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Friday, 06 March 2020 07:36

Common Myths About ERISA

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The rules and regulations around ERISA compliance can be challenging to navigate. Many mistakes are made because a provision is omitted or misunderstood, which can be costly because the fines for non-compliance are staggering, even for small employers. To dispel the fiction out there about ERISA, we’ve created this list of common myths that are keeping employers from fully complying.

ERISA stands for The Employee Retirement Income Security Act of 1974 and is administered by the Employee Benefits Security Administration (EBSA), a division of the U.S. Department of Labor. The act establishes minimum standards for retirement, health, and other welfare benefit plans.

Myth #1: “We don’t have to worry about ERISA because we are a small employer with less than 100 employees. “

Many employers think that ERISA applies only to organizations with over 100 employees. However, ERISA applies to plans sponsored by virtually ALL private-sector employers, including corporations, partnerships, sole proprietorships, and even non-profit organizations, regardless of size. The only exceptions are for governmental, tribal, and church plans. While ERISA’s 5500 reporting requirements are only required for plans with 100 or more participants, it is very important to note that there is no exemption for small businesses from ERISA’s other requirements, such as the maintenance of Plan Documents and Summary Plan Descriptions (SPDs), and adherence to certain fiduciary standards. Many employers think they have the required documents in place, later to learn that they have them only for their 401(k) and are left exposed on the health and welfare plans. We can help you double-check to make sure you’re covered.

Myth #2: “We have an ERISA-compliant Summary Plan Description (SPD) because our medical carrier gave us a booklet.”

ERISA has very specific content requirements for both the Plan Document and the SPD. Keep in mind that ERISA is an Employer Law and the carriers are not responsible for providing the Plan Documents and/or the SPD’s, although they do provide certificates for the plans which offer part of what employers need for compliance. ERISA compliance is the sole responsibility of employers in their role as plan administrators of ERISA-covered benefit plans. ERISA attorneys can write Plan Documents for a fee, and Fall River also has software that aids in the production of our clients’ Plan Document and SPD. It is often a best practice to use a “WRAP” Plan Document to supplement existing documentation, adding the required ERISA language. A WRAP will also allow you to file just one Form 5500, if this applies to you.

Myth #3: “We’re compliant because we distributed the SPD to all of our employees via our company intranet site.”

ERISA also requires that the SPD be furnished to all participants within 90 days of being covered under the plan, in a manner “reasonably calculated to ensure actual receipt of the material.” Typically, this means distribution by first class mail or hand-delivery. Employers are permitted to use electronic delivery only if 1) employees have work-related computer access as an “integral part of their duties”; or 2) employees have given prior written consent to receive electronic documents. Employers using electronic distribution must also be certain to provide notice of any posting, explaining the significance of the document and the right to request a paper copy. Merely providing employees with access to a computer in a common area (for example, a computer kiosk) is generally not, by itself, a permissible means to electronically furnish ERISA-required documents.

Myth #4: “I probably won’t get audited, so why bother.”

The likelihood of an audit is actually higher than ever. According to this article, “Historically, pension plans and 401(k) plans have been the primary target for Labor Department audits. Following the passage of the Affordable Care Act, health plans are receiving the same scrutiny.” Given that the penalties for non-compliance can be very costly ($110 a day, per beneficiary!), employers should be very mindful of their obligations under ERISA. But even if you still consider the risk to be low, we encourage employers to think of complying with ERISA with the same logic they use when buying fire insurance; the likelihood that a fire that destroys your building is low, but few businesses would risk going without that coverage. A collaborative broker such as Fall River will help you understand your ERISA obligations and can help your company to get into compliance.

Given the abundance and complexity of rules governing employee benefit administration, and with new ones being enacted regularly, it is difficult for even the most seasoned HR professional to stay on top of compliance. It’s more important than ever to have trusted benefits advisors to guide you through the process and minimize risk for your organization. Fall River can help! Please reach out to your Client Manager for an audit of your ERISA practices or to ask any compliance question.



Read 1503 times Last modified on Friday, 11 September 2020 13:18
Juliet Fitzgibbons

Juliet joins Fall River as an Account Executive and brings over 15 years of prior broker and account management experience. Her experience brings extensive knowledge on employee benefit programs, account management and creative cost-saving strategies and compliance solutions for employers of various sizes.

She is responsible for new business proposals, client renewals including plan benchmarking, rate analysis and mid-year reviews. She helps clients navigate healthcare systems and educates employers and employees through open enrollment meetings and day-to-day service requests. Juliet joined Fall River in 2015.