With so many government and state regulations for businesses, it’s often difficult to not only comply, but figure out if the rules apply to you in the first place.
One of these regulations is the Employee Retirement Income Securities Act of 1974 (ERISA). If you offer pension or welfare benefits to your employees, you have probably encountered ERISA in some capacity.
In this post, we will tackle some of the most common questions about ERISA, such as:
- What is the main purpose of ERISA?
- Who is subject to ERISA?
- What is covered under ERISA?
- What are common ERISA penalties?
Luckily, for emerging businesses, there is an easy way to comply.
First, some background.
What is ERISA?
ERISA was passed in 1974 to regulate pension benefit and welfare benefit plans. Its primary focal point was establishing minimum standards and protections for individuals in these retirement and health plans. ERISA also requires that participants and beneficiaries received proper notice and disclosure of the benefits that their employer provides.
The Employee Benefits Security Administration’s Office of Enforcement, an agency within the Department of Labor, is the main enforcement mechanism ensuring compliance in this area. It is just one of the several government organizations you should be aware of as a business owner.
While most enforcement activities have targeted pension and retirement benefits, the Affordable Care Act (ACA) has placed an enormously renewed focus on health and welfare benefits.
Many employers, while aware of the disclosure and reporting rules for pension benefits, are not aware of similar requirements for their group-sponsored welfare benefits.
Primary responsibilities for employers to comply with ERISA include three important items:
- Detailed disclosure to covered individuals (plan participants and beneficiaries).
- A strict fiduciary code of conduct for plan sponsors.
- Detailed reporting through Form 5500, as applicable.
What types of employers must comply with ERISA?
If an employer is offering a benefit plan that is for the purpose of providing one or more benefits listed in ERISA to employees and beneficiaries (e.g., medical, surgical, or hospital care), then generally, that employer would need to comply with ERISA.
A common rule of thumb is any employer that offers a group-sponsored health plan must comply with the ERISA notice and disclosure, and possibly, reporting requirements unless an exemption applies.
Exemptions apply to organizations such as churches and government entities, and include plans maintained to comply with workers’ compensation or disability that fall under a statutory exemption status.
Examples of benefits that are subject to ERISA include group medical, dental and vision. They can also include life/AD&D, short-term and long-term disability, health flexible spending accounts, and health reimbursement arrangements.
When would ERISA not apply?
ERISA does not apply to those exempt organizations and to employers that do not offer a benefit identified under ERISA that is for the benefit of their employees and beneficiaries. An example might be a municipality that offers a medical plan to their employees. The municipality would not need to comply with ERISA’s requirements.
How does ERISA affect small employers?
ERISA’s requirements are similarly applied to both small employers and large employers alike. For example, an employer group with two employees or 200 employees will both be required to fulfill the disclosure and fiduciary requirements of ERISA.
The Form 5500 filing and reporting requirements are generally reserved for employers with 100 or more employees (100 covered participants at the start of a plan year) but can also apply to smaller employers with funded plans, regardless of whether they are insured or self-funded.
What are some common penalties for noncompliance for small businesses?
Employers should take notice on the penalties that can apply to their business.
- Failure to provide a Summary Plan Description (SPD) of your benefits can cost an employer up to $161 per day ($1,613 maximum per failure). Example: An employer fails to send out an SPD to their 35 employees over the last year (365 days). The employer could be liable for up to $1,613 per employee x 35 = $56,445 in penalties.
- Failure to file the plan’s annual report (5500 filing) could cost an employer $2,259 per day.
The biggest mistake small employers make is not providing this SPD to their employees. Many businesses confuse the insurance certificate or benefit summary from their carrier or broker as this disclosure, but it is not.
What do small employers need to stay compliant?
Here is a current checklist for small employers to ensure compliance with ERISA:
- Do you currently provide an ERISA-compliant plan document? This plan document is an employer document that can separate or combine (sometimes called wrap or umbrella documents) your offering of employer-sponsored benefits.
- Have you created an SPD of your benefits and distributed them within 90 days of coverage for new participants?
- If required, have you filed Form 5500 in the plan years required?
- Have your benefit eligibility requirements been updated in your plan documents to reflect the latest requirements under Healthcare Reform, COBRA, and other regulations?
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Together, we can work toward:
- Satisfying ERISA requirements.
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- Removing unnecessary filing fees and streamlining documentation (based on your needs).
- Form 5500 filing.
- Form 5500 remediation.
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