The annual increase in civil penalties for violations under
ERISA that took effect in January serves as an important reminder to employers
to assess their compliance initiatives. All employers (with the exception of
churches and government agencies) who offer retirement, health and welfare
plans to their employees face stiff penalties if found in violation for failure
to comply with mandatory disclosure and reporting requirements.
For complex laws like ERISA, compliance failures are often
unintentional. Here’s a look at four key areas HR professionals should assess
to avoid mistakes that can cost companies millions of dollars.
IRS Form 5500
IRS Form 5500 is an annual report filed with the U.S.
Department of Labor (DOL) that provides information about employee retirement
and welfare benefit plans, including the plan’s financial conditions,
investments and operations. The IRS Form 5500 must be filed no more than seven
months after the end of the plan year unless an extension is granted by
submitting Form 5558. Failure, or refusal, to file Form 5500 could cost
employers $2,259 per day for each day the filing is overdue.
The plan administrator is responsible for electronically
signing and filing Form 5500 with the DOL and must keep copies of all
submissions. For plans with fewer than 100 participants, the employer can file
a Form 5500-SF Short Form Annual Returns/Reports of Small Employee Benefit
Plan. An important reminder: Form 5500 submissions must include Schedule A
(insurance information) for each of the ERISA benefits being reported for fully
For self-funded plans, a Schedule C (service provider
information) may be required. Also, don’t forget the Summary Annual Report
(SAR) requirement. Employers must provide plan participants an SAR, which
summarizes information in Form 5500, within nine months of the end of the plan
Summary Plan Description
Employers are required to give all participating employees a
summary plan description (SPD) within 90 days of coverage and must provide an
updated SPD every five years if the plan is amended. The SPD serves as a
detailed guide about the plan and how it operates, and must include, among
other things, the terms of employee eligibility, claims procedures and plan
funding. One common mistake made by employers is believing the insurance
carrier’s Certificate of Coverage can serve as the SPD.
The SPD requirements are numerous and, in addition to ERISA,
must comply with the Health Insurance Portability and Accountability Act and
the Public Health Safety Act, among others. Employers who fail to provide an
SPD to plan participants upon written request are subject to a fine of $119 per
day up to $594,129. An employer who fails to furnish employee benefit plan documents
to the Department of Labor upon request is subject to $161 per day up to $1,613
Children’s Health Insurance Program
Each year, employers are required to distribute notice of
potential state-provided premium assistance through the Children’s Health
Insurance Program (CHIP). Failure to comply with this notification can result
in some of the stiffest penalties under ERISA. The DOL updates and releases the
CHIP notice twice a year on January and July 1st. Failure to comply results in
a fine of $120 per employee per day. An employer with 200 employees that
doesn’t distribute the CHIP notice for a full-year could face a potential fine
in excess of $6.5 million.
Summary of Benefits and Coverage
The Summary of Benefits and Coverage (SBC) is designed to
provide plan participants with an easily understood explanation of benefits to
enable them to compare plans. The plan sponsor must provide the SBC within 90
days of enrollment and to all employees during the open enrollment period.
Failure to provide the SBC will cost $1,190 per employee per day for each SBC
not provided; an excise tax of $100 per employee per day can also be assessed.
Fines could reach $714,000 for an employer with 200 employees offering three
medical plans if an SBC is not provided for two years, excluding the potential
excise tax that may be accessed. Remember that a Health Reimbursement Account
is also a health plan and requires its own SBC.
Assessing your company’s compliance with ERISA is a
daunting, yet important task. Unintentional mistakes are costing companies
significant losses as the DOL steps up its oversight. Ensuring compliance not
only minimizes risk, but provides important support to your employees so they
can take full-advantage of the benefits available to them.
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