Common Compliance "Gotcha" Moments

Common Compliance Gotcha Moments
When it comes to employee benefits compliance, complex regulations and intricate requirements can create difficult, unforeseen issues—and, in turn, possible fines and penalties. Employers can take steps to protect themselves by being diligent and staying up-to-date on important regulation changes and compliance requirements, and knowing the most common issues employers tend to face.
Late or insufficient Summary Plan Description
Some employers may not realize they are required to provide a Summary Plan Description to participating employees within 30 days of their request. If the document is issued late, you could be risking fines of thousands of dollars.
To be considered a valid SPD under ERISA, the document has to include certain information about the plan and the sponsor, as well as an “ERISA Statement of Rights.” The SPD is also required to include the plan sponsor’s right to change or terminate the plan. Some employers tend to mistake the booklet regarding insured group welfare plans provided by their insurance provider for an adequate SPD—but this document is not a valid replacement. These types of documents will be missing required information like the plan sponsor’s employer identification number.
If your HR department already has SPDs on file, ensure you review and revise them as necessary.
Unfiled Annual Reports
An Annual Report has to be filed with the IRS every year (except for certain small plans) for each employee benefit plan that is subject to ERISA requirements—utilizing IRS Form 5500. This report isn’t required for fully-insured welfare plans with fewer than 100 participants. But, for those employers who need an Annual Report, failing to file it on time could cost them up to $1,000 per day—and in the case of multiple plans and multiple years, the maximum penalty can be staggering. Not to mention, the statute of limitations doesn’t start to run unless a valid Annual Report is filed.
With so many intricacies, the Annual Report filing could end up being mishandled or go unfiled, creating compliance issues.
Mishandled severance plan ERISA requirements
Employers’ severance plans are generally subject to ERISA requirements, including the need for SPDs and Annual Reports. If they currently provide severance benefits (or have in the past), they’ll need to determine whether there’s a need to address the applicable ERISA requirements.
No “Top-Hat” Filing
“Top-hat” plans are unfunded and maintained by employers to provide deferred compensation for a select group of management-level or highly compensated employees. This status exempts most non-qualified retirement plans from many ERISA requirements. For “top-hat” status, a plan needs to first be filed with the U.S. Department of Labor. While it’s a simple filing, many employers forget this step.
Utilizing legal counsel services and doing a self-audit are the best methods for avoiding any compliance “gotcha” moments and ensuring the plan sponsor is protected from penalties or any other legal liabilities.
Clarity Benefit Solutions can help with compliance, administration, and reporting and data to simplify employee benefits for brokers, employers, and their employees. Visit our website to learn more.