ERISA is Complicated – Don’t Get Lost in the Details

By Carolyn McNairy

While many know the acronym ERISA and what it covers – worrying about the complexities of this federal law can drive anyone to distraction. Here’s the low-down on what you need to know about reporting and disclosure under ERISA.

We all know that ERISA (the Employee Retirement Income Security Act) governs both Qualified Retirement Plans (Pension, Profit Sharing, and 401(k) Plans) and Health and Welfare Benefit Plans (e.g., group life, health, dental, and disability insurance plans and other fringe benefit plans). Ad that it is enforced primarily by the Department of Labor (DOL) through the Employee Benefits Security Administration (EBSA).

But are you aware that almost every private sector employer and benefit plan is subject to ERISA, including benefits not provided through insurance, such as health care Flexible Spending Accounts (FSA) and severance pay? Or that, depending on the extent of an employer’s involvement, even voluntary insurance programs may be considered ERISA plans? It’s important to understand the nuances of this federal law so you don’t get lost in the complexity.

ERISA Reporting and Disclosure Requirements

ERISA requires employers to maintain benefit plans according to written plan documents and prescribes when and how to deliver the documents. Employers must disclose certain information participants in a Summary Plan Description (SPD) and any SPD changes in a Summary of Material Modification (SMM).

Employers with 100 or more Participants must report certain information to the DOL annually on Form 5500 and participants must receive a summary of all Form 5500s in a Summary Annual Report (SAR). If an employer has less than 100 participants, they still may be required to file a Form 5500 if they do not have an SPD containing specific provisions.

ERISA Written Plan Document and Summary Plan Description (SPD) Requirements

ERISA requires employers to have written Plan Document and Summary Plan Descriptions (SPD) for each separate welfare benefit plan, each containing very specific information. It’s important to know that while insurance carriers may supply Certificate Booklets (sometimes called Certificates of Insurance, Certificates of Coverage, Evidence of Coverage, Carrier Summary Plan descriptions or Certificates of Coverage (COCs) those documents do not contain all of the required ERISA language and are not in compliance.

To avoid that, add a document to the certificate of Coverage. This document in effect “wraps” the required ERISA language around the carrier certificate so that together the documents ensure an ERISA Compliant Plan Document and SPD.

The federal law is so detailed with regard to ERISA protections it is easy to suffer financial consequences for non-compliance, make sure you have all the proper pieces in place.

ERISA Form 5500 and Summary Annual Report Requirements

In general, employers must file a Form 5500 return for any fully insured and/or unfunded plan that has 100 or more participants as of the beginning of a plan year. Those employers with less than 100 participants must file a return if their benefit plan is funded (i.e., a benefits trust is in place).

Additionally, the employer is required to produce and distribute a Summary Annual Report (a summary of the Form 5500).

On July 21, 2016, the Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) (together called Agencies in this Fact Sheet) will publish in the Federal Register a Notice of Proposed Forms Revisions to the Form 5500 Annual Return/Report Series. This proposal includes eliminating for group health plans the current exemption from Form 5500 reporting for small insured and self-insured welfare benefit plans beginning with ERISA plans years that begin on or after 2019.

““For those entities that are not in compliance with the law, the Department projects the rules could result in up to $140ML in additional fines and penalties” (Source: DOL FAQ)

DOL ERISA Enforcement Efforts

The DOL enforces disclosure requirements through plan audits and other initiatives aimed at ensuring benefit plans of both large and small employer are ERISA compliant. While a plan audit looks at ERISA requirements as a whole, the DOL does have a focus on the disclosure and reporting requirements, specifically the Plan Document and SPD.

Recently the DOL has contacted employers who have filed for their pension plan but have not filed a Form 5500 return for their health and welfare plans. In such correspondence, the DOL states that it is aware “that some employers who appropriately file Form 5500 for their retirement plans are unaware that filings should also be made for their health and welfare benefit plans” and that the DOL is “seeking to ensure employers who are so required are compliant.”

In cases where the employer determines the need to file a past Form 5500, the DOL refers the employer the option of filing under its Delinquent Filer Voluntary Complain Program (DFVCP) allowing reduced penalty amounts.

NOTE: An employer can face fines of up to $2,097/day for each Form 5500 that it files late. The penalty for late delivery of an SPD, SMM, and SAR to a Participant is $112/day. These penalties apply to each Plan, they are cumulative, and they are not subject to a statute of limitations. As an example, an employer that has three separate Plans (life, medical and dental), which files its Form 5500s just sixty days late, can be fined up to $125,000 in the maximum penalty were to be applied! Additionally, not following ERISA can expose an employer to unnecessary, time consuming, and expensive employee lawsuits.

Don’t get lost in compliance – ensure you follow the law!

The DOL increased non-compliance fines and penalties in August 2016 and again in January 2017. With heavier cost implications, you must be ERISA compliant. Sure, it’s complicated, but with a little time and effort – you’ll find your way. 

Carolyn McNairy, Compliance Services Vice-President
TASC Online