Offering a group health plan can be one of the most challenging, yet rewarding decisions an employer can make. The employees participating in the plan, their family members, and the employer all benefit when a group health plan is in place. Administering a plan and managing its assets, however, require certain actions and involve specific responsibilities.
If you offer a group health plan and are in charge of administering the plan and managing plan assets, you are considered a plan fiduciary under the Employee Retirement Income Security Act (ERISA).
ERISA sets standards of conduct for those who manage an employee benefit plan and its assets. An ERISA-covered group
health plan is an employment-based plan that provides coverage for medical care, including hospitalization, sickness, prescription drugs, vision, or dental. A group health plan can provide benefits by using funds in a plan trust, the purchase of insurance, or by self-funding benefits from the employer’s general assets. In general, ERISA does not apply to plans established by churches or governmental entities. There are also a number of non-group health plans subject to ERISA.
WHAT ARE THE ESSENTIAL ELEMENTS OF A PLAN?
Each plan has certain key elements. These include:
- A written plan document. The written plan document describes the benefit structure and is the instrument by which the plan administrator must operate the plan.
- Documents to provide plan information to employees participating in the plan and to the government. This is
commonly referred to as a Summary Plan Description (SPD) or Wrap document. The SPD is the instrument by which the plan notifies the participants of the plan’s terms, such as plan eligibility, funding, contributions and benefits.
- A recordkeeping system to track contribution and benefit payments, maintain participant and beneficiary information, and to accurately prepare reporting documents.
Experienced Human Resources and benefits professionals, accountants, attorneys, and even insurance professionals often hold several misconceptions about ERISA.
One misconception is that an insurance company’s group insurance Benefit Summary or Certificate of Insurance is an SPD. However, Benefit Summaries and Certificates of Insurance are often not SPDs because they rarely contain all of the required ERISA language. In most cases, only an SPD or Wrap document plus the Certificates of Insurance and certain components of a benefit plan constitute a compliant SPD.
ERISA compliance is solely the employer’s responsibility.
There have been recent rumblings that the Department of Labor plans to substantially increase the number of ERISA compliance audits it conducts each year, which may strike fear into the hearts of many HR professionals, particularly those responsible for this area. The DOL has estimated that three out of four plans they audit have had an ERISA violation. While experts and advisors don’t believe that companies or their staff members are deliberately doing things incorrectly, they do believe that significant opportunities for error — and audit — exist.
Summary Plan Descriptions are often the main target of audits. It is mission critical for every employer to be in compliance with ERISA laws before a problem arises. By the time the DOL knocks on your door or an employee lawsuit surfaces, it may be too late. Failure to comply with ERISA can result in unnecessary, time-consuming,
and expensive penalties.
Contact us to find out how you can get up to speed with being ERISA compliant. We offer a number of complimentary ERISA document services to our clients.