Did you know? The Department of Labor states that three out of four employers are out of compliance with ERISA. The Employee Retirement Income Security Act (ERISA) is a federal law that requires employers to abide by specific regulations concerning health and welfare benefit plans.
The following are seven common mistakes employers make (and how you can avoid them)-
1. Failure to report and disclose plan information.
All employers are subject to ERISA except for government entities and churches. Employers offering a group health plan or ‘other’ ERISA-qualified plans to two or more employees are also subject.
The summary plan description is distributed within 30 days of a request and within 90 days after the participant (meaning, enrolled employee) becomes covered under the plan.
A certificate of insurance or benefit plan summary are not ERISA compliance documents.
2. Deducting pre-tax employee contributions without a Section 125 document.
Within the ERISA documentation, you must list how premiums are paid by the employer and/or the employee.
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
- Nondiscrimination testing could reveal a failed test
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 demand the following:
- A written plan document
- Summary Plan Descriptions
- Annual nondiscrimination testing on the highly compensated employees (HCEs) and plan contributions
Reminder: The ERISA plan documentation will include all eligibility information, waiting periods, funding methods and VHE 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 and is concerned about the reconciliation of the account.
What does this employer generally do? Opens another employer-based account in the employer’s name and funds it with a portion of the estimated liability or fully funds the account.
Potential ERISA mistake? Employers must 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 the accounts 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
Result of the mistake? The creation of a trust account, thus needing to file Form 5500. Penalties for not filing Form 5500 have increased almost 100% as of August 1, 2016.
5. Failure to properly administer the plan in accordance with the plan documents or certificates of coverage.
Many employers administer their plan with different waiting periods and hours of eligibility. This mistake impacts ERISA and ACA requirements.
Remember this – The certificates of coverage are controlling; ERISA documentation should mirror the controlling language in the certificates.
6. Filing one Form 5500 for multiple benefit plans without a wrap document.
Why is this a mistake? Technically, the filing would be considered delinquent. Penalties have increased as of August 1, 2016, making this a costly mistake.
How do you overcome this? Ensure that you have merged any and all ERISA qualified plans into one umbrella document. Before you create one umbrella document, be sure to evaluate the number of covered participants in each plan at the start of the plan year.
7. Failure to file 5500s or Filing Late 5500s.
An alarming number of fully-insured plans are failing to file Form 5550 or in a timely fashion.
The ERISA filing requirement affects large employers – 100 or more covered participants at the start of the plan year. Employee counts may differ if adopting an umbrella plan. It’s Form 5500 filing is due the last day of the 7th month after the end of the plan year but a 2.5 month extension can be granted.
Recommendation: Be proactive. Have you missed a required filing? Utilize the delinquent flier voluntary compliance program to cap any potential penalties or fines.
My other recommendation – Reach out to us! Our ERISA compliance solution will save you from the increasing penalties. Click here to learn more.