the in's and out's of erisa

Copyright 2014- Not to be reproduced without express permission of Benefit Express Services, LLC Copyright 2014- Not to be reproduced without express permission of Benefit Express Services, LLC

By

Larry Grudzien

Attorney at Law

Copyright 2014- Not to be reproduced without express permission of Benefit Express Services, LLC

• ERISA is comprehensive federal legislation, first enacted in 1974 and amended many times since then

• Title I of ERISA is part of the labor laws of the United States and governs the structure of “employee benefits plans”

• For most plans, it requires detailed disclosure to covered individuals, employees and beneficiaries)

• For many plans, it requires detailed reporting to the government (mainly on Form 5500)

What is ERISA?


• ERISA Title I also imposes a strict fiduciary code of conduct on many of those who sponsor and administer ERISA plans

• In addition, there is a federal mechanism for enforcing rights and duties with respect to ERISA plans, and it preempts a large body of state law

• The Department of Labor (DOL) enforces ERISA Title I, mainly through its Employee Benefits Security Administration (EBSA) (formerly called PWBA)

• Failure to comply with ERISA’s requirements can be quite costly, either through DOL enforcement actions and penalty assessments or through employee lawsuits

What is ERISA?


• ERISA- The statute:

ERISA is divided into four Titles - Only Title I, called “Protection of Employee Benefit Rights,” applies to “employee welfare benefit plans” (as defined in ERISA § 3(1)).

Title I of ERISA is, in turn, divided into seven Parts

Only five of those Parts apply to and impose requirements on “employee welfare benefit plans:

• Part 1 (ERISA §§ 101-111) - Reporting and Disclosure

• Part 4 (ERISA §§ 401-414) - Fiduciary Responsibility

• Part 5 (ERISA §§ 501-515) - Administration and Enforcement

• Part 6 (ERISA §§ 601-609) - COBRA] Continuation Coverage and Additional Standards for Group Health Plans

• Part 7 (ERISA §§ 701-734) - Group Health Requirements [HIPAA, Newborns’ and Mothers’ Health Protection Act, Mental Health Parity Act and Women’s Health and Cancer Rights Act]

What is ERISA?


• DOL Regulations and Interpretive Bulletins

The DOL’s Employee Benefits Security Administration (EBSA) has issued several sets of final regulations under ERISA

Final regulations issued by a federal agency have the force of law, unless they fall outside the agency’s authority or are otherwise not a reasonable exercise of that authority

• DOL Advisory Opinions and Information letters

Under ERISA Procedure 76-1, in response to a request by an individual or organization, the DOL’s Office of Regulations and Interpretations may issue an Advisory Opinion that “interprets and applies the ERISA to a specific fact situation”

• DOL Technical Releases, Notices and other informal Guidance

Occasionally, the DOL issues technical releases and other notices, which it publishes in the Federal Register.

Its technical releases and notices apply to employee benefit plans generally (contrasted with its advisory opinions, which are only binding for the requesting party), although like any other informal guidance, they are not binding on a court

What is ERISA?


• Virtually all private-sector employers are subject to ERISA - there is no size exemption - ERISA §4(a)

• This includes corporations, partnerships, and sole proprietorships

• Remember, non-profit organizations are covered as well

• However, the plans of governmental employers and of churches are exempt from the application of ERISA Title I

Who Must Comply?


• If an employer sponsors a plan subject to ERISA, it must comply with its many requirements, but it also enjoys many protections

• Advantages of ERISA status Employees and beneficiaries may not sue in state court

Courts apply a standard of review more favorable to the plan

Why is it important to

determine if employer

sponsors an ERISA plan?


• Many employee benefit arrangements that provide non-pension fringe benefits are “employee welfare benefit plans” covered by ERISA

• However, there are important exemptions and safe harbors

provided for certain categories of employee benefits

• The definition of ERISA welfare benefit plan under ERISA §3(1) contains the following three basic elements:

there must be a plan, fund or program

that is established or maintained by an employer and

for the purpose of providing the specified benefits to participants and beneficiaries

What Plans Must Comply?


• In determining whether there is a “plan, fund or program” within the meaning of the ERISA definition, the courts ask whether from the surrounding circumstances a reasonable person could ascertain:

the intended benefits;

a class of beneficiaries;

the source of financing; and

the procedures for receiving benefits

• In addition, under Fort Halifax Packing Co. v. Coyne (482 U.S.1, 8 EBC 1729(1987) S. Ct. provides that a plan exists only when there is a commitment to pay benefits systematically, including an ongoing administrative responsibility or scheme to determine eligibility and calculate benefits.

