For many employers today, employee benefits constitute a significant expenditure. With that increased spending comes increased scrutiny and employer obligations to make sure that what’s being promised is actually being provided.
Paul Jackson, a labor and employment attorney with Roetzel & Andress, L.P.A., says it’s important for business owners to make sure benefit plans are in compliance with the federal law known as the Employee Retirement Income Security Act (ERISA).
Smart Business spoke with Jackson about why business owners should be concerned about their company’s ERISA plans and what they should know about ERISA compliance review.
What is an ERISA plan?
An ERISA plan is an employee pension benefit plan or employee welfare benefit plan. An employee pension benefit plan, as defined by ERISA, includes any plan, fund or program established or maintained by an employer, an employee organization or both, that provides retirement income to employees or results in the deferral of income by employees for periods extending beyond the termination of their employment. Therefore, if the employer has any arrangement designed to make payments to an employee after the termination of employment, that arrangement is likely an employee pension benefit plan under ERISA.
Employee welfare benefit plans can provide medical or hospitalization benefits; benefits in the event of sickness, accident, disability, death or unemployment; or benefits for training, day-care centers, scholarship funds or prepaid legal services.
Why should I be concerned with my company’s ERISA plan?
The persons involved in the operation of the plan or benefit arrangement can be and often are considered fiduciaries under ERISA. Fiduciaries have greater responsibilities and personal liability for failing to comply with those duties.
Additionally, the Department of Labor’s Pension and Welfare Benefit Administration has increased its enforcement activity. Currently, the Department of Labor (DOL) targets pension, health and welfare plans due to the downturn in the economy and the recent publicity regarding high-profile loss-of-benefits cases. There are potential civil and criminal penalties for an employer that doesn’t comply with ERISA. There also has been an increase in cases of employees claiming their employer failed to exercise sufficient oversight because of the significance of the benefits involved.
What is involved in ERISA compliance review?
An ERISA compliance review typically involves an evaluation of a company’s plans, summary plan descriptions and annual filings. Additionally, questions are asked regarding the compliance of fiduci-aries with their responsibilities, a review of the persons who act as fiduciaries, and a review of the insurability of the exposure of the fiduciaries involved with the ERISA retirement or welfare benefit plan. Finally, a review is conducted to make sure the plans are being operated properly.
What key points should be examined in a compliance review?
Documentary compliance: The plan and trust documents, summary plan descriptions, employee communication materials (such as employee notices) and enrollment forms are reviewed to ensure they’re consistent and in compliance. For example, many plan sponsors don’t have actual ERISA documents for their health plans, instead using booklets supplied by their insurance carriers. These booklets frequently don’t meet ERISA’s plan documentation standards and often don’t conform with a plan’s actual administrative practices.
ERISA requires a plan be operated in accordance with its written plan documents. In addition, such documentation is frequently not in compliance with the Health Insurance Portability and Accountability Act (HIPAA). All of these documents must be examined, as they are an employer’s best line of defense in a litigation or claim situation.
Operational compliance: The plan’s annual Form 5500 filings and any other filings made by the plan are examined to make sure those requirements are being met. Verification must be made so the plans are being operated according to their written terms. Such a review may include looking at definitions and eligibility requirements and how the plan is actually being administered.
The DOL recently issued guidance as to the requested claims procedure for welfare benefit plans. The provisions in the employer’s plan must be consistent with the DOL’s requirements, and the persons responsible for those claims procedures must be aware of and follow those requirements.
Fiduciary compliance: Fiduciaries, who may be the business owner or a manager, have a number of personal obligations to all plan participants. In this part of the review, an analysis is made to determine who the fiduciaries are, what their obligations are and what each must do to comply with those obligations. This is one area frequently overlooked until a claim in litigation is made.
PAUL L. JACKSON is a partner with the Labor and Employment Group at Roetzel & Andress, L.P.A. His practice focuses on employee benefits, regulatory compliance, union matters, and labor and employment litigation. Reach him at (330) 849-6657 or email@example.com.