Industry research estimates that as many as 75% of employers are out of compliance with ERISA requirements, which set minimum standards for most employee benefit plans. Like many federal laws related to employee benefits, ERISA can be complicated and difficult to navigate properly. Unintentional slip-ups are easy to make—especially when it comes to proper documentation.
As a broker, you can help educate your clients on staying compliant. Here are some of the most common ERISA pitfalls to ensure your clients avoid.
Confusing SPD vs. SBC Documents
A Summary Plan Descriptions (SPD) provide the terms and conditions of a plan (including benefits, obligations, and rights), while a Summary of Benefits and Coverage (SBC) provides standard information and a uniform glossary to compare plans. The documents may seem similar, so be sure to educate your clients on the differences between the two, stressing the importance that both be provided to participants and beneficiaries.
Failing to Clarify Plan Administrator Responsibilities
Each of your clients needs to appoint a plan administrator (identified in the SPD) who handles their ERISA compliance. This person can be designated, or the responsibilities fall on the plan sponsor (the employer). TPAs can assist in drafting and distributing the SPD, but cannot be appointed as the plan administrator—nor can insurers. Be clear with the plan administrator on their responsibilities, as well as the legal and financial liabilities involved.
Relying on Insurers to Provide Adequate SPDs
Employers should not rely on insurers to provide proper ERISA-compliant documentation. Typically, insurers don’t provide adequate ERISA-compliant summary plan descriptions to employers with fully insured plans, so take the time to educate your clients about which documents they will need to provide themselves.
Formatting SPDs Improperly
Clients should also pay attention to how their SPD will be received—the average employee must be able to understand it easily. Depending on the type of company your clients are, the style, language, and overall format of their SPDs will vary.
Distributing Non-Compliant SPDs
SPDs must be provided with 90 days for new participants and within 120 for new plans. Clients have to update participants on material changes occur to a plan. And although SPDs don’t have to be provided in languages other than English, if your client has employees who don’t speak English, they are required to provide translation assistance services.
Further, all covered participants are required to receive SPDs—regardless of an official participant request. Remind clients that employees are technically covered on the date the plan states participation begins or once a contribution is made. If a participant passes away or becomes incapacitated, then automatic SPDs have to go to the spouse, dependents, or another designated representative.
Not Knowing Which Plans are Subject to ERISA
ERISA rules apply to much more than just basic health benefits, and almost all ERISA group health plans must have a summary plan description. This includes plans with major medical benefits plus HRAs, FSAs, vision, dental, and other wellness programs. However, HSAs and certain voluntary programs, as well as plans provided by government or church employers are not included. Take the time to educate clients about which plans are and are not subject to ERISA.
ERISA compliance is a key aspect of successful employee benefits plan administration. When clients aren’t compliant with ERISA, they’re at risk for costly penalties, fines, and litigation—and even a small mistake could cost them tens of thousands of dollars. Take action when possible and provide your clients with the necessary information and resources to help keep them compliant. And, if necessary, check with a compliance expert and utilize resources to ensure you are doing everything you can to keep clients compliant. To learn more how Clarity can help you provide the best service to your clients, visit our brokers’ page today!