The Compensation Committee Handbook, 4th Edition

CHAPTER 10 ERISA and Labor Law, Rules, and Issues

This chapter provides a general overview of the applicable laws, rules, regulations, and other legal or rulemaking authority with respect to the Employee Retirement Income Security Act of 1974 (ERISA) and selected labor issues with which compensation committee members will need to be familiar. It does not present all of the rules and issues that compensation committees might encounter in these areas, but those common issues that arise when dealing with executive employment and compensation arrangements.

ERISA Law and Regulations

ERISA was Congress's attempt at federalizing pension law in the United States. It accomplished this by creating a comprehensive set of laws relating to pensions and other employee-benefit arrangements. When enacted in 1974, ERISA amended both the Internal Revenue Code (IRC) and federal labor law. An important element of ERISA is its “preemption doctrine,” contained in Section 514, which provides that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Thus, in most cases, the ERISA preemption doctrine results in ERISA overriding most other laws.

While ERISA generally applies to broad-based rank-and-file benefit plans, there are aspects of the law that compensation committee members will need to know. Essentially, the threshold issue usually involves whether the executive compensation or benefit arrangement is subject to ERISA, or ...