Is there a plan, fund or

program?


• Some Arrangements Do Not Qualify

Even though it is easy to satisfy the basic “plan, fund or program” test, some arrangements do not qualify

For example, where an employer offered only a one-time, lump-sum severance bonus, there was no ongoing administrative scheme and therefore the bonus was not an ERISA benefit

• Written Document Is Needed to Create a Plan, Fund or Program

It should be recognized that no document is necessary for a plan to exist under ERISA, if from the surrounding circumstances the above elements of a plan, fund or program can be ascertained

When the necessary elements of a plan can be ascertained, however, maintaining the plan without a written document is a violation of ERISA

Is there a plan, fund or

program?


• An Employer need not to do much to establish or maintain a plan

• Issue is resolved in self-insured arrangements

• Issue is more uncertain in insured arrangements Purchasing Insurance is employer maintenance

Effect of Voluntary Plans Safe Harbor

• Individual insurance policies can create an

ERISA plan

Is the plan, fund or program

employer-established /

maintained?


• Specified listed benefits include:

medical, surgical or hospital care or benefits

benefits in the event of sickness, accident, disability, death or unemployment,

vacation benefits

apprenticeship or other training benefits,

daycare centers

scholarship funds

pre-paid legal services

holiday and severance benefits and

housing assistance benefits

Does the plan provide the type

of benefits listed in ERISA?


• Who are Participants and Beneficiaries? Current employees - ERISA §3(7)

Beneficiaries a person designated by a participant - ERISA §3(8)

Retired employees and COBRA qualified beneficiaries can be if they are entitled to benefits

• Plans Covering Self-Employed Individuals or

partners Not considered an ERISA plan

• Plans Covering Only One Employee (or Former Employee Can be if covers non-executive

Are plan benefits provided to

participants or beneficiaries?


• Statutory and Regulatory exemptions include:

Government, Church and Other Statutory Exemptions and

These include programs maintained solely to comply with state law requirements: • Workers Compensation

• Unemployment or

• Disability Laws

Important Statutory and

Regulatory Exemptions



Payroll Practice Exemptions - This includes payment of:

• wages, overtime pay, shift premiums, and holiday or weekend premiums

• unfunded sick-pay or income replacement benefits and

• vacation, holiday, jury duty and similar pay

To qualify for this exemption, the amounts must be paid out of the employer’s general assets





“Voluntary Employee-Pay-All” Exemption - The employer allows an insurance company to sell voluntary policies to interested employees who pay the full cost of the coverage

• Permits employees to pay their premiums through payroll deductions and permits the employer to forward the deductions to the insurer

• However, the employer may not make any contribution toward coverage and the insurer may not pay the employer for being allowed into the workplace

• The employer may not “endorse” the program - This element is the key element in treating the program as an ERISA benefit What makes up an endorsement? Selecting insurers

Negotiating terms or design

Linking plan coverage to employee status

Using employer’s name

Recommending plan to employees

Doing more than permitted payroll deduction

Source: DOL Reg. §2510.3-1(j)





Other Miscellaneous Exemptions - They include:

• facilities on the premises of the employer for providing first-aid or treating minor injury or illness occurring during working hours;

• tuition and education expense reimbursement programs (like Internal Revenue Code §127 educational assistance programs) that are unfunded (i.e., are paid out of employer general assets and not through insurance); and

• remembrance funds providing flowers or small gifts when employees or family members become sick or die




• Cafeteria Plan - No, but Health FSA is covered • Insured Major Medical Coverage - Yes • HMOs - Yes • Dental coverage - Yes • DCAP - No • AD&D Coverage - Yes • GTL coverage - Yes • LTD Coverage - Yes • PTO Coverage - No, payroll practice • Adoption Assistance - No • Educational Assistance - No • STD Coverage - Maybe if not payroll practice • Severance Coverage - Yes • Voluntary Insurance - no

Examples of benefits –

Are they subject?


• ERISA plan -

• Plan sponsor -

• ERISA Plan Administrator -

• Participants and Beneficiaries -

• Named Fiduciary -

• Other ERISA Fiduciaries -

• Third-Party Administrator (TPA) -

Important Terms to Remember


• Plan document must exist for each plan

• Plan terms must be followed

• Strict fiduciary standards must be followed

• Fidelity bond must be purchased to cover every person who handles plan

funds

• Summary plan description (SPD) must be furnished automatically to plan

participants

• Summary of material modification (SMM) must be furnished automatically to

plan participants when a plan is amended

• Copies of certain plan documents must be furnished to participants and

beneficiaries on written request

Key ERISA Requirements


• Form 5500 must be filed annually for each plan (subject to important

exemptions, especially for small plans)

