Category: ERISA

Can carrier plan materials serve as the SPD?

On By Michelle Turner, MBA, CEBSIn ERISALeave a comment
scratching head
Background

Under ERISA, all employers who offer group health and welfare benefits to their employees are required to maintain and distribute Summary Plan Descriptions (SPDs) to plan participants.

Definitions:

Plan Document – per ERISA, every employee benefit plan must be “established and maintained pursuant to a written instrument” called the plan document.

  • It is the legal document that governs the plan.
  • Must contain certain terms required by ERISA -which are almost never included in the insurer’s documents
  • It is typically written in legalese
  • It does not need to be distributed unless requested. Failure to furnish the documents within 30 days after the request may expose the employer to penalties of up to $110 per day

Summary [of the] Plan Document (SPD)

  • Primary method for communicating the plan terms to participants
  • Written in plain language and in a manner to be understood by the average plan participant
  • Must be distributed at specific times to participants (e.g., within 90 days of the employee enrolling in the plan.)
  • ERISA requires specific information to be included in the SPD, such as plan name, name of the plan sponsor & EIN, plan number, plan year, eligibility information (e.g., waiting period), a description of plan benefits and circumstances causing loss or denial of benefits, benefit claim procedures, and a statement of participants’ ERISA rights

NOTE: A summary of benefits and coverage (SBC) is also required for group health plans but it is separate from and in addition to the plan document and the SPD

Employers with fully insured benefits receive plan materials (e.g., certificate of coverage) from the insurer (i.e., carrier) that describes the coverage provided under the plan. The carrier materials generally contain detailed benefits information, information on claims procedures and rights under ERISA but other ERISA required details (e.g., descriptions of eligibility, circumstances causing loss of benefits) are often missing. Therefore, it’s unlikely the insurer’s materials can serve as the SPD on its own. 

ERISA’s requirements are the responsibility of the employer and plan administrator (typically the employer is the plan administrator), not the insurance company. Group insurance policies are written to cover the state-law and legal requirements of the insurance carrier, not to satisfy the requirements of ERISA, nor to provide legal protection to the employer. If the carrier materials do not satisfy ERISA’s requirements, it is the employer that violates ERISA, not the carrier.

Sometimes carriers will customize their materials and include employer and plan-identifying information, but that information may be incomplete or inaccurate and even with this additional customization the carrier documents often still do not contain the details required to satisfy ERISA’s plan document requirements.

Solution: A Wrap Document

Many employers use a separate document that, when combined with the carrier-provided materials, contains all the “bells and whistles” required to satisfy ERISA’s requirements for an SPD, as well as certain other disclosures required under ERISA and COBRA. This separate document “wraps around” (i.e. incorporates by reference) the certificates and other benefit materials (e.g. summaries, open enrollment guide) for each plan option or component plan, creating a complete SPD.

When an employer combines their health and welfare benefits into one document, the employer can file one Form 5500 (rather than a separate 5500 for each benefit).

Many employers use a single consolidated document as both the wrap plan document and the wrap SPD. If this approach is taken, the document must comply with both ERISA’s written plan document requirements and its SPD format and content rules.

The wrap document and the underlying carrier plan documents should be consistent and drafted to avoid creating conflicts. However, in the event of conflicting terms, generally, as long as the carrier documents comply with applicable federal law, the wrap document defers to the carrier documents only filling in the gaps when the carrier document is lacking.

Why It Matters?

Employers face strict deadlines and liability under ERISA law and failure to comply with ERISA requirements can lead to costly government penalties and even employee lawsuits. According to a U.S. Department of Labor (DOL) audit report for the 2020 fiscal year, 67% of investigations resulted in penalties or required other corrective action.

The DOL has recently enhanced its enforcement of ERISA violations by significantly increasing the number of audits it is conducting. Many employers think “It will not happen to me”, however, the DOL conducts over 3,000 audits each year with an increase on employers with fewer than 500 employees. (See: Are You Prepared for a DOL Audit?)

Given the recent upswing in health and welfare plan audits and the potentially stiff penalties for noncompliance, as a best practice and additional level of protection, employers should have a wrap plan document created to ensure they have and are providing an ERISA compliant SPD.

