What Does ERISA Mean for Your Small Business and Healthcare?
Understanding the basics of the statute and how it affects your business
By: Cicely Childs
ERISA 101: Breaking Down the Employee Retirement Income Security Act
When it comes to healthcare, understanding a myriad of rules, regulations, and policies can be confusing and overwhelming, not to mention time-consuming. Yet, as a small business owner, the responsibility lies on you or your delegated manager to muddle through the web of nuance and details comprising healthcare policies and procedures. ERISA is a law that you need to become familiar with and know the basics.
What is ERISA?
The Employee Retirement Income Security Act, more commonly known as ERISA, is a federal statute enacted in 1974 to set minimum standards for most voluntarily established retirement plans such as pensions and 401(k) plans in the private sector. It also covers health plans.
It was created to protect employees from being taken advantage of by their employers. In the years since its initial enactment by the U.S. Department of Labor (DOL), the definition of pension plan has been broadened to include health insurance plans, HMOs, disability, and other types of medical plans that provide long-term care services.
Why is it important?
ERISA requires employers to provide plan information to participants and establishes uniform standards of conduct for plan managers and other fiduciaries. These standards of conduct protect participants and their beneficiaries - employees who are eligible to participate in the plans or who are actively participating in the plans.
ERISA establishes enforcement provisions as well to ensure that plan funds are protected and that qualifying participants receive their benefits, even if a company goes bankrupt. If an employee does not receive the benefits promised by the employer or there’s a breach of fiduciary responsibility, ERISA gives the employee the right to sue.
How does ERISA relate to my business and health insurance?
One important thing to note is ERISA does not require employers to offer retirement and healthcare plans; it merely sets the standards if they do.
There is no minimum number of employees that a business must have for ERISA law to apply.
Employers must follow ERISA rules when developing and implementing a retirement and/or health benefits plan. They are required to clearly spell out details of the plan's features within a Summary Plan Description (SPD).
A Summary Plan Description is a document that employers must give to all employees who participate in ERISA-covered retirement or health benefits plans. The SPD lays out the benefits of the program, including how the plan works. It must describe which employees are eligible for benefits, when employees become eligible to participate in the plan, how benefits are calculated and paid, how employee contributions are handled, how to claim benefits, and when benefits become vested. ERISA disclosures must also be documented along with information on how employees can file a grievance or an appeal.
Consulting an attorney experienced in ERISA law to review the SPD before it is released can help ensure the document is complete, accurate, and in compliance with state and federal law. It can take months to create a thorough SPD and making sure employees understand it reduces complaints, confusion, and most importantly, potential lawsuits.
What are specific ERISA compliance obligations for group health plans?
ERISA covers most private sector healthcare plans and generally imposes five key requirements:
- Plan Document Requirement - Group health plans and other employee benefit plans must be administered through a written plan document. It is not necessary to distribute this document to employees unless requested.
Some of the required provisions of the plan are:
- Named fiduciaries. The document must name at least one fiduciary that has the authority to control and manage the operation and administration of the plan.
- Allocation of responsibilities. The plan must include a procedure for allocating responsibilities for plan administration and operation.
- Benefit payment. The plan must state how benefits are paid.
- Claims procedures. The plan must have a specific procedure for processing benefit claims and appeals.
- Portability, special enrollment and nondiscrimination provisions. The plan must include a statement of Health Insurance Portability and Accountability Act (HIPAA) rights, special enrollment rights, renewability of health benefits, and nondiscrimination rules.
- Privacy of health information. Group health plans must contain language protecting the medical privacy of plan participants and beneficiaries.
- Summary Plan Description Requirement - ERISA mandates that plan administrators provide all participants and beneficiaries with a Summary Plan Description (SPD) as described in the prior section. An SPD covering the employer's health care and retirement benefits should be provided to all new employees of a company within 90 days of employment.
- The SPD must be in plain language and easy to understand. If at least 10% of the employees speak a language other than English, employers are required to distribute their SPD in those other languages too.
- Any changes or modifications to the SPD resulting in reduced benefits or coverage must be distributed to employees within 60 days of the effective date of the change.
- A new SPD should be provided every 10 years.