• Summary annual report (summarizing Form 5500 information) must be

furnished automatically to plan participants for a plan that files a Form 5500

(except totally unfunded welfare plans)

• Claim procedures must be established and carefully followed when processing

benefit claims and when reviewing appeals of denied claims

• Plan assets, including participant contributions, may be used only to pay plan

benefits and reasonable administrative expenses

• For a few welfare plans, plan assets may have to be held in trust

• Group health plans must conform to applicable mandates like COBRA and

HIPAA

Key ERISA Requirements


• Introduction

ERISA does not require benefits to be provided and

applies only after an employer undertakes to provide

benefits

Plan design decisions are generally not subject to

fiduciary rules

ERISA imposes relatively few constraints on plan

design

Plan Document Requirements


• Plan must be established and maintained through a written document

ERISA §402 requires that every welfare plan “be established and maintained pursuant to a written instrument”

A written instrument does the following:

• Participants are on notice of benefits and their own benefits under the plan

• Plan administrator is provided guidelines by which to make decisions

• ERISA does not provide specific format or content requirements

• Insured benefit requirements – use of “wrap documents”

• A wrap document fills in missing ERISA requirements



• Consequences of Failure to Comply:

No Specific Penalties

Inability to Respond to Written Participant Requests

Benefits Lawsuits May Be Based on Past Practice and Similar Evidence

Less Favorable Standard of Review in Benefits Lawsuits

Limited Ability to Amend or Terminate Plan

Fiduciary Duty to Follow Plan Document



• ERISA does not dictate what constitutes a “plan document”

• Plan document compliance issues for insured plans

• Plan document compliance for “bundled plans”

• Can a single document serve as both plan document and SPD?

• Using “wrap” and “umbrella” documents for compliance



• ERISA Required Plan provisions:

Named Fiduciary Procedures for allocation of responsibilities Funding policy How payments are made Claims procedures Amendment procedures Distribution of assets on plan termination Required provisions for group health plans:

• COBRA & USERRA rules

• HIPAA Portability, Special enrollment and nondiscrimination rules

• HIPAA Privacy and Security

• Minimum hospital stays after childbirth

• QMCSO rules

• Disclosures regarding remaining Federal Mandates and other Laws



• Optional plan provisions regarding fiduciary functions ERISA also specifically permits the a number of arrangements,

involving fiduciaries, to be addressed in the plan document

• Other important plan provisions Permission to use plan assets to pay plan administrative

expense

Incorporating provisions that appear in SPD

• eligibility rules

• benefits promised

• exceptions and limitations that can result in the loss or denial of benefits;

• provisions required by other laws (e.g., FMLA provisions relating to group

health plan

• coverage) and

• how the plan is administered



• Other important plan provisions

General business elements:

• governing state law, subject to preemption by applicable federal

law;

• no contract of employment

• no guarantee of tax consequences and

• what happens if the plan sponsor is sold (e.g., successor employer

provision)

Other important plan provisions:

• discretionary language for court review of benefit claims

• subrogation and coordination of benefits provisions

• language regarding exclusion of independent contractors and

• whether assignment of benefits is permitted



• ERISA’s fiduciary rules are distinguished from many other rules of

behavior by the following major characteristics:

the rules incorporate a broad, functional definition of the term “fiduciary,” which

sweeps in all kinds of individuals and business entities depending on the

duties they actually perform in connection with ERISA plans

the standard of behavior expected from ERISA fiduciaries is very high

broadly-defined fiduciary responsibilities apply to every act taken in a fiduciary

capacity

certain specifically-enumerated transactions between an ERISA plan and

persons acting in connection with the plan are absolutely prohibited; and

ERISA fiduciaries who breach their duties can be personally liable for

damages to the ERISA plan and for DOL penalties imposed in connection with

fiduciary breaches

Fiduciary Requirements


• Automatic Fiduciaries: Named Fiduciaries Plan Administrators Trustees Others

• ERISA §402(a)(1) – A plan must provide for one or more names fiduciaries who jointly or severally have authority to control and manage the operation and administration of the plan



• Functional Fiduciaries ERISA §3(21) - Persons or entities become ERISA fiduciaries to the extent that they: Have discretionary authority or discretionary control

regarding the management of an ERISA plan Have any authority or control respecting management or

disposition of plan assets Render investment advice for a fee or Have discretionary authority or discretionary responsibility

in the administration of the plan



• Fiduciary Standard of Behavior One of Highest

in Law

The duties of care and integrity imposed on fiduciaries

have been among the highest, if not the very highest, in

the common law

In enacting the ERISA fiduciary duty rules, Congress

intended to incorporate principles of the common law of

trusts, tailored as necessary to employee benefit plans



• The principal duties of ERISA fiduciaries are:

