Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Employee Retirement Income Security Act of 1974 (ERISA)

What it is:

Th Employee Retirement Income Security Act of 1974 (ERISA) is an American federal statute that protects the retirement assets of Americans by establishing a set of rules that must be followed by fiduciaries to prevent misuse of plan assets.

How it works (Example):

Title I of ERISA deals with protecting employee benefit rights. It ensures that participants are provided with plan summaries and that employers disclose information about the investments affecting the plan and act in the participant’s best interest. Furthermore, no more than 10% of the plan’s assets may be invested in employer securities. Title II amends the Internal Revenue Code (IRC) by adding various requirements for a pension plan to qualify for tax-exempt status, as well as creating individual retirement accounts (IRAs) and imposing an excise tax on the employer if they fail to make a required contribution to a pension plan. Title III deals with coordination efforts between the Labor and Treasury Departments in enforcing ERISA, and Title IV covers plan termination and insurance.    

Why it Matters:

Passed in the aftermath of dubious practices by some pension managers, ERISA protects the interests of employee benefit plan participants and their beneficiaries, establishes standards of conduct for plan fiduciaries, and provides appropriate remedies and access to the federal courts.