With so many government and state regulations in place for businesses of all sizes, 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 Security Act of 1974 (ERISA). If you offer pension or welfare benefits to your employees, you’ve probably encountered ERISA in some capacity.

Here, we’ll explain what this regulation is, plans that are subject, and compliance mistakes to avoid.

What is ERISA?

ERISA was passed in 1974 to regulate pension and employee welfare benefit plans. Its primary focal point was ensuring that participants and beneficiaries received proper notice and disclosure of the benefits that their employer provided.

The Employee Benefits Security Administration (EBSA) (a division of the Department of Labor) is the main enforcement agency monitoring compliance in this area.  While pension and retirement benefits have shouldered the brunt of most of the enforcement activities, the Affordable Care Act (ACA) has also placed an enormously renewed focus on employee 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.

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Primary responsibilities for employers to comply with ERISA include three important items:

  • Detailed disclosure to covered individuals (employees and beneficiaries).
  • Annual reporting through Form 5500, if required.
  • A strict fiduciary code of conduct on plan sponsors and administrators.

Benefits subject to ERISA generally include:

  • Medical, surgical or hospital care or benefits. These include: major medical, dental, vision, prescription drug benefits, health flexible spending accounts (health FSAs), health reimbursement arrangements (HRAs), telemedicine, as well as certain employee assistance programs (EAPs) and wellness programs.
  • Benefits in the event of sickness, accident, disability, death or unemployment, including insured disability income plans, , accidental death and dismemberment and life insurance plans, cancer benefits, critical illness, and specified disease plans.
  • Funded vacation benefits.
  • Funded apprenticeship or training benefits.
  • Day care centers.
  • Funded scholarship benefits.
  • Certain prepaid legal service arrangements.
  • Severance and holiday benefits.
  • Certain housing assistance benefits.

If you need more help understanding the law, here’s a quick checklist that plan administrators can use to evaluate a plan’s compliance with important ERISA laws.

Note: If you answer NO to any of the questions, you may be subject to ERISA violations. (Skip any that do not apply).

  • Do you currently have an ERISA compliant plan document that is readily available to distribute to plan participants upon request?
  • Can you provide new participants and beneficiaries with a Summary Plan Description (SPD) within 90 days after coverage begins or within 30 days of a participant’s request?
  • Have your benefit eligibility requirements been updated in your plan documents to reflect the latest requirements under Health Care Reform? (full-time, variable hour, etc.)
  • If over 100 employees are enrolled in benefits, have you filed a Form 5500? If not, do you fall under an exemption?
  • Did you provide participants and beneficiaries with a Summary Annual Report (SAR) within nine months of the end of the plan year (or two months after the Form 5500 is due)?
  • Has the plan sponsor maintained sufficient records regarding information provided on the Form 5500 going back at least seven years from the Form 5500 filing date?
  • Is the plan protected by an ERISA Fidelity Bond to cover losses due to fraud?
  • Does the plan clearly define an internal filing and appeals process to handle UrgentCare, pre-service and post-service claims?
  • Have plan assets, including participant contributions, only been used to pay plan benefits and reasonable administrative costs?

Common mistakes employers make about ERISA.

The Department of Labor states that three out of four employers are out of compliance with ERISA. Don’t be part of that statistic. Here are some common mistakes our in-house ERISA experts have seen when it comes to complying with this complex law.

1. Failure to disclose plan information.

All employers offering a group health plan or other ERISA-qualified benefit to two or more employees are subject to ERISA, except for government entities and churches.

ERISA’s disclosure requirement mandates that employers maintain a written Plan Document and distribute Summary Plan Descriptions (SPD) to participants. This requirement may be made easier by incorporating all benefits into a “wrap” plan document. A certificate of insurance or benefit plan summary are not ERISA compliance documents, nor is a Section 125 cafeteria plan document.

The SPD must be distributed within 90 days after the participant becomes covered under the plan or within 30 days of a participant’s request.

2. Deducting pre-tax employee contributions without a Section 125 document.

To deduct employee contributions pre-tax to pay for qualified benefits, employers must have a Cafeteria Plan, or Premium Only Plan (POP), document in place. This is an IRS requirement.

Within the ERISA SPD, you must list how premiums are paid by the employer and/or the employee, which may trigger an inquiry into the existence of your Cafeteria Plan Document.

Failure to have a written Section 125 Plan document at the time of an IRS audit could cause this domino effect:

  • Amended corporate tax returns.
  • Amended W-2s for all employees who had deductions.
  • Amended tax returns for those affected employees.

3. Creating a self-administered FSA or HRA without appropriate documentation.

Within the ERISA documentation, you must list health FSA and HRA eligibility and funding methods.

Self and fully-administered health FSA and HRA plans require:

  • Formal documentation (including a written plan document and summary plan description).
  • Annual nondiscrimination testing.

