ERISA events: Overview, definition, and example
What are ERISA events?
ERISA events refer to specific occurrences related to an employer’s obligations under the employee retirement income security act of 1974 (ERISA), a U.S. federal law that governs pension plans, retirement benefits, and employee welfare plans. These events can include plan terminations, funding deficiencies, prohibited transactions, withdrawal liabilities, and regulatory violations.
For example, if a company’s pension plan becomes underfunded, this may trigger an ERISA event, requiring the employer to take corrective action or notify regulatory authorities.
Why are ERISA events important?
ERISA events are crucial because they help regulate employee benefit plans, protect retirement assets, and ensure employer accountability. Employers must comply with ERISA regulations to avoid penalties, financial liabilities, and legal action.
For businesses, monitoring ERISA events is essential to manage pension obligations, avoid funding shortfalls, and comply with federal reporting requirements.
Understanding ERISA events through an example
Imagine a manufacturing company sponsors a defined benefit pension plan for employees. Due to financial difficulties, the company fails to meet minimum funding requirements, triggering an ERISA event. As a result, the company must report the deficiency to the Pension Benefit Guaranty Corporation (PBGC) and take corrective actions to restore funding levels.
In another scenario, a company withdraws from a multiemployer pension plan, leading to a withdrawal liability under ERISA. This means the company must pay its share of unfunded pension obligations to ensure plan stability for remaining participants.
An example of an ERISA events clause
Here’s how an ERISA events clause might appear in a loan or corporate agreement:
“The Borrower shall notify the Lender in writing of any ERISA Event within [X] days of its occurrence. An ‘ERISA Event’ shall include, but not be limited to, the termination of a Plan, failure to meet minimum funding standards, withdrawal from a multiemployer plan, or any action that could result in liability under ERISA or the Pension Benefit Guaranty Corporation (PBGC).”
Conclusion
ERISA events ensure that employers comply with retirement and pension regulations, protecting employees’ benefits and preventing financial instability. Companies must monitor ERISA obligations, report key events, and take corrective actions to avoid legal and financial consequences.
By including an ERISA events clause in contracts, businesses can ensure compliance, mitigate financial risks, and fulfill pension and employee benefit responsibilities.
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.