With the ongoing implementation of health care reform, many employer groups have missed the obligations set forth in the Employee Retirement Income Security Act of 1974 (ERISA).
“The federal government has started systematic audits of group health plans, primarily for compliance with health care reform. They will also include compliance for ERISA. A key provision requires plan participants to be provided with a Summary Plan Description (SPD),” says Chuck Whitford, a client advisor at JRG Advisors.
A SPD is a document that is provided to plan participants to explain the plan’s benefits, claims review procedures and participants’ rights. ERISA contains standards for distribution and the information that must be included.
Smart Business spoke with Whitford about what you should know about your SPD obligations.
What are big misconceptions about SPDs?
The two biggest misconceptions among employers are 1) only large employers are required to provide SPDs and 2) the benefit booklet issued by the insurance company fulfills the obligation to provide participants with a SPD. In fact, all group health plans subject to ERISA must provide participants with a SPD, regardless of size. Both insured and self-funded group plans must comply with ERISA’s SPD requirements.
The insurance company booklet will contain detailed information regarding the plan benefits and coverage. In many cases, however, the plan sponsor (typically the employer) will need to provide additional information not contained within the insurance booklet to comply with the SPD content requirements.
What are employers’ SPD responsibilities?
Employers are responsible for providing a SPD within 120 days of starting a group health plan; within 90 days of enrollment for new participants; within 30 days of a participant’s request for a SPD; every five years if material modifications are made during that period; and every 10 years if no changes have occurred.
The plan sponsor also must provide a SPD to the Department of Labor within 30 days of the request. Failure to do so can result in a civil penalty of up to $110 per day for each day such failure continues, subject to a maximum penalty of $1,100 per request. Multiple requests for the same or similar documents are considered separate requests.
A companion document, a Summary of Material Modifications, must be provided within 210 days after the close of the plan year in which a change was adopted. If benefits or services are materially reduced, participants must be provided notice within 60 days from adoption.
In addition to the SPD, the Affordable Care Act requires plan administrators and issuers to provide a Summary of Benefits and Coverage 60 days in advance of any change in plan terms or coverage that takes place mid-plan year.
The plan administrator is required to provide the SPD to participants in a manner reasonably calculated to ensure actual receipt of material by the participant.
Employers may deliver the document by hand or send it by U.S. mail. First class is preferred, but second or third class is acceptable if return and forwarding postage is guaranteed and address correction is requested. If the SPD is sent electronically, it must follow the Department of Labor’s safe harbor provision applicable to the electronic delivery of SPDs.
How can employers streamline their efforts?
For the sake of simplicity, rather than having a separate SPD for each benefit offered, an employer can combine all ERISA-covered benefits under a single document that includes the SPD. It can function as both the plan document and the SPD.
Rather than being another paperwork burden, use this document to streamline compliance efforts. Besides the required plan provisions, there are many administrative functions that are not required to be in the plan document, such as filing creditable coverage certifications and distributing various notices. When the government audits, it asks the employer to prove it met all additional requirements, such as showing the notices or certifications and producing evidence they were provided as required.
It makes sense for employers to review what and how they communicate ERISA-required information to plan participants. You will want all documents in order when the Department of Labor comes calling. ●
Insights Employee Benefits is brought to you by JRG Advisors
The Patient Protection and Affordable Care Act (ACA) will have a profound effect on most employers that offer health plans in 2014.
“Passing the law was the easy part. The process of issuing regulations and guidance between three separate federal agencies — Health and Human Services, Department of Labor and the IRS — is the difficult part. Add to the mix an occasional court ruling and you have the perfect recipe for confusion and the risk of misinformation,” says Chuck Whitford, client advisor at JRG Advisors, the management arm of ChamberChoice.
Smart Business spoke with Whitford about points to consider in the coming year with the ACA.
What’s the first step going into 2014?
Going back to basics, determine if your plan is ‘grandfathered.’ A plan that essentially hasn’t changed since March 23, 2010, is most likely grandfathered. However, if you changed insurance companies before Nov. 1, 2010, or passed along the majority of the rate increases to employees, the plan you thought was grandfathered may not be.
You must tell employees if you have a grandfathered plan. A grandfathered plan can be exempt from some of the ACA rules, such as covering preventive care at 100 percent, continuing coverage for ‘adult dependents’ to age 26 and nondiscrimination rules for fully-insured plans.
How will the exchanges affect employers?
You will most likely be asked questions about the new health insurance benefits exchanges, also known as marketplaces. They are primarily online marketplaces for purchasing health insurance, run either by a state or the federal government. The federal government has a hand in, at least, running exchanges in 33 states. There are two types — one for individuals and one for small employers, generally up to 50 employees.
There have been glitches in these online systems. Once problems are fixed, it should be easier for individuals to review available plans and see if they qualify for subsidies to reduce premiums or, in some cases, reduce the cost sharing of deductibles and coinsurance.
What’s important to know about full-time equivalent (FTE) employees?
For the purpose of the ACA, a full-time employee works 30 or more hours per week, or 130 hours per month. The law requires employers to track the number of full-time employees and add up the hours worked by their part-time employees each month (up to 120 hours per month) and divide by 120 to determine the number of fractional ‘equivalent’ employees.
Employers with 49.99 or fewer FTEs don’t have any requirements to offer coverage and won’t be assessed penalties. The ACA still will impact their health plan’s rates, and they must comply with the 90-day waiting period limit and other ACA provisions.
Employers with 50 or more FTEs must offer coverage, deemed affordable and of minimum value, to all full-time employees and dependents to age 26. If any full-time employee receives subsidized coverage in an exchange, it triggers employer penalties. The ACA defines affordability as the employee’s cost for single coverage not exceeding 9.5 percent of income. A plan covering at least 60 percent of costs on average is considered minimum value.
In July, the Obama administration announced a one-year delay in the penalties and employer reporting. This can create a different set of issues for an employer that offers coverage to employees that work, say, 40 hours per week and has employees who work between 30 and 39 hours per week. These employers may want to hold off extending coverage to their 30- to 39-hour employees until 2015. However, with the individual mandate, employees not offered employer-sponsored coverage might go to the exchange. Some will qualify for a subsidy and also may qualify for cost-sharing reductions. Fast forward to 2015, employers wishing to avoid the nondeductible excise taxes (penalties) may extend eligibility of an affordable plan that meets minimum value to these employees, removing exchange subsidies and increasing the employees’ cost.
Because of the complex nature of the ACA, employers are encouraged to review their employee benefits strategy and communications for 2014 and beyond with a qualified advisor. ●
Insights Employee Benefits is brought to you by ChamberChoice