Offering retirement and benefit plan options is one of the best things you can do for your employees. It’s also one of the most important things job seekers desire when choosing a company to work for.
However, compliance concerns can cause headaches for any business owner. To make matters worse, audits are becoming more frequent and business owners are receiving penalties if they aren’t fully compliant.
Is your business at risk? It’s important to examine requirements put into place regarding your retirement and benefit plans, such as ERISA and Nondiscrimination Testing (NDT). Good news for you, we’re here to cover it all.
First of all, what is ERISA?
The Employee Retirement Income Security Act, also known as ERISA, is a federal law that requires employers to abide by specific regulations concerning their health and welfare benefit plans.
Under ERISA, employers are responsible for submitting very detailed and time-sensitive documents to the government and to their plan participants.
ERISA’s disclosure requirements are the responsibility of the employer, not the insurance company. Failure to comply could result in significant penalties and lawsuits for the employer.
What ERISA welfare benefit penalties are given and why?
Millions of ERISA disputes and lawsuits and recorded, regarding the scope of coverage under employer-sponsored group health plans. With violations increasing, it’s crucial to ensure you are not in violation of any ERISA requirements.
We’ve heard it before…”It’s not going to happen to me.” However, it could. Take a look at the following court cases that resulted in monetary penalties. Prevent the same from happening to you:
$10,560 Penalty -- Failure to send a summary plan description on a timely basis after the plan participant made three written requests (Kasireddy v. Bank of America Corp Benefits Committee).
$17,475 Penalty - Employer failed to produce an SPD to participant thinking that a Certificate of Insurance was enough (Sunderlin v. First Reliance Standard Life Ins. Co).
$105,840 Penalty - Employer failed to properly follow up with an employee’s long-term disability claim in a diligent and timely manner (Alfano v. CIGNA Life Ins. Co.).
You can prevent this from happening.
Luckily, we have recently announced that we offer ERISA Compliance Solutions! If you’re looking for help with staying compliant, PrimePay is able to relieve that burden.
We are able to help you stay compliant by providing a PrimePay ERISA Wrap Document that bundles all health and welfare plans into a single plan, while incorporating all of the insurance company booklets and certificates by reference.
Our ERISA Compliance Solutions also provide:
- Employer Compliance Guide
- Plan Document
- Summary Plan Description (SPD)
- Summary of Material Modification (SMM)
- Summary Annual Report (SAR)
- ERISA Notices & Disclosures
- Form 5500 Filing
Through our solution you can:
- Satisfy ERISA Requirements
- Simplify the Amendment Process
- Reduce Filing Fees
- Provide Fewer SPDs
- Eliminate documentation risks
We’re not done … we can also help you with your mandatory Nondiscrimination Testing.
Wait, what is Nondiscrimination Testing (NDT)?
Cafeteria plans, health FSAs, DCAPs, and HRAs allow employers and participants to enjoy tax advantages by using them. However, testing for cafeteria plans, health FSAs, DCAPs & HRAs is required by the IRS.
Specifically, the IRS created a series of tests designed to make sure that certain highly compensated participants don’t use or select more nontaxable (pre-tax) benefits than rank-and-file (non-highly compensated) employees and that contributions and benefits are available to all employees on a nondiscriminatory basis.
The IRS mandates that pre-tax benefit plans, including cafeteria plans, Flexible Spending Accounts, Dependent Care Assistance Programs and Health Reimbursement Arrangements must pass NDT.
When can NDT be performed?
The plan tests must be passed as of the last day of the plan year. As a general rule, however, it is recommended that testing should also be performed several months before the end of the plan year.
At mid-plan year, you can take into account actual data for part of the year, including new hires, permissible midyear election changes, terminations, etc. If there are any testing problems discovered when the plan is tested at this point, you still have time to make corrections before the end of the plan year.
If your plan fails, here's what to do.
Benefits that fail the nondiscrimination test are included in gross income for highly compensated participants, when they would have been nontaxable if the plan benefits had passed the nondiscrimination tests.
In other words, the tax-free treatment of benefits provided under the plan is lost, and highly compensated participants will have imputed income equal to the salary reductions that they elected for the plan year, even if they elected all qualified benefits. The employer must treat the amount of highly compensated employees’ salary reductions as taxable income for W-2 reporting and for income tax, FICA and FUTA withholding.
That means that if the IRS discovers that your plan was discriminatory over a period of several years then there will have to be amended W-2s (and amended tax filings) for every highly compensated participant in every year the plan was out of compliance.
Get started now with NDT for your plans.
PrimePay has your back! Our procedures provide a simple process, all while ensuring your benefits remain tax compliant and your employees’ private information is secure.
PrimePay’s NDT Solution streamlines the burdensome areas of employee benefits compliance. Our simple three step process can ensure plan compliance and formally document annual testing results.
We do offer and recommend mid-year testing, which helps to uncover potential problems before year-end testing. However, remember, a test is always required at the end of a plan year.