If you have questions about the above, or need help with another employee benefits administration question, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Are You Prepared for a DOL Audit?

On By Michelle Turner, MBA, CEBSIn ERISA1 Comment
EBSA, a division of the DOL responsible for ensuring the integrity of nearly 722,000 retirement plans, approximately 2.5 million health plans, and a similar number of other welfare benefit plans, such as those providing life or disability insurance in the United States, closed 1,122 civil investigations with 754 of those cases (67%) resulting in monetary results for plans or other corrective action in Fiscal Year 2020. EBSA recovered:

• over $3.1 billion in direct payment to plans, participants and beneficiaries
• 456.3 million in connection with 171,863 “complaints” with an employee benefit plan by an individual

The risk is real! It is not a matter of “if” but “when” you get audited! In today’s information age, the government agencies easily share information too, so a “complaint” and investigation by one entity could lead to an audit by another. There are no “absolutes”.

What is your risk tolerance?

3 Tips for Proactive Employee Benefits Compliance

Tip #1 – Maintain written plan documents for every employee benefit plan. 

If you are ever selected for a DOL audit, it is important to have documents showing you are complying with ERISA and that you are maintaining these documents. This may not only reduce your exposure to penalties but also make the audit process more manageable and less time-consuming.

Plan documents are the foundation of any ERISA plan that you sponsor (i.e., all employer-sponsored plans, except churches and governments). ERISA requires that every employee benefit plan have a written plan document that describes the benefit structure and guides the plan’s day-to-day operations.  

Documents from the carrier are not usually ERISA plan documents. Carriers are not subject to ERISA. Their documents may have about 80% of what ERISA requires but typically are missing critical information (e.g., plan #, named fiduciary, ERISA discretionary authority language).  So, plan sponsors (e.g., employers) need to do something on top of the carrier documents. 

Tip #2 – Establish formal process for providing required ERISA documents to plan participants and beneficiaries.

ERISA has two primary requirements and satisfying both requirements fall on the plan administrator (typically the employer). In addition to the plan document requirement mentioned above, ERISA also requires that plan participants and beneficiaries receive specific documents at certain times of the year.  For instance:

  • Summary Plan Description – upon enrollment and at various other times, providing information the participant may rely on about the plan’s terms, including who is eligible and what the benefits are.
  • Summary of Benefits and Coverage (SBC) – upon enrollment and within 7 days upon request
  • Marketplace Coverage Notice – within 14 days of employee’s start date
  • Children’s Health Insurance Program Reauthorization Act (CHIPRA) – on the first day of each plan year, to all employees who reside in a state which medical premium assistance is available, regardless of the employer’s location, and at the time of initial enrollment.

There are potential penalties associated with not providing the document when required. Employers should keep a record of when these documents are provided, to whom and how. The DOL during an audit is likely to ask for proof of the required participant communications.

Tip #3 – Have a formal document retention policy.

ERISA generally requires employee benefit plan documents to be retained at a minimum of six years after the plan’s Form 5500 filing due date. (Employers who do not have a Form 5500 filing obligation also must maintain the documents for six years after the date a Form 5500 would have been filed if it were not for an exemption.)

Documents that should be retained include but not limited to:

  • Original signed plan documents and amendments
  • Corporate resolutions and/or committee actions related to the plan
  • Plan disclosures and communications to participants (including Summary Plan Descriptions and Summary of Material Modifications) –notices, open enrollment guides
  • Financial reports, audits, and related statements
  • Form 5500s
  • Trust documents
  • Nondiscrimination and coverage testing results
  • Disputed claim records in the event of future litigation
  • Payroll and census data used to determine eligibility and contributions

Best practice is to maintain these documents for the life of the plan, providing a paper trail of the plan from its beginning.

Bonus Tip: Do not let your first audit be with the DOL!

Plan sponsors on a regular basis should complete an internal compliance audit or “check-up” of their employee benefit plans for compliance with ERISA and other legal requirements. The check-up can uncover areas that an employer should be doing differently or need to be changing prospectively, making the DOL audit process more manageable and less time consuming.

Regardless of how sound your business practices are, every organization should be prepared for a DOL audit.