Reminder: The ERISA plan documentation will include all eligibility information, waiting periods, funding methods and variable hour employee measurement period timelines for all ERISA-qualified benefits.

4. Small employers segregating assets for self-insured plans, FSAs or HRAs.

Here is a typical scenario: An employer hires a third-party administrator, adopts an HRA or FSA and is concerned about the reconciliation of the account.

What does this employer often do? Opens another employer-based account in the plan’s name and funds it fully or with a portion of the estimated liability.

Potential ERISA mistake? Segregating assets may result in the creation of an actual trust account or take the employer outside Technical Release 92-01 (a rule exempting small employers from filing a 5500), thus requiring them to file Form 5500 for that benefit and attaching either a Schedule H or Schedule I (depending on the size of the employer). To avoid this result, Employers should remove the appearance of a segregated and/or funded account.

Here’s how you can avoid the appearance of a segregated and/or funded account:

  • Fund all benefits out of the general assets of the employer.
  • Pay/reimburse premiums and expenses out of the employer’s general checking or operations account or create a new zero balance account in the employer’s name.

5. Failure to properly administer the plan in accordance with the plan documents or certificates of coverage.

Change is inevitable and it’s common for employers to periodically update their benefit eligibility provisions (e.g., waiting periods and hours of eligibility). However, many employers that change their eligibility provisions fail to update their certificates of coverage and end up administering their plan with different waiting periods and hours of eligibility than are reflected in their plan documentation. This mistake impacts ERISA and ACA requirements and could lead to employee litigation in the event of a dispute.

Remember this – The certificates of coverage are controlling; ERISA documentation should mirror the controlling language in the certificates. If any of the eligibility or funding information has changed since those certificates were adopted, the employer should ask for amended certificates.

6. Filing one Form 5500 for multiple benefit plans without a wrap document.

Unless an ERISA wrap document is in place, a separate Form 5500 should be filed for each individual benefit contract. For example, if an employer without an ERISA wrap document has a fully-insured medical plan with United Healthcare and a fully-insured dental plan through Delta Dental, they should file two separate Form 5500’s, each with an appropriately completed Schedule A attached.

Why is this a mistake? Technically, the filing would be considered delinquent because it was completed incorrectly. Penalties continue to increase, making this a costly mistake.

How do you overcome this? Ensure that you have merged any and all ERISA qualified plans into one wrap document. Before you create a wrap document, be sure to evaluate the number of covered participants in each plan at the start of the plan year, because benefits that have not hit the 100-participant threshold (described below) are not subject to the filing requirement.

7. Failure to file Forms 5500 or filing late Forms 5500.

An alarming number of fully-insured plans fail to file Form 5550 in a timely fashion.

The ERISA filing requirement affects large employers – 100 or more covered participants (i.e., enrolled employees) at the start of the plan year. Small employers may need to file if any of their plans are considered funded, as we described in mistake #4. If an employer has an ERISA wrap plan document in place, they will need to file for all of their wrapped benefits if one component benefit goes over the 100-participant threshold at the start of the plan year. 

Form 5500 filing is due the last day of the 7th month after the end of the plan year. For example, calendar year plans (ending on December 31) must file Form 5500 by July 31 of the following year. A 2 ½ month extension can be granted by filing Form 5558 by the original Form 5500 filing deadline.

Recommendation: Be proactive. Have you missed a required filing? Utilize the delinquent filer voluntary compliance program (DFVCP) to cap any potential penalties or fines. Penalties for not filing Form 5500 have increased almost 100% as of August 1, 2016. Don’t wait until you’re audited to become compliant with Form 5500 requirements!

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. Check out the latest numbers for 2019.

  • Failure to file Form 5500 may cost $2,194 per day.
  • Failure to furnish information requested by the DOL is a penalty of $156 per day, not to exceed $1,566 per request.
  • Failure to file M-1 annual report for Multiple Employer Welfare Arrangements (MEWA) may cost $1,597 per day.
  • The penalty for failure to furnish required documents (e.g., SPD and Summary Annual Report (SAR)) to a requesting participant remains at $110 per day.
  • Penalty for failing to furnish a Summary of Benefits and Coverage (SBC), as required by the Affordable Care Act (ACA), also increased from $1,128 per failure to $1,156 per failure.

How can PrimePay help?

Cost-effective, legal quality documents and filings.

With our Premier ERISA Wrap Solution, you'll benefit from our industry-leading guarantee and legal compliance review of plan documents and Form 5500 filing.

Together, we can work toward:

  • Satisfying ERISA requirements.
  • Simplifying the amendment process and reducing filing risks.
  • Removing unnecessary filing fees and streamlining documentation (based on your needs).
  • Form 5500 filing.
  • Form 5500 remediation.

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Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.