- Form 5500 Requirement - Except for those that are generally exempt, ERISA requires group health plans to file an annual report with the DOL that contains financial and other information about the plan. This filing is made via Form 5500.
- Summary Annual Report Requirement - In addition to Form 5500, employers are required to provide annual reports to each participant of their plans, summarizing the information contained in the Form 5500. These annual reports must be provided to participants withing nine months after the plan year.
- Fiduciary Requirements - A person is a fiduciary under ERISA law to the extent that the person:
- Has or exercises any decision-making authority or control over the management or administration of the plan,
- Has any discretionary authority over the management or disposition of the plan’s assets, or
- Gives investment advice regarding plan assets for direct or indirect compensation or has the authority to do so.
- Must act in the best interests of plan participants and are held to a higher standard of conduct.
Group Health Plans Covered By ERISA
Most private sector businesses offering retirement, pension, healthcare, and welfare plans must adhere to ERISA law.
Yet, only specific types of benefit plans are covered including:
- Medical, dental, vision, and prescription insurance plans
- Health reimbursement accounts (HRAs)
- Disability insurance plans
- Defined-benefit and defined-contribution funds
- Flexible spending accounts (FSAs)
- Long-term care insurance plans
- Business travel insurance plans
- Scholarship benefits
- Severance plans
- Welfare benefits such as 419(e) and 419(a)(f)(6) plans
ERISA does not apply to the following group health plans:
- Churches and religious organizations
- Government employers and entities
- Unfunded excess benefit plans
- Benefit plans that are maintained only for complying with workers’ compensation, disability, or unemployment regulations
- Plans serviced outside of the United States for the benefit of non-residents
An employer that violates ERISA may be subject to civil or criminal penalties. Fines range from a few hundred to a few thousand dollars per day, and criminal penalties can include jail time. Common ERISA violations are:
- Denying Benefits to Current or Former Employees - Employers are required to provide employee benefits based on group plan terms.
- Reducing or Changing Benefits - Employers must fulfill the terms of their group health plan as originally outlined, and benefits cannot be changed or decreased.
- Retaliating Against an Employee - ERISA prohibits employers from retaliating against an employee for enforcing their rights under a benefit plan. Firing, fining, suspending, or discriminating against an employee because enforce their rights are all against the law.
- Early Stoppage of Health Care Coverage - Under COBRA, employees may be eligible to continue receiving group health benefits for a limited period of time after termination of employment. If an employer refuses to provide this coverage to an eligible employee, it is an ERISA violation.
- Lack of Coverage for Mental Health - Employers are not required to offer benefits for mental health or substance abuse in their group health plans. If they do, however, employers may not impose additional costs or treatment limits on those benefits compared to other health coverage.
- Failing to Provide Required Notices - If an employer fails to provide necessary plan documents to plan participants and beneficies in accordance with ERISA, the employer can be fined and audited by the DOL or the IRS.
- Breach of Fiduciary Responsibility - Any person deemed to be a fiduciary under ERISA will be in violation of the law if the group health plan is not managed solely for the benefit and best interests of the plan participants.
- Failing to file Form 5500 - The penalties for not meeting the Form 5500 filing deadline can get steep. For late filing, the IRS penalty is $25 per day up to a maximum of $15,000. As of 2020, the DOL penalty can climb to $2,233 per day with no maximum limit or time period. Failure to file at all or inconsistencies in reporting will likely result in an audit. Audits may also arise from employee complaints.
Of all the employment laws and regulations, ERISA rules can be some of the most challenging to navigate. Creating plan documents properly and meeting reporting deadlines are crucial for plan administrators, as even unintentional violations can be costly.
Experts in Small Business Health Insurance
When considering a group healthcare plan for your employees, Meridio offers affordable, ACA-compliant, basic health coverage options. Anyone can take advantage of our guaranteed acceptance plans with licensed Benefits Guides and a Customer Care team available to assist with enrollment and offer continued support. We remove the administrative burden so that companies can offer quality healthcare without inconvenience or a lengthy process to implement.
We’re happy to answer all your questions and help you decide what’s right for you. To learn more, request information here (link to form).
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Tags: healthcare, small business insurance, small business hr, hr administration, erisa, health insurance
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