How Does ERISA Influence My Retirement Plans in Florida?

ERISA is the system of federal laws that govern the health insurance, disability, and pension plans that employers can offer in the US.

Since it is federal law, the rules governing plans under ERISA are essentially the same in every state. However, not every plan falls under ERISA, and states can make rules governing some aspects of insurance and retirement plans.

It’s a good idea to learn more about how ERISA works, especially for those of us who have disability claims as well as retirement plans—and any one of us may have a disability claim someday.

What is ERISA and What Qualifies?

ERISA—the Employee Retirement Income Security Act of 1974—creates minimum federal standards for most health and retirement plans offered by private employers in the US. The Employee Benefits Security Administration (EBSA), an agency of the Department of Labor, oversees ERISA compliance.

ERISA applies to the following types of benefits that private employers may offer:

• Health insurance, including vision and dental
• Disability insurance
• Pension plans, such as 401(k) plans
• Certain severance contracts

However, it does not apply to:

• Plans for state and federal government employees
• Church plans—those maintained by a tax-exempt church or by an association of churches for their employees—unless the church elects to comply with ERISA
• Plans for employees outside the US, if they are primarily for the benefit of nonresident alien workers
• Unfunded excess benefit plans (such as deferred compensation plans or stock option plans)

Employers’ Obligations Under ERISA

Under ERISA, employers who choose to offer benefits must maintain specific standards, both in the plans they offer and in their administration of those plans. Employers, especially small employers, generally allow professionals to oversee and manage these responsibilities.

Those who are responsible for the benefit plans have fiduciary responsibilities to the employee plan members. This means that they are legally required to behave responsibly towards the employees’ investments and benefits. Fiduciary responsibilities toward benefit plan members include:

• Acting prudently on the members’ behalf
• Diversifying investments to minimize risk
• Complying with plan documents (where they are consistent with laws and regulations)
• Avoiding conflicts of interest 

Retirement plan administrators are fiduciaries. They must provide “the most important facts [plan participants] need to know about their retirement and health benefit plans including plan rules, financial information, and documents on the operation and management of the plan.” This includes a summary plan description (SPD) and a summary of benefits and coverage (SBC).

After a certain period of service with the employer, the plan’s benefits vest with the employee participants. Participants are entitled to their vested benefits whether or not they continue to work with the employer.

ERISA Retirement and Disability

Those with severe or long-term disabilities may want to retire early. However, ERISA retirement plans each have regulations determining the earliest possible retirement age. Before the age of 59½, a withdrawal from a qualified retirement plan is subject to a penalty—a 10% tax on the amount includible in gross income.

There are certain exceptions to this rule, and the IRS does provide one for those who are disabled. However, they limit it to those who are “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.” See 29 USC 72(m)(7).

As you can imagine, proving disability to the IRS can be difficult. If you are theoretically able to engage in any “substantial gainful activity,” regardless of the realities of your situation, it can fail.

Some retirement plans allow early hardship distributions without a tax penalty, but a disability may not qualify for such distributions, especially if the participant also has disability insurance. Reviewing your options with an expert can help determine what kind of hardship could qualify for an early distribution.

Your retirement benefits under a private ERISA plan will not affect any Social Security disability insurance (SSDI) payments. However, long-term disability insurance may require you to apply for SSDI and reduce its payments to match SSDI payments. This is a complex and painful area of law, and SSDI is notoriously difficult to qualify for, even when a disability is obvious.

It is vital to work with an attorney to submit your disability insurance application, both to help boost your chances of success and to understand how to maximize the resources you can legally maintain while receiving SSDI.

Defending Your Future

ERISA was intended to protect workers and retirees, but in practice, it makes life easier for insurers. Relying on what you’ve been told and filing claims without guidance can endanger your benefits and your ability to retire. Since the law isn’t on your side—and the companies certainly aren’t either—you need an advocate who lives in your state and understands your needs.

Attorney Nancy Cavey knows from experience what it’s like to face an uncertain future when you had believed your retirement plans were secure. Today, she fights to defend the rights of disability claimants and retirees. Our office looks forward to helping you with your claims under ERISA. Contact us at our St. Petersburg office to schedule your free consultation—call 727-477-3263 today.