To act solely in the best interest of plan participants and beneficiaries (the duty of undivided loyalty)

To use plan assets for the exclusive purpose of paying

plan benefits or reasonable expenses of plan administration (the exclusive benefit rule)

To act with the care, skill, prudence and diligence that a prudent person in similar circumstances would use

To diversify the plan’s investments (if any) to minimize the risk of large losses and

To act in accordance with the documents governing the

plan

• Source: ERISA §404



• Prohibited Transactions

ERISA §406 prohibits certain listed transactions, unless a

statutory or regulatory exemption applies to permit the

transaction

Such transactions involve a plan and a “party in interest”

and plan fiduciaries

Listed transactions result of an abuse of status by a

fiduciary and a party in interest



• Prohibited Transactions - parties-in-interest A fiduciary is prohibited from causing a plan to engage in a

transaction if the fiduciary knows or should know that the

transaction constitutes a direct or indirect -

• sale or exchange or leasing of any property between the plan and a party

in interest

• lending of money or other extensions of credit between the plan and a

party in interest

• furnishing of goods, services or facilities between the plan and a party in

interest

• transfer to, or use by or for the benefit of, a party in interest of any assets

of the plan or

• acquisition, on behalf of a plan, of any employer security or real property in

violation of ERISA §407(a)



• Prohibited Transactions - Fiduciary

This category of prohibited transactions prohibits a

fiduciary from:

• dealing with assets of the plan in the fiduciary’s own interest or

account (often called the self-dealing provision)

• acting in any transaction involving the plan on behalf of a party

whose interests are adverse to those of the plan or the

interests of its participants or beneficiaries (often called the

conflict of interest provision) and

• receiving any consideration for his or her personal account

from any party dealing with such plan in connection with a

transaction involving the assets of the plan (often called the

anti-kickback provision)



• Fiduciaries are liable for breaches that occur while they serve as fiduciaries, but not for breaches in the period before they become fiduciaries or after they cease to be fiduciaries

• Liability includes: personal liability for losses caused to the plan

personal liability to restore to the plan any profits the fiduciary made through the use of plan assets and

other equitable or remedial relief, as a court may deem appropriate, including removal of the fiduciary

Source: ERISA §409



• Fiduciary bonding requirements

It is required if there are plan assets

Who must be bonded?

Amount of Bond?

• An amount equal to at least 10% of the funds handled during the prior reporting year, subject to a minimum of $1,000 and a maximum of $500,000

Source ERISA §412



• VFC Program Program covers 18 specific fiduciary breaches

To be eligible, the plan or the employer must not under investigation by the DOL

To correction amount must restored to the plan

This correction must be documented

File an application



• Federal Preemption of State Laws

Federal law may preempt state law (i.e., block it from

enforcement) in three general ways: • Congress can expressly dictate that certain state laws are preempted by

including statutory language to this effect when it enacts new legislation. (This

is sometimes referred to as “express” or “direct” preemption.)

• Congress can enact legislation that so “occupies the field” in a

particular area of law, that any state-law regulation in the same

area is preempted without any need for explicit Congressional

language (This is known as “field preemption”)

• Last, Congress can enact legislation that conflicts with state law, in

which case the state law must yield without any need for explicit

language. (This is known as “conflict preemption”)

Source: U.S. Const Article VI

ERISA Preemption of State

Laws


• ERISA Express Preemption Provision - ERISA §514

All state laws that “relate to” ERISA plans are preempted

When does a state law “relate to” an ERISA plan?

• It has “a connection with or reference to such plan”

• Indirect impact on benefits or administration is generally sufficient

• Indirect economic impact is generally not sufficient

• State laws of general application are less likely to be preempted

Certain state insurance laws are “saved” from preemption

• Laws that regulates insurance, banking or securities are exempt

• New test - KY Assn of Health Plans Inc. v. Miller 123 Ct. 1471, 30 EBC 1128 (2003)

ERISA plans cannot be “deemed” to be insurers under state law

• New state law saved from preemption by the savings clause cannot be applied directly to a plan or plan sponsor


Laws


• ERISA Field Preemption Provision - ERISA §502

All state law causes of action or state law remedies are preempted that “relate to” ERISA plans are preempted

• ERISA Conflict Preemption Provision - ERISA §731 Any requirement of state law that conflicts with a provision

of ERISA will also be preempted.

