Employee Retirement Income Securities Act
Kristin Randolph
Bus4044
March 11, 2012
Instructor: Laura Sankovich
Abstract
Pepsico has a set of values that states a commitment to delivering sustained growth through empowered people acting responsibly and building trust. Part of building trust within the company is following governing policies when it comes to legal requirements of the Employee Retirement Income Securities Act. Legal cases and current economic situations are a cause for concern and an implementation of a program to help comply with the Employee Retirement Income Securities Act is vital to continue Pepsico's additional values of sustained growth, empowering people, and restoring responsibility and trust within the company during a difficult economy.
History of ERISA
Prior to the Employee Retirement Income Securities Act of 1974, also known as ERISA, employers and unions were free to establish pension plans that were not secure. It was common for pension plans to require employees to establish a lengthy service to the employer before they vested in their retirement benefits. It was also common to meet an age requirement. Worse, "if a plan's obligations were not fully funded, it would default if the sponsoring employer went out of business or otherwise ceased to support the plan (Wooten, 2006)." "In passing ERISA, Congress meant to make the security of pension promises a basic goal of federal policy (Wooten, 2006)." Since the passing of ERISA, companies would fund plans more rapidly and if they were unable to fulfill their obligation to their employees, the guaranty program would step in to pay participants their benefits. Also, if employees began vesting earlier, they would have lessened chances of forfeiting their pension due to being laid off or fired.
Responsibilities of Companies under ERISA
"The Employee Retirement Income Security Act of 1974 (ERISA) regulates employee benefits, including retirement and pension plans and health care, disability, accident and death benefits. Though other federal laws affect employee benefits (e.g., the FMLA and COBRA), ERISA is the most significant federal statute regulating employee benefit plans (ERISA primary law, 2011)." Companies are not necessarily required to offer benefits such as health insurance, however if they do offer coverage they are required to notify their employers of the availability. "Part 1 of Title I requires the administrator of an employee benefit plan to furnish participants and beneficiaries with a summary plan description (SPD), clearly describing their rights, benefits and responsibilities under the plan. Plan administrators must also furnish participants with a summary of any material changes to the plan or changes to the information contained in the SPD (shrm.org)."
There are consequences for employers in violation of the ERISA. "Through its enforcement of the Employee Retirement Income Security Act, the Employee Benefits Security Administration (EBSA) is responsible for ensuring the integrity of the private employee benefit plan system in the United States. EBSA's oversight authority extends to over 708,000 retirement plans, 2.8 million health plans, and a similar number of other welfare benefit plans, such as those providing life or disability insurance. These plans cover about 150 million workers and their dependents and include assets over $5 trillion (dol.gov)."
Employee Rights under ERISA
"ERISA sets uniform minimum standards to ensure that employee benefit plans are established and maintained in a fair and financially sound manner. In addition, employers have an obligation to provide promised benefits and satisfy ERISA's requirements for managing and administering private retirement and welfare plans (dol.gov)." When an employee is eligible for a retirement plan it should be explained to the employee the types of retirement plans offered. "Each retirement plan is required to have a formal, written plan document that details how it operates and its requirements (dol.gov)." Along with this, "there is also a booklet that describes the key plan rules, called the Summary Plan Description (SPD), which should be much easier to read and understand. The SPD also should include a summary of any material changes to the plan or to the information required to be in the SPD (dol.gov)."
"Employers are not required by law to provide health and welfare benefits to employees. Many employers (especially large employers) do however provide insurance to employees, usually through a group plan. In a group insurance plan, the people who belong to the group are entitled to the benefits that the insurance plan provides (las-elc.org)." Once an employer chooses to offer health benefits to employees the employee must tread lightly on coverage for employers. An employee type can be excluded such as their line of business but cannot discriminate individually. "If an employee is entitled to participate in an employer-provided health benefits plan under ERISA, an employer may not wrongfully deny participation. (For example, an employer cannot deny health insurance benefits to workers' based on their national origin.) To qualify as an employee entitled to benefits under ERISA, an individual must be classified as an employee, not a temporary worker or independent contractor and must be eligible to receive benefits according to the terms of the plan (las-elc.org)."
Employment Demographics
The employer provided health insurance benefits have been on the decline over the years. Since 2008 the decline has been steady dropping lastly being reported though Gallup at 45% insured through employer-based insurance and thus showing an increase of uninsured to 16.6% in 2011 (Mendes, 2011). This could be due to the rise in insurance costs on employers and employees while the pay rate for employees have not adjusted accordingly. "Employers' spending on health coverage for workers spiked abruptly this year, with the average cost of a family plan rising by 9 percent, triple the growth seen in 2010 (Appleby, 2011)." While the cost of insurance has increased the employee salary has not. "Since 1999, the dollar amount workers contribute toward premiums nationally has grown 168 percent, while their wages have grown by 50 percent (Appleby, 2011)." The Employee Benefits Research institute reported that in 2000 the employers health insurance cost per hour was at 5.9% and within 10 years jumped to 8.4% in 2010 (ebri.org). With rising cost concerns companies are taking into consideration the possibility of no longer providing health care coverage. In a survey done by Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care, "only 23% of companies are very confident they will continue to offer health-care benefits for the next 10 years, down from a peak of 73% in 2007 (Mannino, 2012)."
