ERISA, or the Employee Retirement Income Security Act of 1974, is a complex set of regulations meant to protect employees with private industry health and retirement plans and savings. These set of regulations apply to common employee retirement plans like 401(k)s, 403(b)s and more. ERISA sets the minimum standards for pension plans and ensures that employers manage funds in the employees’ best interest.
As a business or fiduciary in charge of a benefit plan, it’s crucial to remain compliant with ERISA to avoid tax penalties or unlawful conduct.
Everybody has an estate, regardless of their net worth. This figure represents the net property and money owned by a person at their death. Fortunately, most people, aside from high net worth individuals won’t have to worry about estate taxes as the unified credit is currently $11.4 million per individual. This means that a person can gift or hold a gross estate less than this figure and not pay a cent in estate taxes!
However, any estate, no matter how small, might have to go through probate. If an estate doesn’t take the right measures to protect its legacy, the government subjects it to a probate process. This expensive, timely process lets the government decide how the assets are distributed. Therefore, it makes sense to consider establishing a trust to protect estates from probate.
Trusts can have many variations, but the most common one is a revocable living trust. This trust is in effect during the grantor’s life and can help distribute assets, control property, and allow trusted people, or trustees, to manage it.
Trusts and estates are intricate estate planning items that can affect your financial fitness. ERISA can greatly impact these estate planning topics, especially when it comes to compliance, document drafting, and administration. The ERISA attorneys at Brucker & Morra are highly versed with drafting trust and estate documents and understand how ERISA can impact these. We can help you name trustees and executors and draft compliant documents and agreements.
Bankruptcy is a misunderstood and feared term. Essentially, a company or individual declares bankruptcy when they hold fewer assets and high debts. This process can potentially help the debtor start over but not fully without consequence. Some bankruptcies will devastate credit, reputations and even employment opportunities.
The two main types of bankruptcy are chapter 7 and chapter 13. Chapter 7 is meant for debtors in dire straits and strips away any unsecured debts, like credit card debt and medical debt. Chapter 13 is meant for individuals who make a regular income and can pay a portion of the debt within a repayment plan.
Fortunately, your employer retirement plan is protected by ERISA should you or your employer ever declare bankruptcy. Creditors cannot go after these ERISA plans based on this federal protection.
Unfortunately, many people have cashed out these plans to prevent a bankruptcy – which could trigger a 10% withdrawal penalty, income taxes and derail retirement nest eggs.
A 412(i) Pension plan is a defined benefit plan meant for small businesses. It has some similarities to a 401(k), but it can only be funded through annuities and life insurance. Since the required annual premiums can be higher, generally smaller, profitable businesses should consider this plan. If a company has consistent profits, a 412(i)pension plan could be a good fit as these retirement benefits are guaranteed like all annuity payments.
Like all employee retirement plans, a 412(i) is protected by ERISA. Unlike other employee plans invested in the stock market, these plans shift responsibility to an insurance company. Therefore, the insurance company doesn’t have the fiduciary responsibility under ERISA. This means that an insurance company doesn’t have to keep its investors’ best interests in mind, unlike a fiduciary in a stock funded plan like a 401(k).
419 benefit plans are rare, intricate employer-sponsored plans that provide life, health, disability, long-term care and post-retirement medical insurance. These plans combine target contributions and benefits intended to make an employee’s post-retirement life stable.
Since these plans are so complex, an actuary is required prior to creating one. These plans can supplement an employer’s existing benefits like life insurance. For example, post-retirement disability can be added under this plan and these assets are protected from creditors.
ERISA protects these plans and the IRS holds 419 benefit plans under high scrutiny. Many specific rules must be followed, including funding from only term life insurance. Also, all employees must be covered, and tax deductions must be precisely calculated by actuaries. Under no circumstances can the employee benefits revert back to the employer. These plans must be written with great detail and any issues should be referred to an ERISA attorney.
Unfortunately, retirement assets and pensions commonly get divided during a divorce. A qualified domestic relations order (QDRO) determines the joint marital ownership in the plan.
The orders must be issued at the state level and are reviewed by administrators for compliance with ERISA. QDROs can be written into the divorce decree. A pension lawyer and ERISA law firm can help draft pre and post nuptial agreement to protect earned retirement plans. If facing a divorce law case, we can also provide expert testimony on a client’s behalf.
Understanding and complying with ERISA can be challenging, especially when encountering financial difficulties or confusing fiduciary duties. Consulting with a specialized ERISA expert witness or ERISA lawyer at Brucker & Morra can help clients with their case to avoid litigation and unfair violations of benefit plans.
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