An example would be a state law requiring different preexisting condition limitations or special enrollment rights than those contained in HIPAA


Laws


• What is a MEWA? An employee welfare benefit plan or other arrangement

that is established or maintained for the purpose of offering or providing medical or other welfare benefits to employees of two or more employers, including one or more self-employed individuals - ERISA §3(40)(B)(i)

• What is the consequence of a MEWA?

Greater state regulation – ERISA §514(b)(6)

Self-funded MEWAs - subject to any state insurance law except to extent that it is inconsistent with Title I of ERISA

Some states prohibit self-insured MEWAs

Multiple Employer Welfare

Arrangements (MEWAs)

Disclosure

Requirements


• Summary Plan Description

• Summary of Material Modifications

• Summary Annual Reports

• Summary of Benefits and Coverage

• Providing copies of documents on written request

• Making documents available at principal office

Summary of Disclosure

Requirements


• Which plans must comply?

Almost every employee benefit plan must comply - ERISA

§104(b)(1)

• Are there any plans that are exempt?

Exemption of employer-provided daycare centers - DOL Reg.

§2520.104-25

Exemption of welfare plans for certain select employees - DOL Reg.

§2520.104-24

Cafeteria plans - considered a fringe benefit plan, but health FSA

must comply

• Note: No small plan exemption - DOL Reg. §2520.104-20(c)

Disclosure Requirements


• Who is responsible for complying?

Plan Administrator is responsible - ERISA §104(b)(1)

• Who must be furnished with SPD and SMMs

In general, covered participants, but not beneficiaries – ERISA §104(b)(1)

Exceptions, the following must receive copy:

• COBRA Qualified Beneficiary - ERISA §104(a)(6)

• QMCSO Alternative Recipient - ERISA §609(a)(7)(B)

• Spouse/Dependent of Deceased Participant

• Representatives or Guardians of Incapacitated Persons

• Who must be provided the SBC?

Generally, the SBC must be distributed to all applicants (at the time of application), policyholders (at issuance of the policy), and enrollees (at initial enrollment and annual enrollment).

Disclosure Requirements


• When must it be provided?

Within 90 days for newly-covered participants - DOL Reg. §2520.104(b)-2

Within 120 days for new plans - DOL Reg. §2520.104(b)-2(a)(3)

Updated SPD is required every 5 (or 10) years - DOL Reg. §2520.104(b)-2

• How must it be provided?

Must be furnished in a way ”reasonably calculated to ensure actual receipt of the material” – DOL Reg. §2520.104(b)-1(b)(1)

Must use method ”likely to result in full distribution”

Satisfactory method will depend on facts and circumstances

• Furnish by Mail • Furnish by In-hand delivery • Electronic means

Summary Plan Description

(“SPD”)


• General format and style requirements:

Be sufficiently accurate and comprehensive to inform plan participants and beneficiaries of their rights and obligations under the plan

Be written in a manner understandable to the average plan participant

Not have the effect of misleading, misinforming or failing to inform participants and beneficiaries

Any description of exceptions, limitations, reductions, and other restrictions of plan benefits must be apparent in the SPD

Source: DOL Reg. §2520.102-2



• The items to be included in a welfare plan SPD:

Plan-identifying information Description of plan eligibility provisions Description of plan benefits Statement clearly identifying circumstances that may

result in loss or denial of benefits Description of plan amendment and termination

provisions

Description of plan subrogation provisions (if any) Information regarding plan contributions and funding



• The items to be included in a welfare plan SPD:

Information regarding plan contributions and funding

Information regarding claims procedures

Model statement of ERISA rights and

Prominent offer of assistance in a non-English language, if it applies

Explanation of Plan’s Policy regarding Recovery of Overpaid benefits

Explanation of plan’s allocation policy for insurer refunds and similar payments

Discretionary authority to interpret plan terms and resolve factual disputes

Source: DOL Reg. §2520.102-3



• The following additional items must be included in the SPD for a group

health plan:

Detailed description of group health plan benefit provisions

Description of the role of health insurers (i.e., whether a related insurer actually insures plan

benefits or merely provides administrative services for the plan)

Description of group heath plan claims procedures

Description of effect of group health plan provider discounts

Group health plan provider incentives: disclosure required

Information regarding COBRA coverage and

Disclosures regarding other federal mandates

Source: DOL Reg. §2520.102-3(j)



• Who must be provided SMM? Same rules as SPD

• What must the SMM report?

Any “material” change in plan or any change in the information required in the SPD

• When must it be provided?

