E
mployee-sponsored benefits are subject to federal ERISA laws. The Employment Retirement Income Security Act (ERISA) is a federal law that governs all benefits where employers cover some of the costs. Unless an organization is a government entity or religious organization, they are subject to ERISA regulations.
What does ERISA do?
ERISA sets the minimum standard on how all employee-sponsored benefits must be administrated. This is done through a series of regulations that outline the following:
- Companies are required to provide employees with documentation about the plan. Required information includes the plan’s features and how the plan is funded. In some instances employees have to request information and potentially cover the cost of obtaining it.
- There are requirements for who can participate in a plan, the vesting schedule, how benefits accrue and how often funds must be contributed to the plan. These rules outline how employee contributions must be made and how employer contributions must be made in order to ensure the plan is funded.
- All decisions made by plan managers must be in the best interest of the plan. Individuals who fail to act in the best interest of the plan may be held personally responsible for losses due to mismanagement.
- Plan participants have the right to sue to recover losses for breeches of the fiduciary duty.
- Payment for certain benefit plans is guaranteed.
What types of benefit plans are covered by ERISA?
All benefit plans that have a portion of the cost covered by the employer are subject to ERISA. This includes:
- Health care plans
- Dental plans
- Vision plans
- Flexible spending accounts
- Healthcare savings accounts
- Life insurance
- Disability insurance
- Accidental death and dismemberment insurance
- Profit sharing plans
- Employee stock purchase plans
- 401(k) plans
- Defined Contribution Plans
- Defined Benefit Plans
What does ERISA compliance mean?
ERISA compliance means that your company is adhering to all the requirements outlined by the United States Department of Labor. The checklist below can help to determine if your organization is compliant with all ERISA regulations:
- Has the organization published plan documents, including the summary plan description, notifications of changes to the plan and annual reporting that indicates the financial standing of the plans?
- Are copies of all plan documents kept onsite so that participants and those that benefit from the plan can examine them?
- Are all requests for plan documentation responded to in 30 days or less?
- Do the plan documents outline the appeals process for claims that are denied? Is the plan responding to appeal requests as outlined in the plan documents?
- Are your plans covered by a fiduciary bond?
- Are the plan's funds invested in a diverse manner to mitigate and minimize losses?
- Are plan participants provided with the necessary information to make fully informed decisions to manage the funds in their plan accounts?
- Are decisions for the plan made in the best interest of the plan and are of no benefit to plan administrators?
- Are employee and employer contributions made in a timely manner as outlined by ERISA regulations?
- Are benefits paid as indicated by the plan documents?
Failing to comply with ERISA regulations can be costly for the organization and any fiduciaries that have not fulfilled their responsibility.
How can an ERISA compliance professional help?
An ERISA auditor can examine the benefit plans to ensure they meet regulations including:
Reviewing Summary Plan Descriptions
ERISA regulations provide specific information on what information must be included in summary descriptions for benefit plans. Information included in the summary descriptions must be current and an accurate depiction of how the plan is run.
In most cases, summary plan description is what employees will use to stay informed about their benefits. This includes making decisions to participate in a plan and as a way to verify information once they are a participants.
When audits are done, the summary plan descriptions are thoroughly reviewed and used as a benchmark by auditors to ensure the plans are compliant.
ERISA auditors can review documentation to ensure that it is complete and contains all required information. Beyond that, auditors can make recommendations to your organization on what should be added to improve plan documentation in order to become compliant.
Contribution Verification
In order to be ERISA compliant, both employee and employer contributions must be made on a timely basis. Plan documents must outline the time frame between when employee contributions are deducted from payroll and when they are deposited into the plan.
The same is true for the timing of employer contributions. Failing to adhere to the required timeframe can have costly consequences.
ERISA auditors verify the timeliness of contribution payments. In the event that payments are not being made in a timely manner, the auditors can put together a proposed plan of action for correcting the issue and becoming compliant.
Participation Issues
For all plans, the summary documents must indicate who is eligible to participate and outline the requirements for participation. ERISA regulations require that employees that are eligible for benefits be made aware by the company of their eligibility. Failing to do so can result in fines and penalties from the Department of Labor.
ERISA auditors review your organization's records to determine which employees are eligible for benefits and to ensure they are aware of their status.
Additionally, the auditors can suggest a tracking mechanism to ensure this issue does not continue going forward.
Non-Compliance Issues
If it is believed that one or more of your organization’s ERISA covered plans is out of compliance, it is imperative to address the issue as soon as possible. An ERISA expert can provide information on how to correct the deficiency and to document the issue as required by the government.
Having an ERISA audit done on an annual basis can help to proactively address compliance issues before they become a problem.
