ERISA 101: Key Terms and Concepts

ERISA 101: Key Terms and Concepts

Improving Employer-Sponsored Health Insurance Affordability

September 2026

What Is ERISA?

ERISA is the primary federal law governing most private employer retirement and health insurance plans. Congress designed ERISA to protect plan participants and beneficiaries from the wrongful denial of benefits and other plan mismanagement and fraud. While employers have significant discretion over what benefits, if any, to offer, ERISA requires employers to manage the funds set aside for benefits responsibly and not pay unnecessary or excessive costs. As health care grows increasingly unaffordable for both employers and workers, policy and legal experts are looking to these provisions in ERISA as a mechanism to restrain health plan spending.

What Is an ERISA Health Plan?

A group health plan is a form of health insurance coverage that is tied to employment or organizational membership. While people commonly use the phrase “health plans” to refer to health insurance carriers, under ERISA, “health plan” refers to the benefit package offered by an employer, union, or other plan sponsor. Health insurance carriers provide services to ERISA health plans. 

Health Plans Subject to ERISA (a/k/a ERISA Health Plans)

ERISA governs most group health plans that private employers and/or employee organizations (such as unions) establish or maintain to provide medical care directly or through insurance, reimbursement, or other mechanisms for their employees and/or members. 

ERISA health plans typically take one of two forms:

• Fully Insured Health Plans: An employer purchases a group health insurance policy for a fixed monthly premium. The health insurance carrier (referred to as an “issuer” in the statute) bears all the financial risk for claims. Fully insured plans are subject to both ERISA and state insurance regulation. Approximately 57.5 million people are enrolled in fully insured group health plans subject to ERISA.

• Self-Insured Health Plans: An employer directly bears the financial risk for claims. Third-party administrators (TPAs), pharmacy benefit managers (PBMs), and other vendors may perform key functions, such as negotiating provider networks and reimbursement, and/or claims administration and processing. Self-insured health plans are subject to ERISA, but exempt from state insurance regulation (“preemption”). Approximately 78.4 million people are enrolled in self-insured group health plans subject to ERISA.

Health Plans Not Subject to ERISA (a/k/a Non-ERISA Health Plans)

ERISA does not apply to group health plans sponsored by government entities (e.g., public employee health plans) or churches. These plans are subject to other federal and state regulation.

A private employer or employee organization can also make available additional benefits—such as dental or vision plans—that add to or fill gaps in its primary ERISA health plan. These supplemental benefit plans are exempt from ERISA if they meet certain federal standards, including that the employer or employee organization does not make any contributions and participation is completely voluntary. (Accordingly, these plans are also referred to as voluntary plans.) These plans may be subject to state regulation. 

What Are the Key Components of an ERISA Health Plan?

Below are the key components that comprise all ERISA health plans.

Plan Documents

ERISA mandates that group health plans operate pursuant to a written plan document that delineates participant and beneficiary rights, plan management processes and rules, and financial information, among other matters. Other ERISA-required documents explain plan terms to participants and beneficiaries (e.g., summary plan description and summary of benefits and coverage) or make information available to regulators and the public (e.g., Form 5500). 

Plan Assets

ERISA provides that any use of plan assets that violates ERISA can incur financial (and occasionally criminal) liability, but does not define the term “plan assets.” In this vacuum, the U.S. Department of Labor (DOL) and courts have interpreted plan assets to include any tangible or intangible property that the plan holds on behalf of plan participants and beneficiaries. Current DOL regulations specify that contributions that an employee pays to the plan or that employers withhold from an employee’s paycheck are always plan assets. Employee cost-sharing payments made directly to a health care provider are not plan assets, however. Under current interpretations, it is not always clear if and when money held aside by the employer to pay benefits and employer payments to service providers become plan assets.

Plan Participants and Beneficiaries

Under ERISA, a plan participant is an employee or former employee who is or may become eligible to receive benefits from an ERISA health plan. Plan beneficiaries include dependents (such as spouses or children) of an employee who are covered by an ERISA health plan. The informal term “plan member” can broadly refer to both participants and beneficiaries.

Who Are the Key Players?

Below are the most important players involved in ERISA health plan oversight and administration.

The U.S. Department of Labor

The U.S. Department of Labor (DOL) has primary jurisdiction over many components of ERISA, including reporting and disclosure, fiduciary responsibility, and enforcement. The Secretary of Labor has authority to pursue civil lawsuits to redress violations of ERISA and can file amicus briefs in federal court cases concerning ERISA. Within the DOL, the Employee Benefits Security Administration (EBSA) administers and enforces Title I of ERISA, including its fiduciary, reporting, and disclosure provisions. EBSA oversees approximately 2.8 million group health plans in addition to nearly 1.4 million pension and other welfare plans, with fewer than 600 staff in 2026. 