Must be furnished within 210 days after the end of the plan year in which change is adopted

Special rules for group health plans -– 60 days if change is a material reduction

Source: ERISA §104(b)(1), DOL Reg. § 2520.104b-2

Summary of Material

Modifications (“SMM”)


• SPD will generally control where it conflicts with plan document

• What constitutes sufficient conflict for rule?

• Effect of SPD disclaimers

• Non-SPD summaries do not control over

conflicting plan documents

• SPD ambiguities may be construed against plan

sponsor

Conflicts Between SPD/SMM &

Plan or Insurance Contract


• Some courts accept substantial compliance with format and content rules

• Possible liability for additional benefits

• Possible Fiduciary breach liability

• Failure to comply with understandable and other format requirements

Consequences of Furnishing

SPDs or SMMs that Otherwise

violate Format or Content

rules


• No specific civil penalties

General ERISA enforcement provisions would apply -

ERISA §502(a)(3)

• Possible criminal penalties for willful failures

$100,000 and/or prison for 10 years - ERISA §501

• Written request penalties may apply -$110 per day

after 30 days - ERISA §502(c)(1)

Consequences of Complete

Failure to furnish SPD or

SMMs


• Written requests:

What must provided? • Copy of SPDs, plan documents, contracts and agreements

Must provide within 30 days of request Failure to provide - penalty -$110 per day DOL Reg. § 2420.104b-3

• Documents available for inspection:

At the principal office of the plan administrator or employer (if different)

Within 10 days of request - DOL Reg. §2420.104b-1(b)(4)

Other Disclosures


• Summary Annual Report (SARs)

Summarizes the information on Form 5500

Plan administrator must furnish SARs to participants and others entitled to receive SPD

Provided within 9 months of filing From 5500

Information required to be included in SAR is provided in Model SAR contained in DOL Reg. §2520.104b-10(d)(4)

Exemption - small welfare plans

Other Disclosures


• What Form May SBCs Take?

SBCs may be provided in either paper or electronic form, though

either must follow the template provided by DOL

SBCs are limited to no more than four double-sided pages (eight

pages total), and must be written in plain language that the average

plan participant can understand.

If an SBC is provided electronically, it must meet DOL's electronic

disclosure requirements.

Summary of Benefits and

Coverage


• Who Must Be Provided an SBC?

Both participants and beneficiaries have a right to receive

the SBC.

A single SBC can be provided to the participant and the

beneficiaries at the participant's address, provided the

beneficiaries are not known to live at a different address.

Insurers must provide SBCs or summaries to employers

upon request, even if they are only “shopping” for

coverage.


Coverage


• SBC Due Dates

In general, the SBCs are required to be provided as part of any written

application materials that are distributed by the plan or issuer for

enrollment.

If the plan does not distribute written application materials for

enrollment, the SBC must be distributed no later than the first date the

participant is eligible to enroll in coverage for the participant or any

beneficiaries.

If there is any change to the information required to be in the SBC

before the first day of coverage, the plan or issuer must update and

provide a current SBC to a participant or beneficiary no later than the

first day of coverage.


Coverage


• SBC Due Dates

Health plan insurers and group health plans are required

to provide the SBCs:

• automatically to an individual prior to enrolling in coverage and 30

days prior to re-enrolling or renewal of coverage,

• within 60 days prior to the effective date of any significant change of

coverage, and

• within seven business days of when individuals require or request

the document.


Coverage


• SBC Due Dates

Employers and plan sponsors must provide an SBC:

• beginning on the first day of the first open enrollment period that

begins on or after Sept. 23, 2012;

• on the first day of the first plan year that begins on or after Sept. 23,

2012, for participants and beneficiaries who enroll in coverage other

than through an open enrollment period

• no later than 90 days following enrollment for HIPAA special

enrollees;

• upon renewal, by either the date the written renewal materials are

distributed to the plan sponsor or, in the case of automatic renewal,

no later than 30 days prior to the first day of the plan year, and;

• within seven business days of a participant or beneficiary request.


Coverage


• A separate SBC must be provided for each “benefit package”—defined

as any coverage arrangement with a difference in benefits or cost-

sharing—offered under the plan and for which the participant is eligible.

• For example, HMOs, PPOs and standalone HRAs would each require

an SBC. Coverage tiers, such as individual, individual +1, and family, do

not require separate SBCs.

• However, an exception is made for benefit packages that provide

different levels of cost-sharing.

• As long as it is clearly understandable, one SBC can be provided for a

benefit package that allows participants to select different levels of

deductibles, copayments and coinsurance.


