Employers offering employee benefits to their employees are required to meet virtually innumerable legal requirements under the Employee Retirement and Income Security Act (“ERISA”), the Patient Protection and Affordable Care Act (“ACA”), the Internal Revenue Code, as well as dozens of other federal and state laws related to benefits. These requirements fall into three categories of compliance:
- Document Requirements
- Operational/Administrative Requirements
- Coverage Requirements
Most employers with a competent insurance broker/consultant are in good shape with respect to coverage requirements. However, employers who rely solely on their broker for compliance rarely meet the operational and document requirements for benefit plans. The penalties for document and operational noncompliance range from up to $110 per day to $1,100 per day for each failure. In addition, there are no statutes of limitation on certain requirements. This is serious stuff.
In the past, the U.S. Department of Labor and IRS were more concerned with whether or not retirement and pension plans were compliant with benefit laws. However, that emphasis has shifted dramatically, due in part to the ACA. In the last few years, the DOL and IRS have hired hundreds of agents and investigators to enforce the ACA and ERISA rules with respect to health and welfare plans. Many noncompliant plans have been operating under the radar for years without penalties. Going forward, those same plans will be the target of compliance audits. The consequences could be significant.
Plan Document Requirements
When the DOL audits an employer’s health & welfare benefit plans, the first documents required from the employer are the:
- Properly executed plan document and any amendments to the plan
- Summary plan description (SPD)
- Summary of benefits and coverage (SBC)
- Form 5500 and summary annual report (SAR), when applicable
Ironically, the first documents requested are the most likely to fall short of the compliance requirements because most employers are not familiar with the document content requirements.
If the plan documents are not compliant or don’t reflect how the plan is operated, then the employer can be assessed thousands of dollars in penalties. Most employer don’t realize that, under federal law, the employer is responsible for these documents, not their broker or insurance carrier. (Note: Carriers are jointly responsible for the SBC only in certain circumstances.)
Employers should, therefore, consult with their own attorney (and not just take their broker’s word) to make sure these legal documents meet federal requirements.
- ERISA: Do you have a wrap plan document that meets DOL and IRS requirements so that you can file you benefits plans under one Form 5500?
- ERISA: Do you have a SPD and an SBC that meets all of the requirements under ERISA, ACA, and the Internal Revenue Code?
- For example, a compliant SPD will include the employer’s EIN, contact information, and who should be served if an employee decides to sue the plan for noncompliance. Does yours?
- Do you have a cafeteria plan document that allows your employees make pre-tax contributions to the medical, dental, vision and other benefits plans?
- This document is required for employers who want to offer benefits to employees on a pre-tax or tax-favored basis. Often, employers only have a cafeteria plan that applies to Health FSAs. What about you?
Plan Operation/Administration Requirements
During an audit, the DOL will also review the plan documents to make sure they accurately reflect how the employer operates the plan. In addition, employers must be able to show that they are operating the plan in compliance with applicable federal and state laws.
- ACA: Are you prepared to respond to an IRS Certification of Premium Tax Credit Notice?
- This notice – and the employer’s response – determines whether the IRS will assess a penalty against the employer and the amount of the penalty. It’s not sufficient just to have a compliant plan. When an employer receives this Notice, it must respond to in a timely (and accurate) manner.
- Have you done a compliance review of the items and issues covered during a standard DOL or IRS health plan audit & investigation?
- This should be done annually to meet your fiduciary responsibilities as the sponsor of an employee benefits plan.
- Have you been filing Form 5500 Annual Report for your health and welfare plans?
- If you are not filing this form, do you have a clear understanding which exception applies to your plan and when the exception will no longer apply?
- The penalty for not filing this form correctly is up to $1,100 per day.
- Have you established your Standard Measurement Periods, Initial Measurement Periods, Administrative Period and Stability Periods for your employees to determine which are full-time employees and eligible for benefits under your health plan?
- Do you have a clear understanding of the difference between “hourly employees” and “variable hour employees” and which employees do NOT need to be tracked?
- Do you have procedures in place to monitor a third-party administrator who is helping you with this process (for example, a payroll provider)?
- Have you considered other options that would allow you to NOT measure employee hours?
As mentioned above, most employers are in good shape on coverage requirements because the plans offered by reputable insurance carrier are, ostensibly, ACA-compliant. For example, coverage requirements include:
- Coverage for adult children up to age 26 and exclusion of this benefit in taxable income;
- No annual or lifetime limits on benefits;
- Prohibition on exclusions for pre-existing conditions;
- Coverage for all employees working an average of 30 hours per week; and
- No excessive waiting periods
But even when an employer satisfies the coverage mandates, several questions and issues can linger. How well do you fare?
So, are you ready?
In many cases, employers who believe they are currently compliant and prepared for the new regulatory rigors on the horizon find, upon closer investigation, that they’re not as prepared as they thought. Addressing gaps in their compliance and putting in place the appropriate policies does not have to be expensive or burdensome. Doing so before there is an issue, complaint, or investigation will always be less frenetic than waiting for problems to surface.
We encourage you to let us help get you on the right track early. Call us and let’s get started.