If you have any questions about the above, or want assistance with an internal compliance checkup, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Required Annual Notices for Health & Welfare Plans & Electronic Disclosure

On By Michelle Turner, MBA, CEBSIn ERISALeave a comment

Q: We have a client with many factory workers who do not have computers for work but they do have a breakroom with computers that employees can access regularly. Does this satisfies the requirement for electronic distribution?

A: If an employer wishes to provide annual notices electronically, there is an electronic safe harbor for distribution of documents for individuals without regular work-related computer access. However, the employer would need to have these employees affirmatively consent to the electronic disclosure and provide an email address for delivery of the documents. The employee, prior to giving consent must have been provided information that explains:

·   the types of documents that will be provided electronically;

·   that consent can be withdrawn without charge;

·   the procedures for withdrawing consent and updating information (e.g., address for receiving electronic disclosure);

·   the right to request a paper version and whether a charge applies; and

·   the electronic delivery system and what hardware and software will be needed to use it.

Reference/Resources:

“The Five Ws, and One H of Required Annual Notices for Health & Welfare Plans.” Alera Group, 2 Oct. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-required-annual-notices-for-health-welfare-plans-100120/.

Understanding Wrap Plan Documents & Summary Plan Descriptions

On By Michelle Turner, MBA, CEBSIn ERISALeave a comment

Many employers do not fully understand Employee Retirement Income Security Act (ERISA), how it impacts business and employees, and the possible risks it presents. Employers face strict deadlines and liability under ERISA law and failure to comply with ERISA requirements can lead to costly government penalties and even employee lawsuits. According to a U.S. Department of Labor (DOL) audit report for the 2019 fiscal year, 67% of investigations resulted in penalties or required other corrective action.

One requirement under Section 402 of ERISA is that all employers who offer group health and welfare benefits to their employees, maintain a written plan document, and distribute summary plan descriptions (SPD) to plan participants.

The plan document must clearly identify certain information and provisions about the plan benefits, including the responsibilities for the operation and administration of the plan. Whereas the summary (of the) plan document (SPD) also referred to as a summary plan description, is “the primary vehicle for informing participants and beneficiaries about their rights and benefits.”

Many employers make an incorrect assumption that the documents (e.g., coverage certificate or plan booklet) they received from their insurance carrier or third-party administrator (TPA) satisfies ERISA’s plan document requirements. It is true, these documents generally include detailed descriptions of the benefits available under the plan however, they do not contain everything that is required to satisfy ERISA’s plan document requirements. Group insurance policies are written to cover the legal needs of the insurance carrier, not to satisfy the requirements of ERISA, or to provide legal protection to the Employer.

ERISA’s requirements are the responsibility of the employer and plan administrator, not the insurance company. If the insurance booklets do not satisfy ERISA’s requirements, it is the employer that violates ERISA, not the insurance company.

 A Wrap Plan Document Fills the Gaps

A Wrap Plan Document is an umbrella document that wraps around existing carrier documents to ensure the required provisions and language to comply with ERISA are provided.  It contains legalese.  This umbrella document incorporates all other welfare plans, insurance contracts (medical, dental, vision, etc.) and other relevant documents to create one “plan”, generally referred to as ABC Company’s Health & Welfare Benefit Plan. The Wrap Plan Document provides additional legal protection for the employer and plan fiduciaries and can simplify plan administration.

A Wrap Summary Plan Description is a Summary [of the Wrap] Plan Document written in language that can be understood by the typical participant. It wraps around the carrier certificate of coverage or other benefit plan documents, to ensure ERISA’s requirements which are often missing from carrier documents are included. To be compliant, the Wrap SPD and accompanying benefit plan component documents must be distributed to plan participant at specific times.

The benefits available under a wrap plan document (e.g., ABC Company’s Health & Welfare Benefit Plan) are still governed by the insurance carrier’s policies. The wrap document simply supplements the information necessary to comply with ERISA—filling the gaps left by the insurance carrier’s (or TPAs) plan booklets.

Resources:

“The Five Ws, and One H of Wrap Documents.” Alera Group, 10 Aug. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-wrap-documents-081020/.

Can carrier plan materials serve as the SPD?

On By Michelle Turner, MBA, CEBSIn ERISALeave a comment
scratching head
Background

Under ERISA, all employers who offer group health and welfare benefits to their employees are required to maintain and distribute Summary Plan Descriptions (SPDs) to plan participants.