Plan Sponsor

A plan sponsor is an entity that establishes and maintains an ERISA health plan. A plan sponsor can be a single employer; an employee organization, such as a union; or multiple employers and/or unions. 

Plan sponsors establish the plan terms, including plan funding and administrative structure, benefits and cost-sharing, eligibility criteria, and employee contribution requirements. ERISA gives plan sponsors significant freedom to define plan terms (legally referred to as engaging in “settlor functions”).

Plan Service Providers

Service providers—such as the intermediaries described below—offer professional, administrative, or financial services to an ERISA plan.

What Legal Obligations Can Apply to Key Players?

Below are important legal labels and obligations that ERISA can attach to its key players.

Plan Administrator

A plan administrator is a person or entity legally responsible for the day-to-day operations and administration of an ERISA health plan. Plan administrators can be named in plan documents; if no explicit administrator is named, the plan sponsor becomes the default plan administrator. The plan administrator bears the ultimate legal and fiduciary responsibility for the plan, even if it hires service providers (TPAs or PBMs) to perform some of these functions. Service providers can be plan administrators if named as such in plan documents, though this is rare.

Plan Fiduciary

Under ERISA, plan fiduciaries are any person or entity that has or exercises discretion over plan management and administration or controls plan assets. These activities and responsibilities are called “fiduciary functions.” For example, a plan administrator’s choice of a service provider is considered a fiduciary function. 

Plans must identify (by name or position) at least one fiduciary in plan documents, but other individuals or entities—including plan sponsors and service providers—can also act as fiduciaries. ERISA’s fiduciary status applies only when someone is engaged in fiduciary functions, however. The same person or entity who acts as a fiduciary in certain circumstances can act in a non-fiduciary capacity in other circumstances. Examples of activities that courts or the DOL treat as non-fiduciary in nature include:

• Settlor Functions: Settlor functions cover the business decisions a plan sponsor makes related to establishing, terminating, or modifying a plan. For example, a plan sponsor’s decisions regarding employee eligibility rules and contribution requirements are traditional settlor functions.
• Ministerial Functions: Under historic DOL regulations, ministerial functions are activities in which an entity––commonly human resources staff or a service provider––does not exercise its own discretion but instead is simply following instructions or established procedures as written in the plan documents, such as sending a routine monthly check to a service provider.

Party-in-Interest

ERISA generally labels any plan insiders who might be inclined to favor themselves at the expense of plan participants as a “party-in-interest.” Party-in-interest status confers certain legal liability under ERISA to individuals and entities regardless of fiduciary status.

Various players are always parties-in-interest: fiduciaries, service providers, plan sponsors, and direct or indirect majority owners of the plan sponsor. Consequently, while service providers like TPAs and PBMs are not always subject to ERISA’s fiduciary duties, they can be liable for knowingly participating in an arrangement that violates ERISA’s “prohibited transaction” rules governing relationships between parties-in-interest and ERISA health plans.

What Is ERISA Preemption?

ERISA expressly preempts—that is, overrides—state laws that relate to group health plans. Under an exception to ERISA preemption, however, states can regulate the business of insurance (i.e., fully insured plans). States may also be able to regulate associated third parties, depending on how closely these regulations interfere with ERISA’s objective of protecting regional or national employers from a patchwork of state policies.

ERISA preemption can reduce the administrative burdens and costs of providing benefits under a self-funded health plan. At the same time, ERISA preemption can limit the reach and effect of some state-led efforts to improve health care affordability by carving out these plans from reach. While certain types of reforms can benefit self-funded health plans without threat of preemption (e.g., state regulation of hospital prices), ERISA preemption has undercut other efforts (e.g., state all-payer claims databases). The extent to which states can regulate intermediaries in the health care system that provide services to ERISA health plans, including PBMs and TPAs, remains unsettled. Some state laws regulating PBMs have sparked ongoing legal challenges over whether they are preempted by ERISA. Furthermore, as ERISA evolves, so do the limits on preemption and what states can or cannot directly regulate.

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Acknowledgements

Authors: Christine H. Monahan, Kennah Watts, Miles Conde, Karen Handorf

Published September 2026, with funding from the Peterson Center on Healthcare.