Key Takeaways

  • ERISA compliance is mandatory for private employers offering health, retirement, or welfare benefit plans.
  • Fiduciary responsibility, timely disclosures, and annual reporting are core components of ERISA compliance.
  • Non-compliance can lead to significant financial penalties and employee lawsuits.
  • Key governing agencies include the Department of Labor (DOL), IRS, and PBGC.
  • Employers should maintain clear documentation, update plan participants regularly, and file required forms like Form 5500.
  • Specialized third-party administrators and ERISA attorneys can assist in meeting compliance requirements.

What Is ERISA Compliance?

ERISA compliance refers to the federal requirements employers must follow to offer welfare and retirement programs. Companies that offer benefit packages to their employees are regulated by ERISA (Employee Retirement Income Security ACT), and maintaining compliance with these guidelines is a federal requirement.

The goal of ERISA is to protect employees from being negatively impacted by retirement plans and company-provided welfare programs like dental, optical, and disability insurance. The law requires that employers abide by specific administration guidelines to ensure that all individuals are completely aware of their options and the processes of utilizing the benefits.

All private institutions that offer things like retirement plans or health insurance must meet ERISA stipulations. Two types of organizations that aren’t governed by these rules are churches and government entities.

Origins and Oversight of ERISA

The Employee Retirement Income Security Act (ERISA) was enacted in 1974 in response to concerns over mismanagement and abuse in private pension plans. It aimed to set minimum standards for most voluntarily established retirement and health plans in private industry. The law ensures that employees receive the benefits they’ve been promised by their employers.

ERISA is primarily administered by three federal agencies:

  • Department of Labor (DOL): Oversees reporting, disclosure, and fiduciary responsibilities.
  • Internal Revenue Service (IRS): Enforces tax-related provisions and qualification requirements.
  • Pension Benefit Guaranty Corporation (PBGC): Provides insurance for certain defined benefit plans.

Together, these agencies monitor compliance and enforce penalties for violations.

Compliance With ERISA

There are a variety of benefit programs shielded by the protections set forth under ERISA. Examples include:

  • Medical Insurance
  • Sick Leave
  • Disability Coverage
  • Unemployment Benefits
  • Paid Time Off
  • Training Programs
  • Daycare Assistance
  • Scholarship Funds
  • Holiday Pay
  • Retirement Plans

There are some exemptions to the law. The DOL has outlined two areas that don’t fall under the ERISA regulations: payroll practices and non-required plans.

These rules can be confusing to contractors and partnerships. As long as the only people involved in the business are part or sole owners, they aren’t required to maintain ERISA compliance. However, many types of these plans qualify for tax deductions, so the individual or unit need to make sure they follow the Internal Revenue Services rules to receive the benefits.

Fiduciary Responsibilities

Under ERISA, employers and plan administrators who exercise discretion over plan management or assets are considered fiduciaries. Fiduciaries are legally required to act solely in the interest of plan participants and beneficiaries.

Key fiduciary duties include:

  • Acting prudently and diversifying plan investments to minimize risk.
  • Following the plan documents.
  • Avoiding conflicts of interest.
  • Ensuring reasonable plan expenses.

A breach of fiduciary duty can lead to personal liability. Employers often mitigate this risk by hiring outside professionals or third-party administrators (TPAs).

Administrative Requirements Under ERISA

One of the basic administrative requirements of ERISA is that there are designated individuals or teams that ensure that all of the programs meet the specified stipulations. The purpose of this is to minimize employee responsibility in regard to tracking down and verifying the information of each plan, and it also creates transparency. Independent contractors can utilize their insurance company as the administrator to meet this requirement.

ERISA is composed of three main compliance sections: disclosure, paying claims, and reporting. Each of these sections includes their own regulations, which are as follows:

  • Disclosure: The designated administrators of each program are required to provide all of the pertinent information of the plan to their employees. This includes outlining types of coverages and the various levels available, as well as necessary financial reports and statements. If the DOL requests documentation regarding such programs, the company is required to send it to them.
  • Paying Claims: Each welfare program provided by an employer must be accompanied with a claims process. Not only is this information to be provided to the employee, but if a denial has been attached to a claim, they also need to receive a thorough explanation.
  • Reporting: Along with providing requested information, companies must also routinely file documentation with the DOL. This usually consists of explanations of the plan that are in place as well as the various coverage types within each program. Such information must also be filed when the business increases and decreases levels of coverage for various programs.