Definitions:

Plan Document – per ERISA, plans must be “established and maintained pursuant to a written instrument” called the plan document. It’s a document containing legalese, governing the terms of the plan including items such as: eligibility, participant and beneficiary rights, benefits available, how benefits are funded, and the named fiduciary. The plan document must be distributed upon request and failure to furnish the documents within 30 days after the request may expose the employer to penalties of up to $110 per day.

Summary [of the] Plan Document (SPD) – is a summary of the plan document written in language that can be understood by the typical participant. The SPD must be distributed at specific times to participants (e.g. within 90 days of the employee enrolling in the plan.) ERISA also requires specific information to be included in the SPD, such as: plan name, name of the plan sponsor & EIN, plan number, plan year, eligibility information (e.g waiting period), a description of plan benefits and circumstances causing loss or denial of benefits, benefit claim procedures, and a statement of participants’ ERISA rights.

NOTE: A summary of benefits and coverage (SBC) is also required for group health plans but is separate from and in addition to the plan document and the SPD

Employers with fully insured benefits receive plan materials (e.g. certificate of coverage) from the insurer (i.e. carrier) that describes the coverage provided under the plan. The carrier materials generally contain detailed benefits information, information on claims procedures and rights under ERISA but other ERISA required details (e.g. descriptions of eligibility, circumstances causing loss of benefits) are often missing. Therefore, it’s unlikely the the insurer’s materials can serve as the SPD on its own. 

ERISA’s requirements are the responsibility of the employer and plan administrator (typically the employer is the plan administrator), not the insurance company. Group insurance policies are written to cover the state-law and legal requirements of the insurance carrier, not to satisfy the requirements of ERISA, nor to provide legal protection to the employer. If the carrier materials do not satisfy ERISA’s requirements, it is the employer that violates ERISA, not the carrier.

Sometimes carriers will customize their materials and include employer and plan-identifying information, but that information may be incomplete or inaccurate and even with this additional customization the carrier documents often still do not contain the necessary details required to satisfy ERISA’s plan document requirements.

Solution: A Wrap Document

Many employers use a separate document that, when combined with the carrier provided materials, contains all of the “bells and whistles” required to satisfy ERISA’s requirements for an SPD, as well as certain other disclosures required under ERISA and COBRA. This separate document “wraps around” (i.e. incorporates by reference) the certificates and other benefit materials (e.g. summaries, open enrollment guide) for each plan option or component plan, thereby creating a complete SPD.

Another benefit of the “wrap document” is by combining all of the employer’s health and welfare benefits into one document, the employer can file one 5500 (rather than a separate 5500 for each benefit).

Many employers use a single document as both the wrap plan document/SPD and have the plan document and SPD as a consolidated document. If this approach is taken, the document must comply with both ERISA’s written plan document requirements and its SPD format and content rules.

The wrap document and the underlying carrier plan documents should be consistent and drafted to avoid creating conflicts. However, in the event of conflicting terms, generally, as long as the carrier documents comply with applicable federal law, the wrap document defers to the carrier documents only filling in the gaps when the carrier document is lacking.

Why It Matters?

Employers face strict deadlines and liability under ERISA law and failure to comply with ERISA requirements can lead to costly government penalties and even employee lawsuits. According to a U.S. Department of Labor (DOL) audit report for the 2018 fiscal year, 64.7% of investigations resulted in penalties or required other corrective action.

The DOL has recently enhanced its enforcement of ERISA violations by significantly increasing the number of audits it is conducting. Many employers think “It’s not going to happen to me”, however, the DOL conducts more than 3,000 audits each year with an increase on employers with fewer than 500 employees.

Given the recent upswing in health and welfare plan audits and the potentially stiff penalties for noncompliance, as a best practice and additional level of protection, employers should have a wrap plan document created to ensure they have and are providing an ERISA compliant SPD.

If you have questions about the above, or need help with another employee benefits administration question, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

Life Insurance – Portability & Conversion

On By Michelle Turner, MBA, CEBSIn eligibility, ERISALeave a comment

life insurance

When an employee goes out on a leave of absence or terminates employment, it is important for employers to have a dedicated process for notifying employees of critical changes to their benefits and what is required of an employee to continue their benefits.

