What key compliance challenges do employers face when managing employee benefits packages?
As an employer sponsoring an employee benefits package, you are required to comply with the Affordable Care Act (ACA) and The Employee Retirement Income Security Act of 1974 (ERISA) law requirements.
The landscape of compliance is continually evolving, with new rules and regulations frequently being introduced. By understanding common pitfalls, you can take proactive steps to ensure your compliance strategy is robust and effective.
Our Compliance Team is here to help you avoid these errors and remain penalty-free.
Mistake #1: Failing to Provide a Written Plan Document
Every plan subject to ERISA must have a written Plan Document. The Plan Document controls the operation and administration of the plan describing the terms and conditions, describing the benefits provided and eligibility terms, as well as detailing the rights of participants and beneficiaries.
Who must receive the Plan Document?
Participants and beneficiaries who make a written request.
Timing
A copy of the Plan document must be provided within 30 days of the written request.
Penalties for failing to provide the Plan Document
- Failure to timely supply the document may result in up to $110/day fine for every day not supplied.
- ERISA fiduciary penalties for failing to properly administer the Plan.
- Criminal penalties may be imposed on any individual or company that willfully violates any requirement of Title I of ERISA, which includes disclosure rules.
– The penalty per conviction could be $100,000 and/or imprisonment for up to ten years.
– The fine can be increased up to $500,000 if it is against a company. - Without a formal plan document it is difficult to prove plan terms allowing for extrinsic evidence to be taken into account; possible loss of deferential standard of review in benefits litigation.
Mistake #2: Failure to Comply with Section 125 Plan Requirements
A section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable. A plan offering only a choice between taxable benefits is not a section 125 plan.
Plan Document Required
The written plan must specifically describe all benefits and establish rules for eligibility and elections.
Who must receive the plan document?
Participants and beneficiaries who make a written request.
Timing
A copy of the Plan document must be provided within 30 days of the written request.
Penalties for failing to comply with Section 125 Plan Requirements
- Failure to timely supply the document may result in up to $152/day fine for every day not supplied per the DOL.
- ERISA fiduciary penalties for failing to properly administer the Plan.
- Criminal penalties may be imposed on any individual or company that willfully violates any requirement of Title I of ERISA, which includes disclosure rules.
– The penalty per conviction could be $100,000 and/or imprisonment for up to ten years.
– The fine can be increased up to $500,000 if it is against a company.
Mistake #3: Failure to Provide a Summary Plan Description (SPD)
The Summary Plan Description (SPD) is probably the most important document required by ERISA. The SPD is considered the main vehicle for communicating plan benefits, rights and obligations to participants and beneficiaries.
There is no small plan exemption from the SPD requirement. As a result, small plans (i.e., those with fewer than 100 covered participants) are subject to the SPD requirement.
Who must receive the Summary Plan Description?
- Plan participants
- COBRA Qualified Beneficiaries
- Parent of guardian of a child under QMSCO
- Retiree who remains entitled to benefits
- Spouse or other dependent of a deceased employee
Timing
A Summary Plan description should be furnished:
- Within 90 days after a participant first becomes covered under the plan.
- For new plans, within 120 days after the plan first becomes subject to ERISA.
- An updated SPD: Every 5 years or every 10 years for a plan that had no intervening changes.
Penalties for failing to provide a Summary Plan Description
- Up to $110 per day if not provided within 30 days after an individual’s request.
- Criminal penalties may be imposed on any individual or company that willfully violates any requirement of Title I of ERISA, which includes disclosure rules. The penalty per conviction could be $100,000 and / or imprisonment for up to ten years. The fine can be increased up to $500,000 if it is against a company.
- Without a formal plan document it is difficult to prove plan terms allowing for extrinsic evidence to be taken into account; possible loss of deferential standard of review in benefits litigation.
Blue Ocean is here to help you avoid fines and penalties.
We offer complete ACA and ERISA compliance consulting services that include a step-by-step course of action customized for each employer to ensure compliance requirements are met. Additionally, we provide assistance with document drafting and the preparation of Form 5500s.
Contact our team today for a compliance consultation.
The information contained herein is for informational purposes only and does not constitute financial, accounting, actuarial, or legal advice as to any particular matter. The reader should consult with a legal or other professional advisor before commencing a course of action. Acting upon information herein does not create an attorney-client relationship.