Employment-based retirement plans offer significant advantages to employees over the options individuals might have on their own, with the ability to use otherwise taxable compensation for the purpose of saving for retirement. With the amount of assets directed to employer-based retirement accounts, an important concern is the safe management of those assets and the ability of employees to understand how those assets are administered. The Employee Retirement Income Security Act of 1974 (ERISA), along with various provisions of the Internal Revenue Code, are the primary laws regulating these plans. This article provides an overview of ERISA and describes how the law regulates and helps protect employees’ retirement plans.
To understand the scope and importance of ERISA, it is helpful to consider how private pension plans were regulated prior to its passage. Tax-favored status of employer-based retirement plans has deep roots. Early versions of the 1920s era Revenue Acts permitted employers to deduct pension contributions from income and allowed the funds to grow tax-free. Over time, the law began to require certain disclosures and minimum employee coverage requirements. The U.S. Department of Labor (DOL) eventually became an overseer of the plans, with legislation intended to prevent abuse and mismanagement of funds by employers and unions.
Overview of ERISA
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