All private entities that provide benefits to their employees must comply with all three sections of ERISA requirements.

Benefit Plan Requirements

The federal government also places stipulations on the different types of sub-categories and their benefits. These are broken into two sections: welfare plans and retirement plans.

For welfare plans, companies must provide all insurance contracts to their employees enrolled in the plan. The easiest way to do this is to include the information during new hire training or orientation.

Retirement plans typically face stricter requirements than welfare plans. ERISA stipulates that employers and programs must meet the following stipulations:

  • Information pertaining to the plans must be easily accessible to participants;
  • Documentation should be sent directly to the employee as well as be present at the office;
  • The company must provide a thorough explanation to its employees regarding how to claim benefits;
  • The retirement plan needs to showcase diversification to prevent a substantial loss of funds.

To maintain ERISA compliance, the employer also needs to provide employers with routine financial documentation regarding their funds and any growth or loss that has occurred.

Common ERISA Compliance Violations

Failing to meet ERISA requirements can result in audits, fines, or lawsuits. Common violations include:

  • Not providing Summary Plan Descriptions (SPDs) to employees.
  • Failing to file Form 5500 on time.
  • Inadequate claims procedures.
  • Lack of plan documentation.
  • Fiduciary breaches such as self-dealing or improper investments.

Employers should perform regular internal audits and consult legal professionals to stay in compliance.

ERISA Compliance Checklist

To help ensure ERISA compliance, employers can follow this practical checklist:

  • ❏ Maintain updated plan documents and SPDs.
  • ❏ Distribute notices to employees as required (e.g., COBRA, HIPAA, ACA).
  • ❏ File Form 5500 annually for applicable plans.
  • ❏ Review and document fiduciary procedures.
  • ❏ Conduct regular compliance audits.
  • ❏ Ensure a written plan document exists for each covered benefit.
  • ❏ Maintain a trust for plan assets if required.
  • ❏ Confirm non-discriminatory eligibility and benefits.
  • ❏ Implement a proper claims and appeals procedure.
  • ❏ Retain ERISA-required records for at least six years.

Required Disclosures and Notices

ERISA requires a variety of disclosures to ensure transparency for plan participants. These include:

  • Summary Plan Description (SPD): Must be provided within 90 days of plan coverage or within 120 days of plan establishment.
  • Summary of Material Modifications (SMM): Issued when plan terms change.
  • Summary Annual Report (SAR): Provides a summary of Form 5500 information to participants.
  • Fee Disclosures: Required for plans with participant-directed investments, such as 401(k)s.
  • COBRA, HIPAA, and ACA Notices: These federal laws intersect with ERISA and include their own required disclosures.

Timely and accurate delivery of these notices is essential for maintaining ERISA compliance.

ERISA and Health Plans

ERISA governs employer-sponsored health benefits, including medical, dental, vision, and prescription drug plans. Compliance considerations include:

  • Plan Documentation: Must include eligibility, benefits, exclusions, and claim procedures.
  • HIPAA Compliance: Protects employees’ health information and ensures portability.
  • COBRA Requirements: Requires continuation of coverage after qualifying events like job loss.
  • Claims and Appeals: Plans must have a clear and fair process for handling disputes.

Employers must regularly review their group health plans to ensure alignment with ERISA standards.

Penalties for ERISA Non-Compliance

Non-compliance with ERISA can result in severe penalties, including:

  • Failure to file Form 5500: Up to $2,670 per day until corrected.
  • Failure to provide SPD or other required disclosures: $110 per day per participant.
  • Breach of fiduciary duty: Fiduciaries can be held personally liable for losses to the plan.

The DOL and IRS can both impose sanctions. In addition, civil litigation from plan participants can further increase financial risk. These potential consequences make maintaining ERISA compliance a high priority for employers.

Frequently Asked Questions

What is ERISA compliance in simple terms? ERISA compliance means following federal rules that govern employer-sponsored retirement and health plans to ensure employee protections.

Who needs to comply with ERISA? Most private-sector employers that offer employee benefit plans must comply. Government and church plans are generally exempt.

What happens if an employer doesn’t comply with ERISA? They may face fines, audits, lawsuits, and potential fiduciary liability, including personal financial responsibility.

What forms are required for ERISA compliance? Key forms include Form 5500, SPD, and SAR. Additional notices may be required under COBRA, HIPAA, and ACA.

Can an employer handle ERISA compliance alone? While possible, most employers benefit from working with ERISA attorneys or third-party administrators to ensure full compliance.

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