ERISA Compliance Tips Shared at 'Benefits Boot Camp'

Health and welfare plans must meet reporting, disclosure and fiduciary obligations

Stephen Miller, CEBS By Stephen Miller, CEBS June 18, 2017
ERISA Compliance Tips Shared at Benefits Boot Camp

The Employee Retirement Income Security Act (ERISA) sets the parameters for what benefit plan sponsors must do, must not do, and might be able to do, but this enormously complicated statute often leaves even seasoned HR professionals perplexed.

Uche Enemchukwu, a benefits attorney and consultant at Willis Towers Watson in Chicago, provided pointers on how to navigate through the ERISA labyrinth during a workshop at the SHRM 2017 Annual Conference & Exposition.

A novice misperception is that ERISA is a statute only for retirement plans. But its provisions also apply to health and welfare plans, including medical, dental, vision, life insurance, long-term disability, and health flexible spending accounts, among others. With some exceptions—and with ERISA, there are always exceptions—"generally, any group benefit arrangement that an employer contributes to, and is involved in the administration of, can trigger ERISA," Enemchukwu noted.

ERISA exempts self-insured group health plans from many state regulations, but its own array of reporting, disclosure and fiduciary obligations apply to both self-funded and fully insured plans.

Health savings accounts (HSAs), however, which are participant-owned, are generally not ERISA plans, although they are often funded in part by employer contributions.

"Be careful," she advised. "Even a verbal promise to provide a benefit plus an initial payment can be considered a plan that must meet ERISA's obligations." Employee-paid voluntary benefits, if "endorsed" by the employer, also become ERISA plans, "so be careful about posting the vendor's logo on your website" or taking steps beyond negotiating costs, communicating what the benefit is and that it's now available, and processing salary-deferred contributions.

Three Key Areas

ERISA has three key regulatory aspects, Enemchukwu explained:

• Reporting. ERISA plans must annually file Form 5500, which was jointly developed by the Internal Revenue Service, the Department of Labor and the Pension Benefit Guaranty Corp. so that employee benefit plans could satisfy annual reporting requirements under ERISA and the Internal Revenue Code.

• Disclosure. ERISA plans must have an up-to-date written plan document accessible to participants, annually distribute a summary plan description (SPD), make a timely distribution of a summary of material modifications (SMM) if plan terms have been amended, and issue an annual financial report, among other obligations.

SPDs must be distributed within 90 days to newly covered participants, and within 120 days for new plans. SMMs must be distributed no later than 210 days after the plan year in which changes were adopted, and no later than 60 days after adoption of a "material reduction" in covered services or benefits under a health plan. An SMM, however, is not required if a new SPD (with changes) is distributed before the SMM is required.

• Fiduciary duties. ERISA's standard of conduct requires plan fiduciaries to operate for the exclusive benefit of participants and beneficiaries, and prohibits self-dealing for the fiduciaries' own benefit.

"If a decision about pricing or vendor selection can be viewed as benefiting you or someone you know, then stop, rethink it, and go back, because you're in dangerous waters," Enemchukwu advised. "Document that you thought the decision through," noting the vendors that were interviewed and the considerations on which the selection was made. In terms of liability, "it's not whether the decision turns out to have been a good one, but whether proper process was followed," she said.

"You don't want a lawsuit under ERISA" if it can be avoided, she remarked.

[SHRM members-only HR Q&A: What is a fiduciary, and what are "fiduciary responsibilities" under an ERISA-covered group health plan?]

Plan Documents and SPDs

ERISA requires each plan to have a plan document setting out all terms and conditions in full detail, and an SPD to summarize plan terms "so your participants know what their rights are and what they need to do to assert those rights," Enemchukwu said.

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Insurer-carrier-provided booklets are unlikely to satisfy SPD requirements, as they typically don't contain all the legal language that ERISA requires, she pointed out, "even if the insurer calls its booklet a summary plan description."

Unlike the plan document, an SPD "must be readable and understandable, using language a lay person would understand," she explained.

To ease compliance requirements, all health and welfare benefits can be treated as one "mega plan" by using a wrap document, so that one Form 5500 covers all the included benefits, which "cuts down time and labor," she said. Retirement plans, which are IRS-compliance-heavy, typically need to be treated separately.

Another tip is to incorporate the SPD's benefit and eligibility descriptions into the plan document, to avoid differences.

"Conflicts and gaps between the plan document and SPD can lead to litigation," she warned. "Both documents also should include statements that in case of a conflict, the plan document rules," she advised. If there are differences between the two documents that become the basis of a lawsuit, such a statement "isn't a bulletproof defense, but it offers some protection."

Electronic Distribution

Employees who have access to computers at work as an integral part of their job can have SPDs, SMMs and other required documents sent to their workplace e-mail address. If workers don't have regular computer access at work, plan sponsors must receive the employees' affirmative consent for electronic distribution.

For paper delivery, plan sponsors must be able to show that a method was chosen that was reasonable to ensure receipt, such as first-class mail. When required documents are inserted into union or company publications, a notice with the publication must state that the SPD or SMM is contained in that issue, Enemchukwu said. Putting these documents into an open-enrollment guide is another popular means of meeting disclosure requirements.

Summary of Benefits and Coverage

As if disclosure obligations weren't complicated enough, the Affordable Care Act requires distribution of yet another health-plan document, the summary of benefits and coverage (SBC). "For plan years starting Jan. 1, 2018, or later, SBCs must be in a new format," Enemchukwu noted.

During open enrollment, employers must distribute a completed SBC template for each plan option, along with a uniform glossary, to all employees eligible to enroll in health plan coverage. The electronic distribution requirements are similar to those for SPDs, and SBCs are often included in open enrollment packets.

Why another plan document? "SBCs are more focused on summarizing the cost of coverage, whereas SPDs summarize eligibility and rights under the plan," Enemchukwu explained.

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