ERISA Compliance: four Key Areas To Assess To Keep away from Inadvertent, Pricey Errors

With complex laws like ERISA, compliance errors are often unintentional. (Photo: Shutterstock)

The annual increase in civil penalties for violations of ERISA, which took effect in January, is an important reminder for employers to evaluate their compliance initiatives. All employers (with the exception of churches and government agencies) who offer their employees retirement, health and welfare plans face harsh penalties if they discover a breach of mandatory disclosure and reporting requirements.

Related: A Roller Coaster Year for ERISA Litigation

With complex laws like ERISA, compliance errors are often unintentional. Here’s a look at four key areas HR professionals should evaluate to avoid mistakes that can cost businesses millions of dollars.

IRS Form 5500

IRS Form 5500 is an annual report filed with the U.S. Department of Labor (DOL) that contains information about employee retirement and social security plans, including the plan’s financial terms, investments, and operations. The IRS Form 5500 must not be submitted longer than seven months after the end of the plan year unless an extension is granted by submitting Form 5558. Failure to submit Form 5500 or reject it could cost employers $ 2,259 per day overdue for each day the submission is made.

The plan administrator is responsible for electronically signing and submitting Form 5500 to DOL and must keep copies of all submissions. For plans with fewer than 100 participants, the employer may submit a 5500-SF Short Form Annual Returns / Reports of Small Employee Benefit Plan. An important reminder, the Form 5500 must include Appendix A (Insurance Information) for each of the ERISA benefits reported for fully insured plans.

A schedule C (Service Provider Information) may be required for self-funded plans. Also, don’t forget the Annual Summary Report (SAR) requirement. Employers must provide plan participants with an SAR within nine months of the end of the plan year, which summarizes the information in Form 5500.

Summary plan description

Employers must provide all participating employees with a summary plan description (SPD) within 90 days of coverage and, if the plan changes, provide an updated SPD every five years. The SPD serves as a detailed guide to the plan and how it works and must, among other things, contain the conditions for the authorization of employees, the application process and the plan financing. A common mistake made by employers is to assume that the insurance carrier’s insurance certificate can serve as an SPD.

The SPD requirements are numerous and, in addition to ERISA, must comply with the Health Insurance Portability and Accountability Act and the Public Health Safety Act, among others. Employers who fail to provide SPD to schedule attendees upon written request will be fined from $ 119 per day up to $ 594,129. An employer who fails to provide the Department of Labor with a retirement plan documentation upon request will be required to pay $ 161 per day up to $ 1,613 per application.

Children’s health insurance program

Every year employers are required to distribute a notification of potential government-granted premium aid through the Child Health Insurance Program (CHIP). Failure to follow this notice can result in some of the most severe penalties under ERISA. The DOL updates and publishes the CHIP announcement twice a year on January 1st and July 1st. Failure to comply will result in a fine of US $ 120 per employee per day. An employer with 200 employees who does not distribute the CHIP notice for a full year could face a potential fine of more than $ 6.5 million.

Summary of benefits and insurance coverage

The Benefits and Coverage Summary (SBC) is designed to provide plan participants with an easy-to-understand explanation of the benefits so they can compare plans. The Plan Sponsor must make the SBC available within 90 days of registration and all employees during the open registration period. If the SBC is not deployed, it will cost $ 1,190 per employee per day for each SBC not deployed. An excise tax of $ 100 per employee per day may also be charged. An employer with 200 employees offering three medical plans could face fines of $ 714,000 for not making an SBC available for two years, excluding potential excise tax that may be accessed. Remember that a health reimbursement account is also a health plan and requires its own SBC.

Assessing your company’s compliance with ERISA is a daunting yet important task. Accidental mistakes cost companies significant losses as the DOL increases its oversight. Ensuring compliance not only minimizes risk, but gives your employees vital support so that they can take full advantage of the benefits available to them.

Lisa C. Allen, CHRS, CAPPP, CAS, CFC is Senior Compliance Consultant at the Alera Group.

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