Coverage


• Each SBC must include:

uniform definitions as well as an internet address leading to a uniform glossary and

information such as a phone number, on how to obtain a paper copy of the uniform

glossary;

a description of the plan's coverage for each category of benefits, including exceptions,

reductions and limitations;

cost-sharing provisions such as coinsurance, copays and deductibles;

renewability and continuation of coverage information;

coverage examples (see SBC ‘Coverage Examples' below);

an internet address for obtaining a list of the network providers;

an internet address for additional information about any prescription drug coverage;

a statement that the SBC is only a summary and an explanation of the document, such

as the plan document or certificate of insurance, which should be consulted for more

information;

contact information for questions or for obtaining a copy of the plan document, certificate

of insurance, insurance policy or certificate of insurance, whichever is applicable; and

for coverage beginning on or after Jan. 1, 2012, a statement as to whether the plan

provides minimum essential coverage and pays at least 60 percent of the total cost of the

benefit.


Coverage


• Noncompliance Penalties

Violations of the SBC rule—such as a participant or

beneficiary not receiving an SBC, or receiving an SBC with

incorrect information or form—can incur the following

penalties:

• a civil penalty of up to $110 per day per affected individual (ERISA

§502(c));

• an excise tax of $100 per day per affected individual (tax code

§4980D);

• for violations of content and not form, fines of up to $1,000 per

affected individual for willful violations of the SBC rule (PHSA

§2715(f), incorporated into ERISA §715);

• self-reporting the excise tax on IRS Form 8928; and

• for a willful failure to provide required information, a fine of not more

than $1,000 for each failure for each enrollee.


Coverage

Reporting

Requirements


• The plan administrator of each separate ERISA plan must report specified plan information annually to DOL - ERISA §103(a)(1)(A)

• Exemption for certain plans Complete exemption for small unfunded plans

• Plans must have fewer than 100 “covered participants” at start of year

Plans for certain select employees

Daycare centers

GIAs

Source: ERISA §103(a)(1)(A),DOL Reg. § 2420.104-20, 21, 24 & 25

Introduction


• Penalties apply for late or unfiled Forms 5500s

• DOL may assess a civil penalty against a plan administrator of up to $1,100 per day from the date of failure or refusal to file

• Penalties are cumulative - against each Form 5500 not filed

• No statute of limitations Source: ERISA §502, DOL Reg. § 2560.502c-2

Penalties for Non-Compliance


• Relief to Plan administrators that have failed to file

form 5500s or filed them late

• To comply, submit a completed from 5500 for the

years in question and pay an applicable penalty

• Only those employers who have been notified of

Form 5500 problems qualify

DFVC Program


• The program imposes the following penalties based on the type of plan involved:

Small plans: $10/day capped at $750/year or $1500/multi-year Submission

Large Plans:$10/day capped at $1,500/year or $4,000/multi-year submission

DFVC Program


• One form 5500 may be used for multiple

ERISA benefits under single plan

• How many Form 5500s are maintained by

more than one employer?

How Many Forms are

Required?


• Due date of return:

By end of 7th month after plan year, unless extended Extended by filing Form 5558 or extending employer’s

return

• What must be filed?

Form 5500 Schedule A Schedule C Financial schedules and accountant’s opinion, if funded

• Filed with DOL -electronically

Form 5500: When? What?

Where?

Claim Procedures


• ERISA plans must establish and maintain

procedures under which benefits can be requested

by participants and beneficiaries and disputes

about benefit entitlements can be addressed

• Claimant must exhaust plan’s procedures before

filing suit

• If plan has inadequate procedures, claimants may

skip procedures and directly to court

Introduction


• What are the consequences for Non-

compliance?

Claimants can skip procedures and go directly to court

Courts may apply less deferential standard of review of

claim

Claimants deadline to appeal (and file suit) may be tolled

Introduction


• The basic steps in any claims procedure are:

a claim for benefits by a claimant or authorized representative

a benefit determination by the plan, with required notification to the claimant

an appeal by the claimant or authorized representative of any adverse determination and

the determination on review by the plan, with required notification to the claimant

• Procedures can vary depending on the type of claim involved

• Plan administrator is responsible for complying with procedures

Source: ERISA §503, DOL Reg. § 2560.503-1

Basic Structure of Claims

Procedures


• Claim must be in writing

• Claim must be processed within certain

timeframes: Health

Disability

Other

• Special notice requirements

Initial Benefit Claim


• Timeframes for deciding claims

• URGENT CARE CLAIM ASAP < 72 hours no extensions

• PRE-SERVICE CLAIM reasonable period < 15 days 15-day extension w/ notice

• POST-SERVICE CLAIM reasonable period < 30 days 15-day extension w/ notice

• CONCURRENT CARE when plan reverses pre-approval, in time to DECISION permit appeal before treatment ends or is reduced,

or when request for extension involves urgent

care, ASAP < 24 hours (if request is made w/in 24 hours of end of treatment series)

