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As an employer, what are my obligations relating to employee welfare benefit plan disclosures?
Under the Employee Retirement Income Security act (ERISA), all employers with Employee Welfare Benefit Plans (Health, Life, Disability & Other) are required to maintain and distribute a Summary Plan Description (SPD) to its participants. The SPD outlines the eligibility, schedule of benefits and covered/excluded items of an employee benefit plan offered by an employer. While insurers and welfare organizations may supply materials that contain much of the required information, they do not generally include all of the provisions mandated under the SPD regulations.
There have been recent rumblings that the Department of Labor plans to substantially increase the number of ERISA compliance audits it conducts each year, which may strike fear into the hearts of many HR professionals, particularly those responsible for this area. While experts and advisors don't believe that companies or their staff members are deliberately doing things incorrectly, they do believe that significant opportunities for error -- and audit – exist.
The Employee Benefits Security Administration is responsible for protecting the integrity of pensions, health and other employee benefits, and is charged with administering and enforcing ERISA. Much of the justification for EBSA's 2012 budget proposal, which includes additional staff to conduct these audits, was based on concerns with how plan sponsors are managing these plans. The DOL has estimated that three out of four plans they audit have had an ERISA violation.
The DOL conducts more than 3,000 audits each year, 70 percent of the audits they find some sort of failure, either in the operation of the plan or in the interpretation of the plan provisions. There are exorbitant amounts of money fined against plan sponsors.
ERISA is one of those areas of HR administration that is probably not high on the list of most HR practitioners' favorite things to do. And, truth be told, many simply don't have enough people to spend sufficient time on plan issues, says Heidi LaMarca, vice chairman at the American Institute of Certified Public Accountants National Conference on Employee Benefit Plans. An increased chance of an audit, says LaMarca, means that HR departments need to double-check that:
* The people running the plan know the plan document inside and out
* Plan operations must be in compliance with the plan document
* The plan document must be in compliance with laws and regulations -- all required amendments must be made.
There are some common areas of risk, and smaller companies tend to bear the brunt of these especially among employers with fewer than 500 employees.
Summary-plan descriptions are often the main target of audits. The requirements are numerous and have been impacted significantly since first included in 1974 ERISA legislation. Unlike an average benefits summary, the requirements of what must be included in an SPD are numerous, In fact, by the time all of this information is included, the document can hardly be called a 'summary'."
The second most-frequent item in DOL audits is related to the Health Insurance Portability & Accountability Act and, specifically, the requirement under HIPAA that plans inform participants about special enrollment rights. Employers should review HIPAA rules thoroughly to make sure their plan is in compliance.
Many employers are in a very good place from a compliance perspective with their retirement plans, unfortunately this doesn't always exist in the context of health and welfare plans. A great number of employers -- more than ever expected -- are not in compliance with ERISA on those health and welfare plans. In most cases, it's a plan document issue.
Putting together a plan document that satisfies the requirements of ERISA and putting together a summary plan description that satisfy the requirements of ERISA are absolutely essential to being in compliance.
While it's typically smaller employers that run into trouble, the mid-size employers and large employers are effected as well, it is not that they’re trying to hurt or hinder employees; it's just a failure to understand what the requirements of ERISA are.
For instance, while most insurance carriers provide employers with a plan booklet or a certificate of coverage that may provide a very good description of the benefits available to employees, those plan booklets, in almost every case do not comply with ERISA.
Some additional areas of risk that you should be aware of:
* Delayed deposits of contributions
* Decisions about what compensation will be used to determine the deferrals that participants are making. A number of times, unfortunately, people are left out and they didn't know they were able to participate in the plan; that's a pretty big problem.
* Inadvertently excluding people who should have been eligible -- often part-time employees
* Employers that offer matching funds may sometimes provide a match to someone who was not supposed to get it.
* Hardship distributions, which are particularly prevalent in this economy. Those requests and decisions must be documented very carefully.
It is important for organizations to:
* Have good ERISA counsel. "If you don't have an in-house counsel, talk with the lawyers or accountants you work with. Sit down with them and just do an internal audit of your health and welfare plans to ensure that you're in compliance," advises Wand.
* Have a plan consultant that can do a fiduciary review.
* Ensure that their actions are documented. "You never know when you may be audited and this allows you to easily present the documentation instead of having to scramble at the last minute. If HR leaders are not sure where their records are, they should call their service providers to see if all of the documents are up to date in case of an audit, adding that it is always a good practice to check in with service providers from time to time to see how records are being kept.
* Understand that DOL will look at timely remittance of participant deferrals. "Review it now and make sure you comply with the guideline and that you are consistent among all payrolls and pay periods. If you're not, fix it through the Voluntary Fiduciary Correction Program before the DOL finds it upon audit.
And it's always more cost effective under this program than getting caught in a DOL audit.
* Ensure that you have complied with the rules of fee disclosures by the appropriate deadlines.
* Ensure that, if you've had any recommendations from independent auditors, that you've addressed them.
Source: HR Executive