assets of workers. It covers most employer-sponsored plans in the private sector. If you are unsure whether or not your plan qualifies under ERISA, contact its administrator.