How Small and Medium-Sized Companies Can Prepare for ERISA Audits

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Employee Retirement Income Security Act (ERISA) regulations have expanded over the years, becoming more and more complex as they evolve. Since employers are solely responsible for ERISA compliance, it can sometimes seem like a daunting task, especially for small and medium-sized companies. Failing to comply with regulations can result in debilitating penalties or lawsuits.


While many small and medium-sized businesses assume they won’t be targeted for an audit, there’s been a noticeable increase in the number of these types of businesses receiving ERISA audit notices. Ensure you’re prepared by following these guidelines.


Become familiar with requirements

No employer can be fully prepared for an ERISA audit without first familiarizing themselves with the requirements of compliance, the necessary documentation, and any policies that show good faith efforts to comply.


You can find all necessary ERISA information here.


Be aware of the most common penalties

In recent audits, the typical areas of concern include: Summary Plan Descriptions, HIPAA compliance (specifically, notices to employees about special enrollment rights), PPACA Grandfathered Plan notices and documentation of coverage for adult children, PPACA lifetime and annual limit requirements, and inadvertently excluding people who may be eligible to participate in the plan (including dependents up to age 26).


Ensure all necessary documents are squared away

To ensure ERISA compliance, you should have the following in place: ERISA and PPACA requirements, a written ERISA plan document, Summary Plan Documents or SPD Wraps prepared and distributed to plan participants within 90 days of first day of coverage, Summary of Material Modification for any amendments, and Form 5500 and SAR filed annually (this is only for employers who have over 100 enrolled participants in any benefit, so it won’t apply to smaller companies).


Conserve resources

Employers have to have a written Summary Plan Description for each separate welfare benefit plan to inform participants of eligibility requirements, benefits, claims and appeals procedures, and rights under ERISA. Sometimes insurers will provide some information required for SPD compliance, but not all. Many employers mistakenly assume the information they receive from their insurance provider meets the SPD requirements.


To avoid compliance issues and simplify the SPD notice process, consider combining all SPDs into one overall ERISA Wrap document, using the required ERISA language. That document must include the name of the plan, the sponsor, administrator, year, employer tax identification number, type of welfare plan, type of administration, summary of benefits, detailed description of plan benefits for group health plans, provider network availability for group health plans, procedures for QMCCOS, COBRA rights, plan contributions, and claims procedures. A Statement of ERISA Rights is also required.


While larger companies may have the resources to prepare custom plan documents and SPDs for each employee welfare benefit plan, most small and mid-sized employers do not. A wrap document can fill the gaps left by insurance carriers and third-party administrators. Consolidating employee welfare benefit plans into a single plan can not only help ease compliance for smaller companies, it can also help reduce the costs associated with filing and distributing multiple summary annual reports, and amending multiple plans in response to legislative or regulatory changes.



Prepping for an ERISA audit can be stressful and tedious, make sure you’re as prepared as possible by streamlining the process and doing your research ahead of time. Visit our website to learn how Clarity Benefit Solutions can help you stay compliant.