More than one year into the COVID-19 pandemic, many employers are at a turning point, shifting from crisis mode to transitioning to the “new normal” and how to safely plan for a return to the workplace.
The pandemic swiftly altered the focus of HR departments to concentrate on safeguarding the health and wellness of employees, while also ensuring business continuity and supporting the virtualization of work. The U.S. Department of Labor (DOL) recognized the pressure placed on businesses and HR departments last year by extending some deadlines under the Employee Retirement Income Security Act (ERISA). With no additional extensions planned for this year, it’s back to business as usual for meeting ERISA’s disclosure and reporting requirements.
In January, the DOL announced its annual increase in civil penalties for ERISA violations, making it costlier for companies that fail to comply with the regulations. For complex laws like ERISA, compliance failures are often unintentional. Reviewing compliance activities can help avoid mistakes that can cost companies millions of dollars.
ERISA sets minimum standards for employers offering retirement, health and welfare benefits. It’s intended to protect employees’ retirement savings from mismanagement and abuse while ensuring employees and their beneficiaries are provided the information they need to determine eligibility and to make informed decisions about their benefit plans. The law imposes civil penalties toon all employers, with the exception of religious institutions and government agencies, that fail to comply with mandatory disclosure and reporting requirements.
Here’s a look at four key areas HR professionals should review to avoid common pitfalls for compliance.
IRS Form 5500
The IRS Form 5500 is an annual report employers must file with the DOLto provide information about the employee retirement, health and welfare benefit plans offered. This includes the financial conditions, investments and operations for medical, dental and life insurance plans, as well as profit-sharing and 401(k) plans, among others. The IRS Form 5500 must be filed no more than seven months after the end of the plan year unless the employer is granted an extension by submitting Form 5558. The failure or refusal to file Form 5500 could cost employers $2,259 per day for each day the filing is overdue.
HR professionals should review the Form 5500 for all relevant benefits offerings, along with the required statements and attachments for compliance. Form 5500 submissions must include Schedule A (insurance information) for each of the ERISA benefits being reported for fully insured plans. For self-funded plans, a Schedule C (service provider information) may be required. Don’t overlook the Summary Annual Report (SAR) requirement. Employers must provide plan participants an SAR, which summarizes information in the Form 5500, within nine months of the end of the plan year. The plan administrator is responsible for electronically signing and filing Form 5500 with the DOL and must keep copies of all submissions. For benefit plans with fewer than 100 participants, the employer can file a Form 5500-SF Short Form Annual Returns/Reports of Small Employee Benefit Plan. Additionally, HR professionals should also review the plan name, plan number and EIN on the first page of the 5500. It’s important to ensure that thesematch and align with the health and welfare summary plan description.
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 or every 10 years if no changes are made. 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, the name and type of plan, 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 must comply with the Health Insurance Portability and Accountability Act and the Public Health Safety Act in addition to ERISA and other laws. Failing to provide an SPD to plan participants upon written request can result in a fine of $161 per day, not to exceed $1,613 per request.
Summary of Benefits and Coverage
The Summary of Benefits and Coverage (SBC) provides 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 distribute it to all employees during the open enrollment period each year. Failure to provide the SBC could cost $1,190 per employee per day for each SBC not provided; an excise tax of $100 per employee per day may 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 assessed. Health Reimbursement Accounts are considered to be health plans and require their own SBC.
Children’s Health Insurance Program
Some states offer residents income-based premium assistance for health benefits through the Children’s Health Insurance Program (CHIP). Employers are required to distribute notice of the potential state-provided premium assistance each year for employees that reside in states offering the CHIP premium assistance. The DOL updates and releases the CHIP notice twice a year, on January 1 and July 1. Failure to comply with this notification can result in some of the stiffest penalties under ERISA; companies can be assessed a fine of $120 per employee per day. An employer with 200 employees that doesn’t distribute the CHIP notice for a fullyear could facea potential fine in excess of $6.5 million.
HR teams have worked tirelessly throughout the pandemic to support employees and keep businesses running. As the focus shifts to the post-pandemic world, it’s essential that compliance activities remain top of mind. Assessing ERISA compliance is a daunting, yet important task. The DOL has shown no signs of easing oversight, and the potential financial risks are too great to ignore. Ensuring compliance minimizes risk and more importantly, provides employees with the necessary information they need to take full advantage of the benefits available to them.