Employee Retirement Income Security Act of 1974 (ERISA)

Written By
Paul Tracy
Updated September 30, 2020

What is the Employee Retirement Income Security Act of 1974 (ERISA)?

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 Does the Employee Retirement Income Security Act of 1974 (ERISA) Work?

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 Does the Employee Retirement Income Security Act of 1974 (ERISA) Matter?

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.