• DISABILITY CLAIM reasonable period < 45 days • ALL OTHER CLAIMS reasonable period < 90 days 90-day extension w/ notice

Processing Initial Claims


• All adverse determinations must be in writing, understandable and must address:

The specific reasons for the denial and the plan

provisions relied on A description of any additional information required from

the claimant A description of the appeals process



• A statement that a copy of “internal rules or guidelines” relied on in denying the claim may be obtained on request and without cost and

• A statement that a written explanation of any “scientific or clinical judgment” relied on in denying the claim may be obtained on request and without cost



• Appeal must be filed at least 180 days after adverse determination

• If no appeal, claimant loses right to file further claim with plan or in court

• Once appeal is filed, claimant must receive “full and fair review” by named fiduciary

• Claimant must be permitted to submit written comments and access documents

Appeal Process


• The adverse determinations must:

Be made within specific timeframes

Be in writing

Contain the specified information

Appeal Process


• Adverse determinations must contain the

following information:

The specific reasons for the denial and the plan

provisions relied on

A description of any additional information required from the claimant

A statement of the claimant’s right (discussed earlier) to obtain relevant documents and other information

Appeal Process


• Adverse determinations must contain the following information:

A description of any additional required or voluntary appeals and a statement of the claimant’s right to sue

For group health and disability claims, a statement that a copy of “internal rules or guidelines” relied on in denying the claim may be obtained without cost upon request and

For group health and disability claims, a statement that a written explanation of any “scientific or clinical judgment” relied on in denying the claim may be obtained on request and without cost

Appeal Process


• Timeframes for deciding appeals

• URGENT CARE CLAIM ASAP < 72 hours no extensions • PRE-SERVICE CLAIM reasonable period < 30 days no extensions • POST-SERVICE CLAIM reasonable period < 60 days no extensions • CONCURRENT CARE when plan reverses pre-approval DECISION before treatment ends or is reduced

• DISABILITY CLAIM reasonable period < 45 days 45-day extension w/ notice • ALL OTHER CLAIMS reasonable period < 60 days 60-day extension w/ notice

Processing Benefit Appeals


• Following a final internal adverse benefit determination by the plan, a

claimant may seek an external review—that is, a review of the decision

by an independent party.

• While state external review requirements have long applied to many

group health plan insurers as a matter of state law (as permitted by the

existing DOL claims procedure regulations), before health care reform,

external review was not required for certain plans—notably, self-insured

group health plans.

• Health care reform requires both group health plans and health insurers

to provide external review for certain types of health plan claims, and

specifies standards for external review procedures.

• For self-insured health plans in particular, the external review

requirement constitutes a significant new plan administration and

compliance obligation.

External Appeals


• Group health plans and insurers offering group health

insurance must:

comply with the applicable state external review process for such

plans and issuers that, at a minimum, includes the consumer

protections set forth in the Uniform Health Carrier External Review

Model Act promulgated by the National Association of Insurance

Commissioners and is binding on such plans; or

implement an effective external review process that meets minimum

standards established by the secretary of HHS through guidance and

that is similar to the NAIC standards, if:

• the applicable state has not established an external review process that

meets the NAIC's standards; or

• the plan is a self-insured plan that is not subject to state insurance

regulation (including a state law that establishes an external review

process that meets the NAIC standards).

External Appeals


• ERISA penalties

• Employee confusion

• Participant lawsuits: • Denied benefits

• Bad press

Consequences for

Noncompliance

ERISA Recordkeeping

Issues


• Specific recordkeeping requirements are imposed

• Requires retention of records sufficient to document information that is required by Form 5500

• Retain the records to document the information on From 5500 for a period of not less than 6 years after From 5500 is filed or would have been filed

Source: ERISA §107

Introduction


• Those “persons” who have reporting or certification

requirements must maintain records

• Requirements apply to plan administrator, insurer,

TPA and CPA

• Applies to those plans who do not file Form 5500

• Responsibilities can not be delegated

Who Must Maintain Records?


• Records sufficient to verify information on Form 5500

• Records subject to rules are defined broadly and include claims record

• Summaries or recaps of actual records are not sufficient

• Electronic records requirements

What Records Must be

Maintained?

Questions?


Contact Information

Larry Grudzien

• Phone: 708-717-9638

• Email: [email protected]

• Site: www.larrygrudzien.com

the in's and out's of erisa

Recruiting & HR