What is Employee Retirement Income Security Act (ERISA)
What is Employee Retirement Income Security Act (ERISA)? ERISA, which is short for The Employee Retirement Income Security Act of 1974, is a federal law that sets minimum standards for most voluntary retirement/pension plans, health plans and welfare plans (like life insurance and disability). It pertains to most private employers who provide benefits to their employees. ERISA provides protection for individuals (participants) in these plans. ERISA does not cover group retirement, health and welfare plans for governmental entities, churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment, or disability laws. ERISA also does not cover plans maintained outside the United States primarily for the benefit of nonresident aliens or unfunded excess benefit plans.
PENSION and RETIREMENT
“ERISA requires plans to provide participants with plan information including:
» Important information about plan features and funding
» Sets minimum standards for participation, vesting, benefit accrual and funding
» Provides fiduciary responsibilities for those who manage and control plan assets
» Requires plans to establish a grievance and appeals process for participants to get benefits from their plans
» Gives participants the right to sue for benefits and breaches of fiduciary duty
» If a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).” Sourced from the US DOL
HEALTH & WELFARE PLANS
A Welfare Plan is an employee benefit that is not a pension fringe benefit. A welfare plan must be administered by an employer for providing any of the following plans:
» Medical, surgical or hospital care benefits
» Voluntary Benefits such as Sickness, Accident, Disability, Death or Unemployment
» Vacation benefits, Holiday Benefits, Severance Benefits
» Training Benefits
» Daycare Centers
» Scholarship Funds
» Prepaid legal services
» Housing Assistance
» Conduct – ERISA regulates conduct for managed care and other fiduciary responsibilities
» Disclosures – Plan Summaries and certain notices must be given to plan participants by the employer:
Summary Plan Description(SPD)
Summary Material Modifications (SMM)
Summary of Benefits & Coverage – This 4 page notice is for grandfathered plans. It accurately describes the benefits and coverage under the plan. Must be provided by insurers unless the plan is self-funded.
» Reporting – ERISA requires governmental reporting including:
5500 Forms – There is also an IRS requirement under ERISA. “Employers must submit an IRS Form 5500 for each plan with 100 or more participants to the IRS annually. The Form 5500 Series is an important compliance, research, and disclosure tool for the Department of Labor, a disclosure document for plan participants and beneficiaries, and a source of information and data for use by other Federal agencies, Congress, and the private sector in assessing employee benefit, tax, and economic trends and policies. The Form 5500 Series is part of ERISA’s overall reporting and disclosure framework, which is intended to assure that employee benefit plans are operated and managed in accordance with certain prescribed standards and that participants and beneficiaries, as well as regulators, are provided or have access to sufficient information to protect the rights and benefits of participants and beneficiaries under employee benefit plans.” (Sourced from US DOL) Non-compliance can be very costly for companies. More on penalties below…
Schedule M-1 – (Reconciliation of Income (Loss) and Analysis to Unappropriated Retained Earnings per Books) – For Multiple Employer Welfare Arrangements (MEWA) that provide benefits.
IRS Form 990 – (Return of Organization Exemption from Income Tax) If the plan uses a Voluntary Employees’ Beneficiary Association (VEBA) this form must be submitted annually to the IRS.
» Best-Interest Protection: The act also protects plan funds to make sure the plan members’ best interest is first in mind. ERISA also protects against discrimination when collecting plan benefit information.
» Policy Protection: ERISA requires that policies and procedures for filing claims & appeals are created and provided to participants.
Administration and Enforcement
The US Department of Labor (DOL) has a division that administers and regulates employer benefit plans. This division is called EBSA or Employee Benefits Security Administration. In most instances, penalties are imposed by the DOL, but they cross-refer any violations or suspected violations to the IRS for further review. The DOL has jurisdiction over ERISA, as well as the related areas of COBRA continuation and FMLA rules, including benefits continuation and reinstatement.
Here are some reporting and disclosure penalties under ERISA:
» Plan Document – A Plan participant can bring a lawsuit to require a sponsor to prepare a formal plan document where none exists.
» Summary Plan Description – A max of $110 per day penalty can be assessed for an employer that does not give plan participants an SPD within 30 days of employee request.
