It's no secret that one of the ways companies try to cut costs is through layoffs. Another method, which can be just as disruptive to employees, is by reducing pensions and other benefits earned while working for the employer. From well-known companies to state governments, retirement benefits seem to be a favorite target, and provisions in President Trump's proposed budget are also raising fears that retired federal employees would see their benefits shrink drastically over time.
The Employee Retirement Income Security Act
Media reports or even rumors within a company regarding cuts to retirement benefits might leave many employees, retirees, and those contemplating retirement, - justifiably worried. What they should know is that the federal Employee Retirement Income Security Act (ERISA) provides protections to workers while they are employed, and when they retire.
ERISA does not force a private company to provide a minimum level of retirement benefits. Once an employer does institute such benefits, however, the law governs how they are administered and paid. Retirement benefits can take many forms, including defined contribution plans, defined benefit plans, and health insurance.
Essentially, ERISA is there to protect the money employees contribute to employer-sponsored retirement plans. A few of its key provisions include:
- How long an employee must work before they are eligible for inclusion in the plan, and how long they have to be in the plan before their contribution is non-forfeitable.
- The rights of a spouse to the benefit in the case of the employee's death.
- Employers must provide adequate funding for the plan.
- Participants must have access to detailed information about the plan and any restrictions, and must be informed of any updates or changes.
- After they are vested, participants do not lose any of the money they have contributed.
- If a defined plan is terminated, certain benefits must still be paid via the federal Pension Benefit Guaranty Corporation.
In addition to these provisions, ERISA also allows employees to sue an employer for breaching obligations to the plan and its participants, and claims can be resolved through litigation or arbitration.
ERISA and Retirees
As participants in employer-sponsored retirement benefits, retirees also have rights under ERISA.
For example, an employer cannot change a plan in a way that reduces benefits already accrued by participants. This includes optional benefits as well as early retirement benefits.
Under ERISA, companies are allowed to reduce benefits as long as it is done in a way that is outlined in the plan documents and any other contracts, such as collective bargaining agreements. A change or reduction that is not provided for in existing language could be a violation of ERISA and give participants, including retirees, a potential cause of action against the employer.
For example, a group of credit union retirees in Texas recently launched an ERISA suit against their former employer alleging they were promised retirement benefits for life. The suit claims they were given "written representations" that confirmed this. The retirees contend the credit union has not lived up to those commitments.
Retirees have the right to expect the benefits they have accrued will not be affected if an employer makes changes to a plan. Likewise, changes cannot be made that in any way contradict a plan's documents or other contracts.
A Word about Health Care - And New Uncertainties
As with pension plans, there are ERISA provisions that also govern retirement health care benefits if they are offered by an employer. Unlike pension plans, employers are allowed to alter health care plans at any time. ERISA does mandate a specific procedure for amending health care plans, however, and any vested benefits must be maintained.
There is also significant concern regarding the impact of any legislation that replaces the Affordable Care Act, also known as Obamacare. The Senate bill released in June includes worrisome provisions that would allow employers to mandate lifetime coverage caps, for example, that would significantly impact retirees with increasing health issues.
It remains to be seen what version of health care reform makes it into law. Retirees already worried about cuts to their pension benefits, however, should be concerned that their health insurance could also be under threat.
Know Your ERISA Rights
For retirees worried about the future of their retirement benefits, knowledge and information are the best weapons. You should understand your plan documents and how any changes or other contracts affect you. This will determine what your employer can and cannot do under ERISA.
The law also provides remedies for both employees and retirees if employers act in a way that violates their responsibilities under ERISA. Participants have the legal right to bring a lawsuit or pursue resolution through arbitration.
When assessing options, it is often helpful to discuss a situation with an experienced employment lawyer who understands the intricacies of ERISA and can apply that knowledge to your retirement benefits plan.