Erisa Glossary
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Administrative Services Only (ASO)
An arrangement in which an insurance company provides claims paying assistance to a self-funded plan, such as claims adjudication, forms and enrollment, and perhaps arranging for stop loss insurance, but does not assume any insurance risk to plan participants or beneficiaries.
Annuity
A series of periodic payments, usually level in amount or adjusted according to some index, e.g., cost-of-living, that typically continue for the lifetime of the recipient. In contrast, an installment payment is one of a specific number of payments that will be paid whether or not the recipient lives to receive them.
Arbitrary and Capricious
When applied in terms of a review of a claims denial, the phrase is tantamount to the least demanding form of judicial review. In effect, the Court must only determine whether, in light of the plan’s provisions, the plan administrator’s decision was rational.
The term “beneficiary” means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit there under.
arises under the section 502 civil-enforcement provisions of ERISA when a state-law cause of action duplicates, supplements, or supplants one of the remedies provided in that section.
Conflict Preemption
Conflict preemption arises when state-law claims are asserted that “relate to any employee benefit plan. A state-law claim may “relate to” a benefit plan even if the state law is not specifically designed to affect such plans and the effect is only indirect.
A plan that is designed to provide participants with a definite benefit at retirement, e.g., a monthly benefit of 20% of compensation upon reaching age 65. Contributions under the plan are determined by reference to the benefits provided, not on the basis of a percentage of compensation.
Defined Contribution Plan
A plan that provides an individual account for each participant and in which benefits are based solely upon the amount contributed to the account (plus or minus any income, expenses, gain, and losses allocated to the account).
Determination Letter
Letter issued by the Internal Revenue Service District Director’s office determining that a plan submitted to it meets the requirements for qualification (or does not meet those requirements).
The term “employer” means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity. The term implies a bona fide group or association of employers acting in the interest of its employer-members to provide benefits for their employees.
Employer Securities
For an ESOP, common stock issued by the employer that is readily tradable in an established securities market. If the employer has no readily tradable common stock, employer securities include employer-issued common stock that has a combination of voting power and dividend rights at least the equal of the class of common stock with the greatest dividend rights. Noncallable preferred stock that is convertible into common stock that meets the requirements of employer securities also qualifies if the conversion price is reasonable.
Enrolled Actuary
A person who performs actuarial services for a defined benefit plan. Such person’s services include making a determination of how much has to be contributed to the plan each year to provide the stated benefits at retirement and the preparation of a statement that has to be filed with the plan’s annual return to the Internal Revenue Service. Actuaries who perform these services are enrolled with the Joint Board for the Enrollment of Actuaries.
ERISA
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.
Fiduciary - ERISA defines a person or entity as a plan fiduciary if that person: (1) exercises any discretionary authority or discretionary control respecting management of the benefits plan, or disposition of its assets; or (2) has any discretionary authority or discretionary responsibility in the administration of the benefits plan.
Fiduciary Duties
ERISA imposes duties on fiduciaries by statute which incorporate principles from the law of trusts. These responsibilities include:Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them; Carrying out their duties prudently; Following the plan documents (unless inconsistent with ERISA); Diversifying plan investments; and Paying only reasonable plan expenses.
Form 5500
Each year, pension and welfare benefit plans generally are required to file an annual return/report regarding their financial condition, investments, and operations. The annual reporting requirement is generally satisfied by filing the Form 5500 Annual Return/Report of Employee Benefit Plan and any required attachments. See, Form 5500 page.
The term “governmental plan” means: a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.
Highly Compensated Employee; HCE
An employee who: (1) during the year or the preceding year is (or was) a 5 percent owner or (2) received compensation in excess of $80,000 (adjusted for cost-of-living increases) and was a member of the top-paid group of employees (if the employer elects).
This is an agency of the Treasury Department, headed by the Commissioner of the Internal Revenue, charged with primary responsibility for administering, interpreting, and enforcing the Internal Revenue Code. (Note, however, that the Secretary of the Treasury - and not the Internal Revenue Service - issues regulations under the Code.)
A participant who, at any time during the plan year is (1) an officer having annual compensation greater than $130,000 (subject to cost-of-living adjusting), (2) a more-than-5-percent owner of the employer, or (3) a more-than-1-percent owner whose annual compensation exceeds $150,000.
A distribution which satisfies the following requirements: (a) the distribution must be made within one taxable year; (b) it must include the entire balance credited to an employee’s account; and (c) it must be made on account of an employee’s death, separation from service (except in the case of a self-employed person), or attainment of age 59½ (or, in the case if a self-employed person only, on account of disability).
The term “participant” means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.
Prohibited Transactions
Specified transactions that may not be entered into (directly or indirectly) by a party in interest with the plan. Those include for example, sales or exchanges, leases, and loans between the parties. The Department of Labor may exempt a specific transaction from the prohibited transactions restrictions.
Prudent-Man Rule
The standard under which the fiduciary must act. The fiduciary is required to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”
Qualified Domestic Relations Order; QDRO
A court order issued under state domestic relations law that relates to the payment of child support or maintenance or to marital property rights. A QDRO creates or recognizes an alternate payee’s right, or assigns to an alternate payee the right to receive plan benefits payable to a participant. The alternate payee may be the participant’s spouse, former spouse, or dependant.
Qualified Joint and Survivor Annuity; QJSA
An immediate annuity for the life of the participant, with a survivor annuity for the life of the participant’s spouse. The amount of the survivor annuity may not be less than 50%, or more than 100%, of the amount of the annuity payable during the time that the participant and spouse are both living.
Qualified Retirement Plan; Qualified Plan
A plan that meets the requirements of the Internal Revenue Code. The advantage of qualification is that the plan is eligible for special tax considerations. For example, employers are permitted to deduct contributions to the plan even though the benefits provided under the plan are deferred to a later date.
A third party administrator or “TPA” is an entity that processes or adjudicates claims for an employee benefit plan. A TPA may provide additional services to an employee benefit plan or employer, such as collecting premiums, contracting for PPO services, providing utilization review of claims, and similar ancillary services to the operation of the employee benefit plan.
Top Heavy Defined Benefit Plan
A plan in which the present value of the cumulative accrued benefits for key employees exceeds 60% of the present value of the cumulative accrued benefits for all employees.
Top Heavy Defined Contribution Plan
A plan in which the sum of the accounts or plan benefits for key employees exceeds 60% of the sum of the accounts of all employees.
Accrued benefits of a participant that have become nonforfeitable under the vesting schedule adopted by the plan. Thus, for example, if the schedule provides for vesting at a rate of 20% per year, a participant who has been credited with three years of service has a right to 60% of the accrued benefit. If a participant terminates service without being credited with any additional years of service, such participant is entitled to receive 60% of that accrued benefit.
Welfare Benefit Plan - The terms “employee welfare benefit plan” and “welfare plan” mean any plan, fund, or program established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services.
Well-Pleaded Complaint Rule
As a general rule, determining whether a particular case arises under federal law turns on the ” ‘well-pleaded complaint’ ” rule. Under this rule, determining whether federal question jurisdiction exists, permitting a removal to federal court, must be determined from what appears from the plaintiff’s statement of claims, “unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose.” Thus, the existence of a federal defense normally does not create statutory “arising under” jurisdiction and “a defendant may not [generally] remove a case to federal court unless the plaintiff’s complaint establishes that the case ‘arises under’ federal law.
A 12-month period during which an employee or participant is credited with at least 1,000 hours of service.