ERISA Compliance For Welfare Benefit Plans

1. ERISA Compliance For Welfare Benefit Plans Presented by Trey Tompkins of Admin America, Inc. To the South Atlanta Association of Health Underwriters Thursday March 20,2014 East Point, Georgia

2. What Every Agent Needs To Know About ERISA • What is ERISA? • What does ERISA do? • How is ERISA enforced? • Which employers are covered by ERISA? • Which types of plans are subject to ERISA? • What does ERISA require?

3. But First… We Propose A New Source of Agent Income: Bar Bets • Did you know that the United States of America was once led by an unelected King?

4. What is this new ERISA thing? • Part of the U.S. Code’s Labor Laws (Title 29) • Tax Laws are Title 26 • 51 Topical Based Titles • Regulated by DOL • Became law when Trey was five years old • Signed by President King

5. What does ERISA do? • Governs the structure of “employee benefit plans” • Mandates detailed disclosures to plan participants • Requires government reporting of plan information for many types of benefit plans • Imposes fiduciary code of conduct on plan sponsors and plan administrators

6. How is ERISA enforced? • Employee Benefits Security Administration (EBSA) • Enforcement actions and penalty assessments • Employee lawsuits

7. Which Employers are covered by ERISA? • Virtually all private-sector employers • Nonprofits are covered • Governmental employers and churches are exempt

8. Which types of plans aresubject to ERISA? • Pension Plans • Welfare Benefit Plans

9. What is a Welfare Benefit Plan? • A plan, fund or program • That is established or maintained by an employer • For the purposes of providing one or more benefits enumerated by ERISA • That is not otherwise excepted from Welfare Benefit Plan status

10. What is a Welfare Benefit Plan? • A plan, fund or program • That is established or maintained by an employer • For the purposes of providing one or more benefits enumerated by ERISA • That is not otherwise excepted from Welfare Benefit Plan status

11. What benefits areenumerated by ERISA? • Medical benefits • Sickness*, accident, death, disability* and unemployment benefits* • Vacation benefits* • Apprenticeship benefits • On-site day care benefits • Scholarship funds • Prepaid legal services • Holiday pay* • Severance pay benefits • House Assistance benefits * Exceptions Apply

12. What are the statutory benefit exemptions? • Programs maintained solely to comply with state-law requirements related to benefits for: • Worker’s compensation • Unemployment compensation • Disability insurance

13. What are the regulatorybenefit exceptions? • Payroll practice exemptions • Voluntary (Employee Pay All) Plan exceptions • Other miscellaneous exceptions

14. What benefits qualify for Payroll Practice Exemptions? • Must be paid from employer’s general assets • not through trusts or insurance contracts • Must be paid only to currently employed individuals • Not to former employees or family of former employees • Only for certain types of benefits

15. Types of benefits eligible for Payroll Practice Exemptions? • Wages • Overtime pay • Shift premiums • Holiday pay • Sick pay • Vacation Pay • Income replacement benefits • Jury duty

16. What situations qualify for the Voluntary Plan exception? • The Plan / Employer may: • allow employees to fund premium payments through payroll deductions • Forward employee premium deductions to the carrier

17. What situations do not qualify for the Voluntary Plan exception? • The Plan / Employer may not: • Contribute towards the cost of the coverage • Receive payment for granting insurer access to workplace • Endorse the program • Record keeping • Allow payroll deductions to be made on a pre-tax basis (safe harbor)

18. Recent Court Decisions Regarding the Voluntary Plan Exception? • Two Separate U.S. District Courts • the District of Maryland • the Eastern District of Tennessee • Ruled that use of Cafeteria Plans to pay premiums for voluntary plans did not in and of itself subject those plans to ERISA • Prior federal courts had ruled Cafeteria Plans are a factor to be considered among others in evaluating compliance with the Voluntary Plan Safe Harbor but had not addressed the issue so definitively.

19. What benefits qualify for miscellaneous regulatory exceptions? • On site first aid clinics for on the job injuries • Tuition and education expense reimbursement plans paid out of general assets • Remembrance funds for sick or deceased employees and their family members

20. Questions about covered benefits? Speaker’s Prerogative: the ability to drop pictures you like into presentations you spend hours preparing.

21. What does ERISA require? • Written Plan documents • Distribution of Summary Plan Description and other participant disclosures • Rules regarding processing of claims for benefits (Next Time) • Annual Form 5500 reporting • Fiduciary obligations and bonding requirements (Next Time)

22. What are the requirements of a written plan document? • Every ERISA benefit must be described in a written document • ERISA does not generally dictate : • contents of the plan document (except for certain required provisions) • the format of the plan document

23. What constitutes a written plan document? • Insured carrier’s contract typically requires supplementation in order to satisfy ERISA’s written document rules • Supplemental information is commonly called a “Wrapper” or “Wrap Document”. • It is physically coupled with the insurance contract to form one plan document

24. Physical components of a plan document for a fully insured plan • Wrap document • Insurance Contract (including) • Certificate of Coverage • Summary of Benefits • Application • Does the employer / plan sponsor have all of these?

