Employer Law Newsletter
Pensions, Benefits & Compensation
Generally, an employer is not required to provide a pension plan, insurance, or disability benefits to its employees. Once it chooses to do so, however, federal law requires that the employer administer the plans fairly, manage the plans to provide the benefits promised, and invest money contributed by employees or on their behalf in certain ways.
For example, an employer who opts to provide an employee pension plan becomes subject to the Employment Retirement Income Security Act (ERISA), which regulates the ways in which the employer may invest plan funds. ERISA also requires the employer to avoid any transaction with the plan that might be perceived as a conflict of interest, and requires the employer to notify employees about any changes to the plan.
An employer must also provide certain notices to an employee who is fired, who quits, or whose hours are reduced significantly, and as a result is no longer eligible to participate in the employer's health or disability plan. Pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), the employer or the administrator of the plan (such as an insurance or payroll company) must notify the employee or any other beneficiaries of the plan (such as the employee's spouse or children) that he or she has a right to continue coverage for at least eighteen months, if the employee or beneficiary pays both the employer and employee portion of the premium payment for such coverage. The notice must be given in writing, and the employee or beneficiary has up to sixty days after the "qualifying event" to elect whether he or she wishes to continue coverage. Coverage may be continued for up to thirty-six months if the employee or a beneficiary becomes disabled. Only if the employee was terminated for "gross misconduct" may an employer decline to continue his or her health insurance coverage under COBRA.
Federal and state laws also require an employer to provide certain government-administered benefits, which are funded by the employer or through payroll deduction from the employee. For example, most employers are required to participate in a state-administered workers' compensation program, which provides compensation to employees who are injured on the job, without regard to whether the employer, a supervisor, or coworker, or even the injured employee, was negligent in causing the injury. Such statutes also typically provide death benefits to the family of a worker who is killed. The law usually preempts an employee's common-law right to sue the employer, meaning that the employee may seek compensation for the injury only through the workers' compensation program.
Similarly, unemployment compensation (or reemployment insurance) is funded by employer contributions, which will vary depending on the size of the employer. An employee will generally be entitled to unemployment compensation only if he or she is laid off or fired. If the employee quits without "good cause attributable to the employer" (such as sexual harassment or a demotion), or if the employee is fired for gross misconduct, the employee would not be entitled to unemployment compensation.
Finally, Social Security is a retirement income program administered by the federal government and funded by employee payroll deductions and matching employer payments. An employer may not require an employee to make his or her own contributions and contributions on the employer's behalf, and an employer who attempts to characterize a true employee as an independent contractor or consultant in order to avoid making Social Security contributions on behalf of the employee may be penalized.
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