Defined retirement benefits such as pensions have also decreased as prices have increased and federal requirements have resorted companies to attract employees with investments without a guaranteed payout like 401k. In the 1980's participation in the defined benefits was in the 84% range but over the years had declined and by 2010, participation was down to 30% (ebri.org). "Business groups are urging Congress to let employers put less money into their pension funds, saying that exceptionally low interest rates are forcing them to set aside too much cash (Peterson, 2012)."
Cases of Non-compliance
In Hansen v. Harper Excavating, Inc. Jeffrey Hansen worked for Harper Excavating and attempted to enroll in Harper's ERISA-regulated health insurance plan. Although money was deducted from his paycheck for the plan, "Harper never effectively enrolled him in the plan (Hansen v. Harper, 2011)," and therefore when Hansen fell ill he incurred medical expenses. Due to this negligence by the company, Hansen won the lawsuit.
The U.S. Labor Department is in process of suing By Design Consulting a defunct software business for owing employees almost $26,000 in 401k retirement accounts. "An EBSA investigation uncovered the violations of the Employee Retirement Income Security Act, known as ERISA, the Labor Department reported (Marietta.patch.com, 2012)." "The lawsuit also alleges that the company was slow to make payments to the 401(k) plan, sometimes hanging on to employee contributions for more than a year in the period from May 2005 to April 2009 (Marietta.patch.com, 2012)." In this case, the software company should have employed a committee or executive to foresee that legal obligations were being met and perhaps the company's accounting departments to verify funds were available to place into a 401k plan. If the funds were not available then documentation should have been sent out to employees to notify of 401k disbursement changes so that the financial liability would not have been so great on the fallen company.
Another case, Womack v. Orchids Paper Products Co. 401(k) Savings Plan the employer changed record keepers requiring employees to resubmit new benefit elections to either the new record keeper or to their accounts receivable department for that department to mail off for the employee. "Employee Carolyn Womack elected to submit her investment election and beneficiary designation forms to the company's accounts receivable clerk. Unfortunately, however, the clerk noticed only the beneficiary designation form (which was on top of the investment election form). She therefore failed to send Womack's investment election form to Fidelity. The result was that Womack's new investment directions were not implemented and her account suffered approximately $100,000 in losses (Ash, 2011)."
Program Proposal
An appropriate method of insuring minimal liability in terms of ERISA compliance is to adopt a program that identifies possible issues prior to dates where liability may occur. For example, once an employee is covered by insurance benefits or a pension plan, a summary plan description (SPD) is to be made "automatically to participants within 90 days of becoming covered by the plan and to pension plan beneficiaries within 90 days after first receiving benefits. However, a plan has 120 days after becoming subject to ERISA to distribute the SPD (dol.gov)." With that being known, the employees should be entered into a database noting important dates such as hire date and termination date and when benefits are to become available within specified timeframes can prompt management to obtain the appropriate forms for the employee to complete. If the company supplies health benefits after 90 days of employment, then after 60 days the program prompts the appropriate manager that the employee is to be notified. At this point, the employer goes through a series of steps to check off the items that have been completed for compliance so then the program can begin prompting what forms need to be received and by when. During this time the program will alert the employer when an item is due if the employer has yet to check off that item for completion. If forms need to be sent away, the program will notify the employer where to send the forms and once sent the employer can check of the remaining responsibilities that the employer may have.
Employees will also have responsibilities through this program. This program will offer employees the ability to accept that they have received information for ERISA protected items. The employee will have a unique user id that they will confirm is theirs by signing employer provided documents so that the employee's identity remains secure within the company. They will also create their own password that will only be known to them. Once signed in to the program they can check off the items as they have been communicated and provided. Did the employee receive their Summary Description Plan? Did the employee complete their benefits elections? Most importantly, there will be an option to opt-out of programs. This will benefit the employer so that although everything had been communicated, the employee still chose to opt-out of programs and the employer and employee is clearly communicating with each other. This will send a prompt to the employers program identifying that the employee has opted-out for the current benefit election year and no further action is needed.
By implementing an ERISA tracking program Pepsico will adhere to legal requirements and reduce liability. Also they will adhere to their own values and corporate philosophy. PepsiCo has many values and philosophies that are unique to their employees and part of their philosophy is to, "understand whether today's actions will contribute to our future. It is about the growth of people and company performance (Pepsico.com)," amongst other values shows that there is an importance in their employees. Also, "While adhering to processes that ensure proper governance and being mindful of company needs beyond our own (Pepsico.com)," this goes to show that they value the needs of their employees and these days nothing is more important than health coverage and retirement. Succeeding in meeting these legal requirements establishes a relationship with employees and amongst other aspects of improving employee morale, benefits education "continues to be a reliably effective way to boost workforce satisfaction (Miller, 2011)." By implementing this program PepsiCo can reduce the chances of lawsuits similar to Hansen v. Harper Excavating, Inc and Womack v. Orchids Paper Products Co. and continue to perform under the values and philosophies the company implements.
Resources
(n.d.). Retrieved from U.S. Department of Labor website: http://www.dol.gov/ebsa/aboutebsa/history.html
(2012). Feds sue defunct sofware biz for $26k. Marietta Patch, Retrieved from http://marietta.patch.com/articles/feds-sue-defunct-software-firm-for-26-000
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Ash, G. L. (2011). Society for human resource management. In Retrieved from http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/ERISA_liability.aspx
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U.S. Department of Labor, Employee Benefits Security Administration. (n.d.). Fact sheet: ebsa achieves $1.05 billion in total monetary results in fiscal year 2010. Retrieved from U.S. Department of labor website: http://www.dol.gov/ebsa/newsroom/fsFYagencyresults.html
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