With so many government and state regulations out there 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 those regulations: The Employee Retirement Income Securities Act (ERISA). If you offer pension or welfare benefits to your employees, you’ve probably encountered ERISA in some capacity.
In this post, I’ll tackle some of the most common questions about ERISA, like:
- What is the main purpose of ERISA?
- Who is subject to ERISA?
- What is covered under ERISA?
- What are common ERISA penalties?
Luckily, for small business, there is an easy way to comply. Keep reading until the end!
First, some background.
What is ERISA?
ERISA was passed in 1974 to regulate pension benefit and welfare benefit plans. Its primary focal point was safeguarding that participants and beneficiaries received proper notice and disclosure of the benefits that their employer provided.
The Employee Benefits Security Administration (an agency of the Department of Labor) is the main enforcement agency ensuring compliance in this area. While pension and retirement benefits have been the brunt of most of the enforcement activities, the Affordable Care Act (ACA) has also 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 (employees and beneficiaries).
- A strict fiduciary code of conduct on plan sponsors and administrators.
- Detailed reporting through Form 5500, if required.
What types of employers must comply with ERISA?
If an employer is offering health plan that is established by the employer for the purpose of providing one or more benefits to employees and beneficiaries, then generally, that employer would need to comply under ERISA.
A common rule of thumb is any employer with two or more employees that offers a group-sponsored health plan must comply with the ERISA notice and disclosure, and possibly, reporting requirements.
Exemptions can include 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 the standards like 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 group benefit plan that is for the benefit of their employees and beneficiaries. An example might be a small employer that has decided not to offer a medical plan to their employees. This employer would not need to comply under these ERISA requirements.
How does ERISA affect small employers?
ERISA’s requirements are similarly applied to both small employers and large employers alike. An employer group with two employees or a group of 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?
Here is where it really gets interesting and 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 $152 per day ($1,527 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 $1,527 per employee x 35 = $53,445 in penalties. Do you provide SPDs to your employees?
- Failure to file the plan’s annual report (5500 filing) could cost an employer $2,140 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?
How can PrimePay help?
PrimePay has designed two comprehensive options for employers to become ERISA compliant.
One option, called our Fast Track ERISA Wrap Solution, is for small employers with simple, fully-insured benefit offerings. It’s a fast and convenient solution to get businesses into ERISA compliance.
Our second option, called our Premier ERISA Wrap Solution, is for all employers and provides for a more comprehensive review of more complex benefit strategies.
Both options will provide the necessary ERISA plan document, Summary Plan Description, and include all appropriate notices and disclosures.