The Department of Labor (DOL) has routinely conducted compliance audits on health and welfare plans.
“In the past, audits were either random, based on targeted industries with a history of compliance problems, or triggered by participant complaints,” says Frances Horn, employee benefits compliance officer at JRG Advisors. “Perhaps you have heard though, that health and welfare plan audits are on the upswing, with the DOL expressing its goal to audit all employee benefit plans. So, like it or not, they’re coming.”
Smart Business spoke with Horn about health and welfare plan audits today, including how to prepare.
How do health and welfare plan audits typically work?
A health and welfare plan audit is a review of documents and other plan materials. Its purpose is to ensure plan sponsors comply with federal law by maintaining accurate documents and administering those documents in accordance with federal laws and regulations.
An agency investigator looks at many things, each with a nod toward compliance or a menu of fines for noncompliance. Investigations will begin with the DOL requesting the plan sponsor to provide copies of Summary Plan Descriptions, plan documents, Summaries of Material Modifications, 5500 filings and other materials distributed to employees (such as enrollment packages) or filed with the government.
The DOL also may request proof of distribution of notices — including those connected with the Employee Retirement Income Security Act of 1974 (ERISA), the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA), Children’s Health Insurance Program Reauthorization Act (CHIPRA) and the Women’s Health and Cancer Rights Act. Requirements under the Affordable Care Act (ACA) have extended the list of requested documents to include the summary of benefits and coverage and notices on grandfather status, rescission of coverage, patient protection rights, lifetime maximums and dependent coverage to age 26.
Why do so many employers fear these audits?
Employers fear DOL audits because not being compliant with the myriad rules regulating welfare plans can put an employer at risk of being subject to significant penalties. ERISA’s disclosure requirements can carry a fine of $110 per day. In addition, failure to comply with group health plan standards can trigger IRS excise taxes of $100 per affected person for each day of noncompliance.
How can employers get ready for DOL audits?
The DOL has made available a compliance guide for health benefits coverage, which includes a two-part self-compliance tool. The publication is written to represent the topics a typical investigator would likely examine during a health plan audit. The publication doesn’t cover all the specifics associated with each law governing employee benefits but it does provide a basic understanding of your obligations.
Employers need to take steps in order to be as ‘audit-ready’ as possible. That means ensuring documentation and procedures are in place to support group health plan compliance, paying particular attention to the requirements under the ACA. The employer should be ready to identify its plan year and the plan’s status as to compliance with federal mandates and market reforms.
What actually needs to be reviewed and retained by a plan sponsor can vary. Considerations include the type of benefits offered, the laws that apply to those benefits, whether a benefit is fully or self-insured, number of plan participants and whether there is a third-party service provider.
The number of employers receiving audit notices for their health and welfare plans is on the upswing. Being prepared and organized is in the best interest of any employer. An employer’s proactive compliance review of its health and welfare plans may be cumbersome but could demonstrate a good effort to understand and comply with the law.
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