5 minutes
With the introduction of the Affordable Care Act, summary plan description requirements from the Employee Retirement Income Security Act are receiving new attention and increased enforcement likely to ensure compliance with ACA—and potentially find revenue to fund it through fines and penalties.
The rules around summary plan descriptions apply to virtually all organizations, except governmental entities and churches, regardless of the number of employees or how many employees participate. And they are just one piece of what ERISA requires.
It is worthwhile for credit unions to have compliant SPDs, as well as to comply with the rest of the act, because the Department of Labor’s Employee Benefits Services Administration routinely conducts audits of group health benefit plans. Companies selected for Department of Labor audits receive letters containing a list of documents the department would like to review, often information from three to six years back.
Those found non-compliant face significant penalties. Some infractions can entail up to $100 per day per penalty for every employee that is affected by a violation until the violation is corrected. The penalty for late delivery of an SPD can be as much as $110 per day per plan. Late filing of form 5500 can result in fines as high as $1,100 per day.
The Department of Labor estimates that three out of four plans it audits have an ERISA violation, and that about 70 percent of audits with violations have resulted in monetary fines to the employer.
With SPDs and wraps receiving increased scrutiny in today’s market, examining your credit union’s practices with regard to these documents can be a good place to start your work on preventing an ERISA audit.
ERISA requires employers to provide an SPD for each benefit they offers, or one SPD wrap document that pulls in missing insurance company information into one overall document. A wrap document creates one overall SPD combining all benefit plans, such as medical, dental, life, disability and health reimbursement account.
An SPD or wrap document informs participants of eligibility requirements, benefits, claims and appeals procedures, and rights under ERISA. To qualify as an SPD, these documents must contain ERISA language along with component plan information, such as the certificate of insurance.
More specifically SPDs or wraps must include the name of the plan, plan sponsor, plan administrator, plan year, employer tax identification number, type of benefit plan, summary of benefits, detailed description of plan benefits for group health plans, provider network availability for group health plans, procedures for qualified medical child support orders, Consolidated Omnibus Budget Reconciliation Act (or “COBRA”) rights, plan contributions, and claims procedures. A statement of ERISA rights is also required.
The SPD or SPD wrap must be distributed to newly enrolled participants within 90 days of when coverage started, or within 120 days of a new plan being established.
SPDs or wraps only need to be distributed to participants every five years. Plan changes that materially affect the design or pricing must be communicated to plan participants in a summary of material modification. For example, if plan deductive, coinsurance or contribution rates go up or down, it is considered a material change. The SMM must be distributed to covered participants within 210 days after the end of the plan year in which a material modification has been made. If the material modification is a reduction in group health plan benefits, the SMM must be distributed to participants within 60 days of the adoption date. Examples of reasons to provide an SMM include: the elimination of benefits payable; reduction of benefits payable; and increases in premiums, deductions and co-payments.
Filing Form 5500 is an additional ERISA requirement for employers with more than 100 participants. The 5500 form asks for information about the plan, including the plan name, plan year, plan sponsor, plan number, participants, insurance costs, and financial data. This information is reported to the U.S. Department of Labor annually.
Once a Form 5500 is completed and filed, an organization must prepare a summary annual report for each welfare benefit plan subject to ERISA reporting. The report summarizes Form 5500 information, and notifies participants that the Form 5500 has been filed and a copy is available to participants who request it. Summary annual reports must be distributed to covered participants within nine months after the end of the plan year. A SAR is not required for plans that are not required to file a Form 5500.
Common Misconceptions
A common mistake made by employers is to think that the summary insurance information they receive from their insurance provider meets their SPD requirements. Your insurers may provide some, but not all information required for SPD compliance. A summary of benefits and coverage (or “SBC”) is not an SPD.
Employers also sometimes debate what entity holds the responsibility to distribute ERISA notices. Employers are solely responsible for ERISA compliance, which includes distribution of the SPD or SPD wrap document.
As this short article has demonstrated, it’s worth it to take the time to make sure your credit union is in compliance with ERISA. By doing so, you protect your organization when you are audited by ERISA—or, worse yet, penalties for non-compliance.
Ken Spencer SPHR, MHRM, is CEO of HR Service Inc. HR Service subsidiary ERISA Solutions specializes in helping employers prepare for ERISA audits and developing summary plan description wrap documents. The Credit Union Employee Healthcare Pool offers employee healthcare services exclusively to credit unions by pooling risk into a self-funded group. Reach Spencer at 801.685.8400, ext. 6.