25. ERISA required items commonly missing from insurance contracts • Plan administrator designation • ERISA named fiduciary designation • Plan Name and Plan Number • Plan Year • Designation of how many plans the Plan Sponsor maintains • Treatment of insurer refunds

26. ERISA required items commonly found in insurance contracts(but make sure) • Benefit descriptions • General employee eligibility provisions • Funding mechanism for benefits • Standard of review for benefit decisions • Required provisions for group health plans

27. Additional provisions beneficial to include in a Wrap Document • Employer indemnification of employees who perform plan functions • Employer’s right to amend or terminate plan • Plan enrollment processes • Specific employee and dependent eligibility criteria • Employer / employee allocations regarding coverage costs • Subrogation provisions

28. Plan Document Considerations:Bundling Pros and Cons • Plan Sponsor can bundle multiple benefit components under one plan document • Alternatively, separate plan documents can cover separate component benefits • Bundling reduces the number of plan documents to prepare and maintain • Unbundling helps smaller employers avoid Form 5500 filing requirements

29. ERISA Mandated Participant Disclosures • Summary Plan Descriptions • Summaries of Material Modifications • Four-Page summaries of benefits • Other disclosure requirements

30. Summary Plan Description Requirements • The most important document under ERISA • Often enforced over language found in plan document • Plan Administrator is liable for furnishing • Liability can be personal • No small plan exception • The trigger for ERISA’s statutory $110 penalty

31. Enforcement of SPD Language • Employees are allowed to rely on terms of SPD • If there is no SPD, courts will look to other communications • including oral representations

32. SPD Statutory Penalties • $110 per day for failure to provide within 30 days of written request by participant • Applies if incomplete SPD is provided • Penalty is discretionary with DOL and ultimately with federal judge

33. Summary Plan Descriptions - Who • All participants covered under any ERISA welfare plan • COBRA Qualified Beneficiaries • Parent or guardian of child covered under a QMSCO • Spouse of a deceased retiree

34. Summary Plan Descriptions - When • Within 120 day after new ERISA plan is established • Within 90 days after beginning of individuals coverage • Every 10 years for continuing participants • Every 5 years if there have been material changes

35. Summary Plan Descriptions - How • In a manner calculated to ensure actual receipt • Using a method likely to result in full distribution • Electronic distribution can be okay • Facts and circumstances

36. Summary Plan Descriptions - How • Properly addressed first class mail is always sufficient • Posting in a conspicuous place is never sufficient

37. Summary Plan Descriptions - What • No specific format is required • Must be sufficiently accurate and comprehensive to inform participants of their: • Benefits • Rights • Obligations

38. Summary Plan Descriptions - What • Must be written to be understandable by average plan participants • Avoid legalese • English as a Second Language issues • Can be the same document as the Plan Document • Can be wrapped around insurer’s certificate of insurance

39. Summary Plan Descriptions – Must Include • Plan Name • Form 5500 Number • Plan Administrator Info • Agent for Service of Legal Process • Plan Year • Eligibility Provisions • Plan amendment and termination provisions • Subrogation provisions • Plan funding and contribution info • Claims procedures • Statement of ERISA rights

40. Summary of Material Modifications • Used to communicate plan changes between issuing SPDs • Provided in the same manner and to the same individuals as the SPD • For group health plans, must be issued within 60 days of a change

41. Four PageSummary of Benefits and Coverage (SBC) • New requirement under Health Care Reform • Required for plans that begin open enrollment periods on or after September 23, 2012 • Required to be provided by insurers (or TPAs) • Material plan changes must be issued in SMM to participants 60 days before they may take effect (except at plan anniversary)

42. Four PageSummary of Benefits and Coverage (SBC) • DOL has released a SBC Template to serve as a model • Single form may be used for: • multiple coverage tiers • different deductibles and co-payments • Plans with add-on coverages such as HRAs and FSAs • Plans with carve-out arrangements such as PBMs

43. Four PageSummary of Benefits and Coverage (SBC) • May be provided electronically when • Format is readily accessible (MS Word, PDF) • Paper copy is available free upon request • Provided via an Internet posting • Participants are notified of availability • E-mail is okay for notice

44. Summary of Benefits and Coverage (SBC) • In 2013, a good faith attempt at compliance standard was utilized by DOL to evaluate compliance • No official guidance has been provided regarding 2014 and later standards

45. Other Required Disclosures • Notices of availability of documents • Summary Annual Reports • For plans that file Form 5500 • Notice of Rescission of Group Health Plan Coverage

46. ERISA Mandated Form 5500 Government Reporting • Annual reporting of plan information for welfare benefit plans • Each plan is required to file unless exempt • Small unfunded or insured welfare benefit plans are exempt from filing • small plans have less than 100 covered participants at the beginning of the plan year

47. ERISA Mandated Form 5500 Government Reporting • Penalty for non-compliance is $1,100 per day • There is no statute of limitations • May only be enforced by DOL; not private individuals • DOL offers a voluntary compliance program; the DFVC which provides for substantially lower penalties for plans which voluntarily bring delinquent filings to DOL’s attention

48. ERISA Mandated Form 5500 Government Reporting • Reporting for welfare benefit plans is simplified • No auditors report is required for most insured plans • All filing is now done electronically through specialized software – due 7 months after the end of the plan year (automatic extensions are available) • Free versions of the software are available as well as simpler paid versions and professional preparation services (much like in the 1040 return arena).

49. Questions?