Lecture 21 ERISA and Plan Qualification Requirements Impetus for this legislation Summary Eligibility and Participation Requirements Coverage Rules Vesting Retirement Age Other Federal Regulations Sex Discrimination Age Discrimination

Employee Retirement Income Security Act - 1974 Impetus Studebaker 1964 Employees received about 15% of promised benefits Major provisions Funding requirements Pension regulations Reporting Pension Benefit Guarantee Corporation Initially flat rate Later based on funding level

Eligibility and Participation Requirements Age and Service Requirements Not more than one year of service Not older than 21 Alternatives Two year waiting with 100% vesting then Entry dates Educational institutions Definition of year of service (1000 hours) Breaks in service

Coverage Rules Coverage Tests Highly Compensated Employee Ratio percentage test % of non-HCE at least 70% of % of HCE Average benefit test Average benefit of non-HCE as % of compensation must be at least 70% of that for HCE Highly Compensated Employee Owner of more than 5% interest in employer Compensation in excess of $80,000 (indexed)

Vesting Nonforfeitable right to accrued benefits Plan must be at least as generous as one of the following: Cliff vesting (100% vesting at 5 years) Three to seven year vesting 20% at 3 years 40% at 4 years 60% at 5 years 80% at 6 years 100% at 7 years Top-Heavy Rules One year faster than 3-7 year vesting

Retirement Age Normal Early Late Full retirement benefit Youngest age any benefit will be paid Reduced amount Early retirement windows Late Must avoid age discrimination

Other Federal Regulations Sex discrimination Civil Rights Act of 1964 Effect of differences in mortality LA Department of Water and Power v. Manhart (1978) Contributory plan Arizona Governing Committee v. Norris (1983) Annuity choices Age discrimination