Academic journal article South Dakota Law Review

Enforcing ERISA

Academic journal article South Dakota Law Review

Enforcing ERISA

Article excerpt

I. INTRODUCTION

When ERISA was passed in 1974, it was heralded as a landmark statute that would protect the economic security of millions of Americans--largely through extensive regulation of pension plans. Since then, the statute has also become a primary source of health insurance regulation.

The substantive rules created by ERISA are largely enforced through civil litigation--i.e., an aggrieved party can sue pursuant to a private right of action created by the statute. Over the years, the civil enforcement provisions of ERISA have been described as comprehensive and reticulated. In truth, however, they are unclear, incomplete, and outdated. As such, the contours of civil enforcement under ERISA have been determined largely by a series of important Supreme Court decisions that are often described as placing "judicial glosses" on the statute. (1)

In this commentary, we outline the extent to which our nation's retirement and health policy is being shaped by the Court. And we suggest that, irrespective of one's position regarding substantive regulatory policy, there is strong reason to desire a thoughtful legislative response.

II. ERISA BASICS: PLANS AND RULES

As its name indicates, the Employee Retirement Income Security Act of 1974 ("ERISA") (2) was born out of concern over pension security. (3) It was prompted by the collapse of the pension plans of several high profile corporations (notably Studebaker). (4) Although the statute was passed with the primary aim of protecting employees' pension benefits, it was drafted broadly to cover most private-sector employee benefit plans. (5) Because such benefits (e.g., health insurance, life insurance, severance pay) now comprise a major portion of compensation, the scope of ERISA is enormous. (6) In this section, we provide some important background on (1) the three major types of "plans" regulated by ERISA and (2) the basic ERISA rules that govern each type of plan.

A. ERISA PLANS

Subject to limited exceptions, (7) ERISA regulates all employee benefit plans. (8) According to the statute, these plans come in two varieties: "welfare" and "pension." (9) A welfare plan is defined as "any plan, fund, or program ... established or maintained by an employer" that "provid[es] ... medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment...." (10) It is difficult to overstate the importance of such plans today. (11) For example, most private health insurance in the United States today is provided through ERISA-governed welfare plans. (12)

A pension plan is defined by ERISA as "any plan, fund, or program ... established or maintained by an employer" that "provides retirement income" or "results in a deferral of income by employees...." (13) The statute expressly divides all pension plans into two further categories: "defined benefit" and "defined contribution." (14) A defined benefit plan is what most lay observers think of as a traditional pension. These plans typically provide participants with a monthly payment over a period of years, usually for life, after retirement. (15) And the benefit amount is customarily calculated pursuant to a formula that takes into account the participant's years of service and compensation. (16) A defined contribution plan is, in simple terms, a "tax-preferred savings account[]." (17) Unlike a defined benefit plan, a defined contribution plan does not promise a specific amount of benefits at retirement. Instead, an employee who participates in a defined contribution plan is assigned an individual account within the plan to which money is contributed by the employee, her employer, or both. (18) The most common type of defined contribution plan in America today is what lay observers refer to as a 401(k) plan. (19)

B. ERISA RULES

Generally speaking, the regulatory system created by ERISA can be understood as operating at three levels. …

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