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Employee Retirement Income Security Act (ERISA)

The Employee Retirement Income Security Act (ERISA) is a federal law that was enacted in 1974 to set minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. It is a key part of the 401(k) industry because it establishes the legal framework for the administration of these retirement plans.

The goals of ERISA include:

  1. Ensuring that employers uphold their fiduciary duties to the retirement plan and to its participants. This means that they must act in the best interests of the plan’s beneficiaries.
  2. Setting standards for plan funding to make sure that employers are properly funding the plan and not putting the employees’ retirement savings at risk.
  3. Mandating that plan participants are provided with detailed information about their plan, including its funding status, its investments, and its management.
  4. Providing for fair processes for participants who feel their rights under the plan have been violated or who wish to appeal a denial of benefits.
  5. Establishing the Pension Benefit Guaranty Corporation (PBGC), a government entity that insures certain types of pension plans.

In the context of a 401(k) plan, ERISA is crucial because it provides protections for the employees who participate in the plan. It helps to ensure that the money that they contribute to the plan will be there when they retire, and that they are provided with the information and the fair processes they need to protect their retirement savings.