Chances are the benefits your organization offers employees are governed by the Employee Retirement Income Security Act (ERISA). This law was designed to protect individuals who participate in private pensions, retirement funds and other employee-sponsored plans.
ERISA documents the minimum standards around documenting, funding and administering a plan. ERISA regulations can be complicated to understand. Therefore, it is important that organizations have a way to verify that they are meeting all ERISA regulations. One of the best ways to do this is through using an ERISA compliance checklist.
Step One: Understand ERISA
The first step of the ERISA compliance checklist is to become familiar with ERISA, what it covers and what it means for your organization. In general, all employer-sponsored plans are governed by ERISA, the only exception being plans that are provided by religious organizations or government entities.
ERISA regulations go into great detail on what documentation is required and the frequency with which that documentation is provided to participants. Additionally, ERISA outlines how quickly payments must be made to the plan and how those funds must be accounted for.
By understanding how your organization’s plans are supposed to be administered, your organization can begin to make changes to be in ERISA compliance.
Step Two: Verify Documentation
A number of documents are required by ERISA including:
- Written Plan Document – This document outlines the plan, the benefits provided by the plan, the plan’s fiduciaries and how the plan is to be funded.
- Summary Plan Description – This participant facing document is designed to provide participants one place to look for answers regarding their plan, payments required under the plan, explanation of benefits and the claims and dispute format. All participants must receive copies of the Summary Plan Description.
- Summary of Material Modification – Participants of a plan must be notified if material changes are made to the plan or the plan’s benefits. The changes made must be included in an updated Summary Plan Description as well.
- Summary of Material Reduction – In the event that the benefits of a plan are materially reduced, participants must be given notice within 60 days of the reduction.
- Form 5500 – This form must be filed with the government annually and documents the financial performance of the plan. If the plan has 100 or more eligible participants, the financial records are required to be audited on an annual basis and an Accountant’s Statement must accompany the Form 5500 filing.
- Summary Annual Report – This document summarizes the plan’s financial information as provided in the Form 5500 filing and must be provided to plan participants within nine months after the close of the plan’s fiscal year.
Step Three: Keep Plan Documents Onsite
Once it is determined that your plan documents are correct and in place, the organization should keep copies on site in the event they are requested by a participant. Having onsite documentation will also help your benefits team answer questions when they arise.
Step Four: Ensure Dispute Process is Documented and Followed
Take time to review your organization’s documentation to ensure that the dispute process is fully documented. Plan documents should plainly state what participants must do in order to dispute denied claims.
Additionally, the dispute review process should also be evaluated to ensure it is being conducted in the manner that is specified by the plan documents.
Step Five: Verify Bonds
All plan fiduciaries and those who handle plan assets are required to be covered by a fidelity bond. The bonding process serves as a way to verify that the chosen individuals deserve the fiduciary responsibility.
Additionally, the fidelity bond provides the organization, the plan and the participants with protection in the event of loss due to a breach of fiduciary responsibility.
Step Six: Evaluate Investments
Evaluate the plan’s investment strategy to ensure funds are invested in a way that matches the desired risk. All investments and plan transactions must be made in the best interests of the plan. Transactions that are designed to provide benefits to the plan’s fiduciaries are prohibited and result in severe penalties.
Step Seven: Verify Quality of Information
If your organization’s plans allow for participants to make their own investment decisions, those plans must provide accurate information on investment options. Participants must be able to make informed decisions on investing their funds based on the information provided by the plan. Providing inaccurate or incomplete information is a disservice to plan participants and is an ERISA violation.
Step Eight: Check for Timely Contributions
ERISA outlines the frequency with which contributions to the plan must be made. This includes both participant contributions and funds provided by the organization. In the event that contributions are not made in a timely manner, the organization is responsible for correcting the situation and documenting the steps it took to remedy the issue. Review the time frame for funding your organization’s plans and make adjustments where necessary.
Step Nine: Evaluate Benefit Payments
Review the benefit schedule to understand how benefits are to be provided as outlined in the plan documents. Then, review actual payments to ensure that payments made under the plan are reflective of the payment schedule.
Should an issue be found, the root cause of the defect must be investigated and corrected. Additionally, any payments that were not correct must be adjusted to match benefits as described in the plan documentation.
Step Ten: Have an Audit Performed
The final step of the ERISA compliance checklist is to have a professional, independent audit performed. An audit of plan documentation, financial statements and investments is the best way to ensure that all ERISA requirements are being met.
A professional auditor is more likely to catch issues than an individual who is not skilled as an ERISA auditor. Additionally, a professional auditor can spot issues before they become violations and can enable your organization to react promptly.
Understanding and implementing ERISA regulations for your organization’s benefit plans can be difficult. However, ensuring your organization is in ERISA compliance is an important business practice, both for avoiding penalties and for honoring your fiduciary responsibilities for plan benefits.
The use of an ERISA professional is suggested. These individuals can help create plan documentation, ensure communication is sent out in a timely manner, audit plan financial statements, establish an ERISA compliance checklist and provide suggestions on how to become compliant.