» Summary of Material Modifications – Anytime there is a material modification in a plan’s terms or a change in the information required to be in the SPD, the employer is required to provide notice to covered participants. SPDs should be updated with SMMs in order to be prepared for any legal situation. If they are not updated, courts will use the out-of-date or incomplete SPD in favor of the employee.
» Summary Annual Report (SAR) – The Form 5500 summary document must be annually distributed to participants. No specific penalty is in place, but a participant or their beneficiary can bring a suit on the employer for not distributing the SAR.
» Criminal Penalties – If any individual or company willfully violates ERISA disclosure requirements, the penalty can be $100,000 per conviction and/or imprisonment for up to 10 years. If the company willfully violates, it can increase up to $500,000. If an administrator does not provide requested required documents to a participant/beneficiary, the administrator can be liable for $110 per day.
» 5500 Forms – A Civil penalty can be assessed against the plan administrator for up to $1,100 per day starting on the date that the administrator failed to submit the 5500 form to the IRS. Note that the $1,100 per day fines is for each form, so this adds up very quickly! On top of that, there is no statute of limitation and can go as far back as 1988. There are also other smaller clerical error penalties that can be assessed for incorrect information or data. If a company was not aware of the filing requirements and comes forward on their own, they may be eligible for reduced penalties through the “Late Filer Enforcement Program” or the “Non Filer Enforcement Program.” For Late Filers, fines may be assessed for $50/day for each 5500 form. For Non-Filers, fines may be assessed at $300/day for each 5500 form.
» COBRA – Failure to provide Notice for COBRA imposes 2 penalties: (1) tax penalties by the IRS up to $100 per day and (2) the individual can recover an additional $110 per day through ERISA. If other family members are overlooked, the ex-employee can seek $200 per day. Plus benefit recovery and legal fee recovery. Because of Stop Loss/Carrier Exposure, the company may be exposed to all plan costs payable from general assets.
» FMLA – Federal Enforcement: The DOL holds enforcement power for FMLA and will investigate complaints of FMLA violations. If a complaint cannot be resolved, the DOL may bring action in court to correct violations and recover damages. Civil Enforcement: An eligible employee may also bring a private civil action against an employer to recover damages (including employment, reinstatement, and promotion) for violation of the FMLA. These damages may include the amount of any employment benefits denied to the employee by reason of the violation. The FMLA provides that a court shall allow, in addition to any judgment awarded to the plaintiff, reasonable attorney’s fees, reasonable expert witness fees, and other costs of the action to be paid by the defendant.
Amendments to ERISA
As ERISA has expanded since 1974 there have been various amendments to the Act.
COBRA – COBRA or Consolidated Omnibus Budget Reconciliation Act provides an option for coverage continuation of benefits for workers and their families after a worker has been released from their job. For more information on COBRA check out COBRA FUN Slides (Facts Understood Now)
HIPAA – Health Insurance Portability and Accountability Act – HIPAA provides protection for employees and their families with preexisting medical conditions. It also protects from discrimination in health coverage based on a person’s health. For more information on HIPAA, check out HIPAA FUN Slides
Newborns’ and Mothers’ Health Protection Act – provides important protections for mothers and their newborn children with regard to the length of the hospital stay following childbirth. For more info: Lesser Known Laws – Newborns’ & Mothers’ Health Protection Act
Mental Health Parity Act – provided that large group health plans cannot impose annual or lifetime dollar limits on mental health benefits that are less favorable than any such limits imposed on medical/surgical benefits. For more info: Mental Health Parity Act & Mental Health Addiction Act
WHCRA – Women’s Health and Cancer Rights Act – protects women with breast cancer who decide to reconstruct their breast after a mastectomy. This law requires health plans that cover mastectomies to also cover these services and surgeries after a mastectomy. The benefits may have a yearly deductible and may co-insurance. The act also covers women who do not have breast cancer, but require a mastectomy for health reasons. However, if your coverage is provided by a “church plan” or “governmental plan”, check with your plan administrator. Certain plans that are church plans or governmental plans may not be subject to this law. Plans must provide a notice to all employees during enroll in the health plan describing the benefits that WHCRA requires the plan and its insurance companies to cover. Your annual notice should describe the four categories of coverage required under WHCRA and information on how to obtain a detailed description of the mastectomy-related benefits available under your plan. What is Employee Retirement Income Security Act (ERISA)
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