First things first, what exactly is ERISA? In short, The Employee Retirement Income Security Act (ERISA) is a federal law that was enacted in 1974 to safeguard and protect qualified individuals with voluntary retirement and health plans in the private sector.
It does this by establishing guidelines, primarily enforced by the DOL, for insurance carriers, pensions, and private employers that mandates they provide participants with certain plan information, fiduciary responsibilities, and a grievance and appeals process for their benefits. Employers who fail to comply with ERISA could face upwards of hundreds of thousands of dollars in penalties. The fines apply to every plan, are cumulative (get fined per day per violation) and are not subject to a statute of limitations. To put it simply, that would not be good. Thankfully there are a few things employers can do to make sure they comply with ERISA.
Importance of the SPD
Different from Summaries of Benefits or Certificates of Coverage, the Summary Plan Description (SPD) is the most important document the DOL requires employers provide to each participant on a plan. The most common mistake employers can make is not differentiating Certificates of Coverage provided by the carrier and other similar Summaries of Benefits from SPDs. Not only should the SPD clearly list the benefits offered by the plan, rules and guidelines for obtaining and using those benefits, and how the claims and appeals procedures work, but it should also include a statement of ERISA rights. Tip: even though ERISA requires an SPD for ever single plan offered, employers can use what is called a “wrap” document to group all the plans under an ERISA compliant SPD and statement of rights if done so correctly.
Aside from the SPD itself, the distribution method and timeline can be another potentially compliance violation that can trip up employers. ERISA guidelines state that SPDs must be provided to new participants within 90 days or within 120 days for new plans. In addition to when the SPDs are distributed, the guidelines state that a “reasonable” distribution method must be used. First class mail is the safest bet, but electronic delivery is becoming more popular only if the employer knows that all employees have access to email.
Disclosure and Reporting
The plan or arrangement with more than 100 participants must file the Form 5500 under ERISA. The purpose of this filing is to ensure that employee benefits are managed and operated in accordance with ERISA standards. Form 5500 must be filed electronically and they must be filled no later than the last day of the calendar month following the seventh calendar month following the end of the plan year. For calendar plan years that would be July 31st .
In addition to filling Form 5500, ERISA also requires plan sponsors to issue a Summary Annual Report (SAR) that summarizes what was reported on the Form 5500 filing to all the plan participants and their beneficiaries. The SAR needs to include a straightforward financial statement which states plan expenses, the value of the plan’s assets, amount of plan contributions and a section outlining a participant’s rights to additional information. Even though the SAR is a summarized version, plan participants do have the right to request a full copy of Form 5500.
It Helps to Have a Helping Hand
When it comes to ERISA, the term “plan participants” is commonly used to describe those who the guidelines are trying to protect. What gets lost with some employers, however, is that ‘plan participant’ isn’t the same as ‘employee’. One of the biggest ERISA challenges company HR departments face is remembering that their current employees aren’t their only responsibility – any retiree or COBRA participant on any of their group plans is also a plan participant and therefore permitted the same rights under ERISA as active employees. They need to be reported on Form 5500, sent an SPD when necessary, and they are entitled to a SAR when it applies. Even though that is still the responsibility of the plan sponsors it certainly helps to have a COBRA/Retiree TPA that not only administers COBRA but can also be a valuable resource to any company who needs to stay ERISA compliant. From tracking and reporting, to distribution, to anything in between, a first-rate COBRA vendor can make a big difference and hopefully help you avoid costly penalties.
If you need help with your ERISA or anything else when it comes to retirement for the company work for, contact the COBRA experts today. Our team is always ready and willing to help!