OLR Research Report

March 7, 2008




By: Janet L. Kaminski Leduc, Senior Legislative Attorney

You asked what the federal Employee Retirement Income Security Act (ERISA) requirements are for employers offering a self-insured benefit plan to its employees.  Specifically, you want to know the requirements for managing and administering the plan in terms of financial and fiduciary duties.


ERISA was enacted in 1974 as a federal regulatory scheme for private sector employee benefit plans, including health care plans. It sets forth requirements for benefit plan participation, funding, and vesting of benefits. It also establishes uniform standards for reporting, disclosure, and fiduciary duties. ERISA does not apply to governmental plans; church plans; plans maintained solely for the purpose of complying with workers' compensation, unemployment compensation, or disability insurance laws; foreign plans; and unfunded excess benefit plans (29 U.S.C. 1003).


ERISA sets uniform minimum standards to ensure that employee benefit plans are established and maintained in a fair and financially sound manner.  Employers have an obligation to provide promised benefits and satisfy ERISA's requirements for managing and administering plans.  ERISA does not require employers to provide a health benefit plan or to set aside funds to pay expected claims.  Rather, employers may voluntarily establish plans, and if doing so, must comply with ERISA.  But ERISA exempts employee welfare benefit plans from minimum funding requirements.

The U.S. Department of Labor's Employee Benefits Security Administration and the Internal Revenue Service are responsible for administering and enforcing ERISA. Most of the following information comes from the DOL's website.


A self-insured plan is one that is not backed by an insurance policy. The employer instead funds and administers its benefit plan (i.e., pays claims covered by the benefit plan from its own money). It may outsource or delegate the administration of the plan to a third-party administer (TPA) (often an insurance company), but this TPA does not provide the employer with financial backing or assume any financial risk associated with the claims.

ERISA prohibits states from “deeming” self-insured plans to be subject to state insurance requirements. As a result, the Connecticut Insurance Department does not have jurisdiction over self-insured plans.

Self-insured plans do not participate in the state's insurance guarantee association (a safety net for consumers when their insurance company becomes insolvent or otherwise financially impaired). 


ERISA requires the people and entities that manage and control plan funds to:

1. manage plans for the exclusive benefit of participants and beneficiaries;

2. carry out their duties in a prudent manner and refrain from conflict-of-interest transactions expressly prohibited by law;

3. comply with limitations on certain plans' investments in employer securities and properties;

4. report and disclose information on the operations and financial condition of plans to the government and participants; and

5. provide documents required in the conduct of investigations to ensure compliance with the law.


ERISA requires an employee benefit plan's administrator to provide participants and beneficiaries with a summary plan description (SPD), clearly describing their rights, benefits, and responsibilities under the plan.  Plan administrators must also furnish participants with a summary of any material changes to the plan or changes to the information contained in the SPD.  The administrator does not have to automatically file copies with the Department, but must furnish them to the Department on request.

In addition, the administrator generally must file an annual report (Form 5500 Series) each year containing financial and other information about the operation of the plan.  Plan administrators filing annual reports must provide participants and beneficiaries a summary of the annual report (the Summary Annual Report).  Form 5500 is due by the last day of the seventh calendar month after the end of the plan year.

Certain plans are exempt from the annual report requirement. For example, plans with fewer than 100 participants that are fully insured are not required to file an annual report.  Further, some plans that are required to complete Form 5500 are exempt from filing certain sections regarding finances (e.g., small plans, and large plans that are fully-insured or unfunded and have 100 or more participants).

Administrators of multiple employer welfare arrangements (MEWAs) and certain other entities that offer or provide coverage for medical care to employees of two or more employers are generally required to file Form M-1 (Report for MEWAs and Certain Entities Claiming Exception (ECE)).  An ECE is an entity that claims it is not a MEWA due to an exception in the MEWA definition for entities (generally an entity established and maintained pursuant to a collective bargaining agreement).  Form M-1 is due within 90 days of “origination” (e.g., when the MEWA or ECE first offers or provides benefits or when the number of employees eligible has grown by at least 50%) and then no later than March 1 following each calendar year for which filing is required.


In general, people who exercise discretionary authority or control over the management of a plan or disposition of its assets are “fiduciaries” for purposes of ERISA.  Fiduciaries are required, among other things, to discharge their duties solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan.  In discharging their duties, fiduciaries must act prudently and in accordance with documents governing the plan, to the extent such documents are consistent with ERISA.

ERISA prohibits certain transactions between an employee benefit plan and “parties in interest,” which include the employer and others who may be in a position to exercise improper influence over the plan, and such transactions may trigger civil monetary penalties under ERISA.

ERISA and the IRS Code contain various statutory exemptions from the prohibited transaction rules and give DOL and the Treasury, respectively, authority to grant exemptions.  The statutory exemptions generally include loans to participants, the provision of services needed to operate a plan for reasonable compensation, loans to employee stock ownership plans, and investment with certain financial institutions regulated by other state or federal agencies.


Some provisions of ERISA supersede state and local laws that “relate to” an employee benefit plan.  ERISA, however, does not preempt certain state and local laws, including state insurance regulation of MEWAs. MEWAs generally constitute employee welfare benefit plans or other arrangements providing welfare benefits to employees of more than one employer, not pursuant to a collective bargaining agreement.

Group health plans covered by ERISA must provide benefits in accordance with the requirements of qualified medical child support orders issued under state domestic relations laws. States retain jurisdiction to regulate fully insured benefit plans.


ERISA contains minimum funding requirements for pension plans, but specifically excludes employee welfare benefits from the requirements (29 U.S.C. 1081(a)(1)).