Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, a Certified Public Accountant and Utah-licensed attorney. For over thirteen years, I have assisted clients with estate planning and administration, tax mitigation, tax controversies, small business planning, asset protection, and nonprofit law.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Benefits Governed by ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) was passed to protect employee benefit plans and require disclosures pertaining to such plans. With certain exceptions, ERISA governs any employee benefit plan that is established or maintained by an employer or employee organization. An "employee benefit plan" refers to a plan, fund, or program that provides ERISA-type benefits.

In summary, five elements must be present in order for an ERISA plan to exist: (1) a plan, fund, or program (2) that is established or maintained (3) by an employer or employee organization (4) for the purpose of providing ERISA-type benefits (5) to participants or their beneficiaries. See Moorman v. UnumProvident Corp., 464 F.3d 1260 (11th Cir. 2006).

Not all employee benefits rise to the level of a "plan, fund, or program." For example, a informal employer practice, which isn't communicated to employees, of providing benefits to long-time employees after retiring may not constitute a plan, fund, or program. The test is whether "a reasonable person could ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits."

A number of factors are used in determining whether a bona-fide plan or program has been "established or maintained" by an organization. These include "(1) the employer's representations in internally distributed documents; (2) the employer's oral representations; (3) the employer's establishment of a fund to pay benefits; (4) actual payment of benefits; (5) the employer's deliberate failure to correct known perceptions of a plan's existence; (6) the reasonable understanding of employees; and (7) the employer's intent."

Some organizations can establish and maintain a plan to provide ERISA-type benefits without actually creating an ERISA employee benefit plan if the organization is not an employer or employee organization. Where there are no actual employees receiving benefits, such as a partnership providing benefits solely to its non-employee partners, there is no ERISA plan. An employee organization is one in which the employees/members participate and which exists for the purpose, in whole or in part, of dealing with the employees' employer.

"ERISA-type benefits" include (1) retirement income to employees or deferred income beyond employment and/or (2) certain other benefits, most notably insurance. Such employee benefit plans are referred to respectively under ERISA as (1) pension benefit plans and (2) welfare benefit plans, with the former having significantly more requirements under the law. Finally, as referenced earlier, no ERISA plan exists without a defined class of beneficiaries that include at least some employees.

Employers should be aware of these rules in order to avoid inadvertently creating an ERISA plan. It is worth noting, however, that because ERISA preempts state law, it is often preferable for an employer to have an ERISA plan depending on the situation. Such questions can be answered by a competent benefits attorney.