ERISA affiliate: Overview, definition, and example
What is an ERISA affiliate?
An ERISA affiliate refers to an organization, company, or entity that is closely related to or controlled by another organization under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA is a federal law that sets standards for private sector employee benefit plans, including pension plans and health insurance. ERISA affiliates are typically companies that are part of the same corporate group, such as subsidiaries, parent companies, or sister companies, and may be subject to certain ERISA-related obligations due to their affiliation with an employer that offers ERISA-covered benefits. These affiliates are often treated as a single employer for the purpose of calculating benefits, funding requirements, and compliance with ERISA regulations.
Why is ERISA affiliate important?
The concept of an ERISA affiliate is important because it determines which entities within a corporate group are responsible for complying with ERISA’s rules and regulations. For example, if a parent company provides an employee benefit plan, its subsidiaries or other affiliated entities may be required to comply with ERISA and its provisions regarding plan administration, funding, reporting, and fiduciary duties. Understanding the status of ERISA affiliates is crucial for ensuring that all involved entities meet their legal obligations under ERISA, including ensuring that employees of affiliated companies receive appropriate benefits and protections.
Understanding ERISA affiliate through an example
For example, a parent company, XYZ Corporation, offers a health insurance plan that complies with ERISA for its employees. XYZ Corporation owns a subsidiary, ABC Inc., which has its own employees. If ABC Inc. is considered an ERISA affiliate of XYZ Corporation, the employees of ABC Inc. may be eligible for coverage under XYZ Corporation’s ERISA-governed health plan. Additionally, the parent company may be responsible for ensuring ABC Inc. complies with ERISA’s reporting and disclosure requirements related to employee benefits, as both entities are considered part of the same "controlled group."
In another example, a group of companies within a larger corporate structure, including a parent company and several subsidiaries, may have various ERISA-covered plans, such as pension plans. Since these companies are ERISA affiliates, they may be required to aggregate their employee benefit plan assets and liabilities when determining whether they meet the minimum funding requirements under ERISA, which can impact their reporting and compliance obligations.
An example of an ERISA affiliate clause
Here’s how an ERISA affiliate clause might appear in a corporate agreement or benefits plan:
“For purposes of this Agreement, the term 'ERISA Affiliate' shall refer to any entity that is part of the same controlled group of companies as the Company, as defined under Section 414 of the Internal Revenue Code, and includes any entity in which the Company directly or indirectly owns a majority interest or has control. The Company and its ERISA Affiliates are jointly responsible for compliance with ERISA’s reporting, disclosure, and fiduciary obligations.”
Conclusion
An ERISA affiliate is an important concept in the context of employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). These affiliates are closely tied companies that may share responsibility for complying with ERISA’s regulations regarding employee benefits, such as health plans and pension plans. Understanding the relationships between ERISA affiliates is crucial for ensuring that all companies in a corporate group meet their legal obligations under ERISA, protect employees’ rights, and properly administer benefit plans.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.