ERISA (Employee Retirement Income Security Act of 1974) is the federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to protect individuals in these plans.
Key ERISA provisions:
Fiduciary standards: Plan fiduciaries must: - Act solely in the interest of plan participants and beneficiaries (exclusive benefit rule). - Act prudently ("prudent expert" standard — not merely prudent person). - Diversify plan investments to minimize risk of large losses. - Follow the plan documents.
Who is a fiduciary? Anyone who exercises discretionary authority or control over plan management or assets, including anyone who provides investment advice for a fee.
Prohibited transactions: Fiduciaries cannot cause the plan to engage in transactions with "parties in interest" (self-dealing) — e.g., selling plan assets to the employer.
Reporting and disclosure: Plans must file Form 5500 annually with the IRS/DOL and provide Summary Plan Descriptions (SPD) to participants.
Vesting schedules: ERISA requires minimum vesting — employees must eventually own employer contributions. Common schedules: 3-year cliff or 2-6 year graded.
Plan types covered: 401(k), defined benefit pension plans, profit-sharing plans, 403(b) (for non-profits), ESOPs.
> Exam tip: For the CFP® and Series 65, know that ERISA establishes a fiduciary standard for plan advisers (not just a suitability standard). The DOL fiduciary rule (in various forms) extended ERISA-like fiduciary duties to IRA advice in some contexts.