Up until a few months ago, I worked as a director of compliance for a health and welfare benefits consultancy. As part of my job, I would have frequent conversations with external counsel, especially regarding ERISA and Section 125. Whenever I would speak to one attorney in particular, Marilyn Monahan of Monahan Law Office, we always seemed to get off on a tangent about why so many employers aren’t compliant in a few key areas. Here are our top three employee benefits legal areas where we see employers out of compliance the most often:
- No health & welfare plan document. Many employers don’t realize that ERISA has two separate documentation requirements: the plan document and the summary plan description. The plan document is the legal document that establishes and governs the plan; the SPD summarizes the legal terms in the plan document in language that can be understood by the average plan participant. ERISA outlines the elements that must be included in the plan document, and those elements will not generally be found in an SPD or a carrier’s certificate booklet.
- Thinking the certificate booklets/evidence of coverage documents provided by health insurance carriers are ERISA-compliant Summary Plan Descriptions. Many employers think that if they circulate the certificate booklet or evidence of coverage provided by the insurer or HMO they have satisfied ERISA’s SPD rules. That is generally not the case. More often than not, the documentation provided by the insurer/HMO will not include all of the terms required by ERISA’s SPD content regulations. Employers can fill in the gaps, however, by having a wrap document that incorporates the insurer/HMO’s documentation and adds the missing essential terms required by ERISA.
- Incomplete Section 125 cafeteria plan information. A cafeteria plan is only valid if the plan is committed to writing and the written document contains all the terms the IRS regulations require. For example, if the employer has set up a premium-only plan, a health flexible spending account, or a dependent care flexible spending account, a written plan document is required. In the event of an IRS audit, some of the tax benefits the employer is attempting to achieve could be lost if the employer doesn’t have a valid written cafeteria plan document.
Your list may be different than ours but I’m sure we would all agree on one thing: the employee benefits world has become increasingly more complex from a legal compliance perspective. In these days of increased audits (think HIPAA) and government interest and oversight (think W-2 reporting), it’s more important than ever to make sure you have your legal ducks in a row. If anything, you may want to seriously consider complying with these three requirements sooner rather than later.
Contributing Editor Ed Bray, J.D., is director of employee benefits for a major transportation company in Hawaii.
What legal requirements do you struggle to comply with? Share your thoughts in the comments.
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