These days, when someone mentions the words “health insurance,” the attention is generally focused on the Patient Protection and Affordable Care Act (PPACA).
However, regardless of what the Supreme Court decides about PPACA, there are a number of health plan compliance requirements currently in place under the Employee Retirement Income Security Act of 1974 (ERISA) that all plan sponsors should be aware of and that require action.
Compliance failures can include employer liability for (i) excise taxes, (ii) civil monetary penalties, (iii) criminal penalties, (iv) private legal actions and (v) government audits. The following are a few of the existing ERISA compliance hurdles for health plans that must be addressed by plan sponsors.
Make sure your plan sponsor clients who are eager to wax eloquently about PPACA have first given some thought to ERISA.
(1) Plan Documents
ERISA requires that every health plan be established and maintained “pursuant to a written instrument” These instruments are the plan document and summary plan description (SPD) (a brief and easy-to-understand summary of the terms of the underlying plan). A written plan document is required so that every employee can examine the document and determine exactly what his or her rights and obligations are under the terms of the plan. Here’s where a lot of organizations get tripped up – documents provided by insurance carriers usually lack the necessary provisions to meet the minimum requirements under ERISA.
One way for employers to deal with the plan document requirement is to adopt a “wrap plan.” A “wrap” plan document is simply a document that wraps around, and incorporates by reference, the contracts or booklets provided by insurance carriers for all of the benefits provided by the employer. It also includes additional required information typically not explained in carrier booklets.
It is not enough to simply have these documents drafted only to be kept in a drawer; the documents must be updated when the terms of the health plan change and the SPD must be distributed to each individual who is eligible for benefits under the terms of the plan. In fact, the employer may be penalized $110 per day if it does not provide an SPD within 30 days after a plan participant’s written request.
Even if an SPD is not requested by the participant, the document is required to be provided at certain times in the plan participant’s time with the company. For a newly covered participant, an SPD must be automatically provided within 90 days after the participant first becomes covered under the plan. For newly established plans, an SPD must be automatically furnished within 120 days.
In addition, an updated SPD must be automatically furnished at least every five years if there have been any material changes made within that five-year period. The updated SPD must be furnished no later than 210 days (7 months) following the last day of the fifth plan year after a material change would have been reflected in the most recently distributed SPD. Finally, even if no material changes were made during the immediately preceding 10-year period, a copy of the most recently distributed SPD must be furnished by the plan administrator within 210 days ( 7 months) following the last day of the tenth plan year after a material change would have been reflected in the most recently distributed SPD.
Since the employer is typically the plan sponsor and the administrator of its health plan, the employer (and not the insurance company) is responsible for providing the plan documents and will be liable for the penalties if plan documents are neither maintained nor provided to plan participants.
(2) Form 5500
ERISA also requires the administrator of health plans that cover 100 or more participants at the beginning of the year to file an “annual report” (known as the Form 5500) with the Department of Labor (DOL). If the administrator doesn’t file the form, or files it incorrectly, the DOL can fine them up to $1,100 per day. This document will also be required if the plan were to be audited by the government.
The fact that an employer has separate insurance policies for each different welfare benefit does not necessarily mean that each separate plan must be filed. As discussed above, some plan sponsors use a “wrap” document to incorporate various benefits and insurance policies into one comprehensive plan. For example, with a wrap document on file, a plan sponsor would be able to file one Form 5500 for their medical, dental, life, STD, etc. By wrapping around existing policies, it creates a single employee welfare benefit plan that allows an employer to file all coverage lines under one Form 5500 Filing and under one ERISA plan number (501, 502, 503, etc.). Without a wrap document in place, employers are required to file a separate 5500 filing with separate ERISA plan numbers for each coverage (medical, dental, life, etc.).Just filing the Form 5500 with the government does not complete the company’s obligation under ERISA. The plan administrator also must distribute an annual statement summarizing the latest Form 5500. This “summary annual report (SAR)” contains a rundown of the more important information contained in the Form 5500. Penalties can also be applied to an employer if it does not distribute the SAR to plan participants.
For employers who are not currently compliant, the government has developed a program that allows employers to file delinquent documents and pay a small fine (compared to the possible fine if audited). But plan sponsors need to act before they’re notified by the DOL of delinquent filings. E Plan sponors should consult with their brokers or lawyers to complete the filing.
(3) Record Retention
ERISA requires plan records to be kept by the employer and be available for examination for a period of at least six years after the filing date of the Form 5500 that is based on those records. Best practices call for most ERISA health plan records be kept for at least eight to 10 years.
If your client loses or destroys the plan documents, the client will also be responsible for the costs to the plan for the loss or destruction. In addition, any plan participant and any plan fiduciary can sue the plan and the plan’s fiduciaries for breach of fiduciary duty in connection with a record keeping failure and may seek imposition of personal liability on the fiduciary responsible for the failure (a willful failure can also include substantial fines).
The road to ERISA compliance is long and winding, but clients who talk about obligations with their benefits advisrs can avoid compliance pitfalls … and the possibility of having to pay big fines.