In the 50th year of the Employee Retirement Income Security Act of 1974 (ERISA), we're highlighting some important aspects of ERISA compliance.

From fostering a workplace culture centered on supporting the physical, emotional, career and financial wellbeing of employees, to ensuring that benefit programs are compliant with local, state and federal requirements, effectively protecting the wellbeing of your employees connects directly to protecting the wellbeing of your organization overall.

Compliance Connections delivers actionable guidance designed to help you manage and optimize the connections between the compliance of your benefits and human resources programs to overall organizational wellbeing.

In the 50th year of the Employee Retirement Income Security Act of 1974 (ERISA), we're highlighting some important aspects of ERISA compliance. While ERISA compliance is nothing new, even the most experienced plan sponsors can overlook things.

In this edition, we point out various ERISA compliance issues for your consideration. This is the tip of the iceberg, though, so please work with your trusted advisors to ensure full compliance with this fundamental employee benefits law.

1. Know whether you're subject to ERISA

ERISA applies to any health and welfare benefit plan established or maintained by an employer engaged in commerce or affecting commerce, by any employee organization representing employees engaged in commerce or affecting commerce, or by both. The definition of "affecting commerce" historically has been interpreted broadly, so that virtually every employer would be said to affect commerce under the case law, including corporations, partnerships, limited liability companies, sole proprietorships and most tax-exempt organizations. Some organizations are exempt from ERISA, including governmental plans, church plans and Indian tribal government plans. Understanding whether your organization is subject to ERISA is fundamental to ERISA compliance.

Do you know whether your organization is subject to ERISA?

2. Ensure you have a comprehensive and compliant written plan document

Plans subject to ERISA must be established and maintained pursuant to a written instrument. Having a written plan document is important to ensure compliance with ERISA in general, but it's also necessary because, as discussed below, the plan fiduciary has an obligation to administer the plan according to its written instrument. The plan document provides the framework within which the plan is administered. Although ERISA doesn't require that a plan document take a specific form, it does define the core elements that must be included, such as a named fiduciary, funding policy, claims and appeals information, and amendment procedures. This aspect of compliance is often overlooked, because many employers are unaware of the plan document requirement or are under the mistaken impression that it doesn't apply to them for various reasons. All ERISA plans, regardless of type of employer or size of plan, must have a plan document.

Do you have a compliant ERISA plan document?

3. Understand ERISA reporting and disclosure requirements

ERISA plans are subject to a number of reporting and disclosure requirements. The primary reporting requirement is the filing of Form 5500, which reports administrative and financial information to the Employee Benefit Security Administration (EBSA). The ERISA disclosure rules require plan sponsors to share certain information with participants on a regular basis and upon certain events, and with the Un Department of Labor (DOL), upon request. The primary disclosures are the summary plan description (SPD), which is written in plain language and informs participants and beneficiaries of their benefits, rights, and obligations under the plan, and summaries of material modification (SMM), which describe changes made to the plan. Both are subject to specific timing requirements.

How are you ensuring you're meeting ERISA reporting and disclosure requirements?

4. Ensure your SPD and SMM delivery method is compliant

ERISA requires SPDs and SMMs to be distributed to covered participants in a manner that's reasonably calculated to ensure the participant actually receives the material. Compliant methods include hand delivery and mail. Electronic disclosure is also permitted for employees who have access to the employer's electronic system as an integral part of their job, if specific requirements are met. For employees and other plan participants who don't have access to the employer's electronic system as an integral part of their job, plan sponsors may obtain consent to disclose electronically. Most employers rely on electronic delivery at this point, so understanding the rules around that method of disclosure is important.

Have you ensured you're delivering your SPDs and other disclosures in a manner reasonably calculated to ensure receipt?

5. Stay aware of ERISA fiduciary obligations

ERISA requires a fiduciary to follow fundamental rules in administering an ERISA plan. These duties fall into four categories: the duty of loyalty (the "exclusive benefit rule"), the duty of prudence, the duty to diversify and the plan document rule:

  • The exclusive benefit rule requires the plan fiduciary to discharge its duties solely in the interests of plan participants and for the exclusive purpose of providing benefits under the plan and defraying reasonable expenses of administering the plan.
  • The duty of prudence requires a fiduciary to act with the care, skill, prudence and diligence, under the prevailing circumstances, of a prudent person acting in a similar situation, who's familiar with such matters.
  • Under the duty to diversify, if a plan has investments, a plan fiduciary must diversify those investments to minimize the risk of large losses, unless under the particular circumstances it's clearly prudent not to do so.
  • The plan document rule requires the fiduciary to discharge all duties in accordance with the terms of the plan documents, to the extent that the duties are consistent with applicable law.

These duties provide a framework within which fiduciaries must act when discharging their duties with respect to a plan, and understanding these duties is crucial to proper plan administration.

Are your fiduciaries educated on their obligations?

This is a preview edition of Compliance Connections, a quarterly publication produced by Gallagher's Compliance Consulting practice. For five more action steps, contact your Gallagher representative.

Compliance is a series of actions, not a final destination. As a trusted advisor, Gallagher has developed this Compliance Connections series to help you pursue a path through employee benefits compliance issues as part of an overall continuing compliance plan. Employers should carefully evaluate their health and welfare plans to determine if they are in compliance with both federal and state law. If you have any questions about one or more of the compliance requirements listed above, or would like additional information on how Gallagher constantly monitors laws and regulations impacting employee benefits in order to support employers in their compliance efforts, please contact your Gallagher representative.


The intent of this analysis is to provide you with general information. It does not necessarily fully address all your organization's specific issues. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues should be addressed by your organization's general counsel or an attorney who specializes in this practice area.