Often employers remember to advise about COBRA eligible benefits but forget they are also responsible for providing information about life insurance, including portability or conversion information to employees who are losing benefit eligibility.

Background: Both the portability and conversion provisions allow the employee to continue life coverage that is lost due to an employment status change.  Policies may vary, so one needs to refer to their specific policy for clarification.

  • Portability –  When an employee ports coverage, they keep the group term life coverage offered by their employer along with some, but not all of the optional benefits that were included.
  • Conversion – When an employee converts coverage, they are converting to an individual whole life (or permanent life) insurance policy. The converted policy only provides life insurance and does not include the optional benefits such as Waiver of Premium, Accidental Death and Dismemberment.

In the case of, Erwood v. Life Insurance Company of North America and WellStar Health System, Inc., a federal district court awarded $750,000 in damages to Patricia Erwood, the wife of a deceased former employee of WellStar Health System whose life insurance lapsed while he was out on disability, and the employer failed to notify him of his conversion rights.

Even though the employer had sent the employee an FMLA leave packet that included information about it being possible to continue his life insurance benefits, the court noted that the FMLA packet did not include the materials necessary to convert, where to find the materials nor when the materials would be due if he was interested in continuing his coverage. 

This is just one of several cases which demonstrates relying on the benefit plan documents or a generalized communication may not be sufficient. Employers need to be mindful they have an ERISA fiduciary duty to adequately inform participants of their benefits and provide complete information regarding the steps necessary to keep their insurance benefits, including portability and conversion.

 

 

Qualified Medical Child Support Order (QMSCO) & National Medical Support Notices (NMSN)

On By Michelle Turner, MBA, CEBSIn ERISALeave a comment

question 06272019

The Employee Retirement Income Security Act (ERISA) requires employment-based group health plans to extend health care coverage to the children of a parent-employee who is divorced, separated, or never married when ordered to do so by state authorities.

Generally, a State court or agency may require an ERISA-covered health plan to provide health benefits coverage to children by issuing a medical child support order. The court order forces coverage under the plan, even if the employee is not interested in obtaining plan coverage for the child.

Under ERISA §609(a), the group health plan must have procedures established to determine whether the medical child support order is “qualified”. Such an order is referred to as a Qualified Medical Child Support Order (QMCSO).

In addition, a State child support enforcement agency may obtain group health coverage for a child by issuing a National Medical Support Notice (NMSN). A NMSN is treated like a QMSCO if the group health plan determines it to be qualified (i.e. it’s appropriately completed by the agency).

Under the terms of the law, child support or other court orders which do not meet all the qualification requirements, are not “qualified” and plans are not required to provide any benefits to child, unless the deficiencies are later corrected.

Once a medical child support order has been determined to be a QMCSO, then the plan administrator must act in accordance with the order’s provisions as if it were part of the plan. (Qualified Medical Child Support Orders, Q/A 1-25)

Thus, plan administrators must comply with general QMCSO requirements when processing and administering benefits.  For instance: 

  • If the employee is eligible to participate in the plan, the child must be covered.
  • If, the employee is not enrolled in the plan, but as a condition for covering his dependents, the employee must be enrolled, the plan must enroll both.
  • If the employee named in a medical child support order has not satisfied the plan’s generally applicable waiting period, the administrator should have procedures in place so that the child will begin receiving benefits upon the employee’s satisfaction
    of the waiting period.
  • If a group health plan does not provide any dependent coverage, an order may not require a plan to provide dependent coverage when that option is not otherwise available under the plan
  • A child covered pursuant to a QMCSO is a “qualified beneficiary” with the right to elect continuation coverage under COBRA, if the plan is subject to COBRA and if the child loses coverage as a result of a qualifying event.

Employers are required to have written procedures for assessing and responding to QMSCOs/NMSN notices and may be subject to sanctions or penalties imposed under State law and/or ERISA for failure to respond and/or for non-compliance with a QMSCO/NMSN notice.

For additional information, check out:

  1. The DOL’s QMCSO Compliance Guide
  2. HHS Office of Child Support Enforcement Medical Support FAQs