Compliance FAQ

Nearly all private-sector corporations, partnerships, and proprietorships, including non-profit corporations, must comply with ERISA regardless of their size or number of employees. Churches and government employers are exempt from ERISA Welfare Benefit Plan provisions.

ERISA compliance is required under Federal law and employers can avoid costly DOL penalties if they comply. Plan compliance can also help an employer avoid a lawsuit and stiff penalties in state court, if a Plan Participant or Beneficiary brings a “bad faith” claim against insurers and Administrators who deny benefits. As a Federal law, ERISA trumps state law. Under ERISA, damages are limited to the unpaid benefits and does not provide for jury trials. Being out of compliance creates exposure in either state or federal court.

In state court, every aspect of a case is subject to a “de novo” review, including matters not even in dispute. However, ERISA has a higher standard of review for overturning decisions of a Plan Administrator. In Federal court, an Administrator’s decision to deny a claim must be “arbitrary and capricious” before it can be overturned.

The following Plans, whether fully insured or self-insured, are generally those to which ERISA applies:

• Health, Medical, Surgical, Hospital, or HMO Plans
• Health Reimbursement Arrangements (HRAs)
• Healthcare Flexible Spending Accounts (FSAs)
• Vision Plans
• Dental Plans
• Prescription Drug Plans
• Sickness, Accident, and Disability Insurance Plans
• Group Life and AD&D Insurance
• Employee Assistance Plans (EAPs) (if counsel provided, not just referrals)
• Executive Medical Reimbursement Plans
• Wellness Plans (when medical care is offered)
• Long Term Care Insurance Plans
• Severance Pay Plans
• Unemployment Benefit Plans
• Prepaid Legal Services
• Vacation Plans
• Holiday Plans
• Scholarship Plans
• Housing Assistance Plans
• Business Travel Accident Plans
• Apprenticeship or other Training Plans
• 419A(f)(6) and 419(e) Welfare Benefit Plans
• Split Dollar Life Insurance Plans
• Single/One Employee Plans

Some self-insured or uninsured plans like sick pay, short-term disability, overtime, vacation pay and other paid time off, and jury duty may be exempt if benefits are paid:

• As part of a typical payroll practice;
• To individuals currently employee (excludes retirees, COBRA participants and dependents);
• Entirely from the employer’s general assets without prefunding or using insurance, AND without employee contributions.

Voluntary group or individual insurance plans may be exempt from ERISA, depending on the extent of employer involvement. This is typically the case when participants pay all of the cost and the employer’s role is only to withhold premiums through payroll deduction for remittance to an insurer. However, even minimal sponsorship or endorsement, like putting the company name on brochures could negate this exemption. A plan qualifies under the Voluntary Plan Safe Harbor if:

• It’s funded by group or group-type insurance;
• It’s totally voluntary;
• Employers do not contribute, AND
• Employers do not endorse the plan.

Voluntary Plan Safe Harbor may be negated through implied employer endorsement in the following ways:

• Selecting the insurer
• Negotiating Plan terms/linking coverage to employee status
• Using employer’s name/associating Plan with other employee plans
• Recommending Plan to employees
• Saying ERISA applies
• Doing more than permitted payroll deductions
• Allowing use of employer Cafeteria Plan
• Assisting employee with claims or disputes

ERISA generally does not apply to:

• Cafeteria Plans, Section 125 Plans, Premium Only Plans (POPs), Premium Conversion Plans, or Pre-tax Premium Plans. If the benefits funded by any of these plans are subject to ERISA, these plans should be referenced in the Plan Document and SPD.
• Health Savings Accounts (HSAs), if employers have limited involvement.
• Dependent Care FSAs
• Dependent Care Assistance Plans (DCAPs)
• Transit and Parking Plans
• Adoption Assistance Plans
• Educational Assistance and Tuition Reimbursement Plans
• Paid Time Off Plans
• Medical Clinics on-site to provide first aide

The Plan Document describes the Plan’s terms and conditions related to the operation and administration of a Plan. Each Welfare Benefit Plan that an employer provides that is subject to ERISA must have a written Plan Document. An ERISA Plan can exist without the required written document, but it is out of compliance. These documents do NOT constitute a Plan Document or Summary Plan required under ERISA:

• Master Contract from an insurance carrier
• Certificate of Coverage
• Summary of Benefits Plan

To be in ERISA compliance, the Plan Document should contain:

• Plan Administrator name
• Designation of named fiduciaries under the claims procedure for deciding benefit appeals (other than the Plan Administrator)
• Description of benefits provided and the standard of review for benefits decisions
• Participant eligibility requirements and the effective date of participation
• How the Plan is funded (employer and/or employee contributions), if the Plan has assets
• How much the Participant must pay towards the cost of coverage
• Details regarding the amendment and termination rights and processes for the Plan Sponsor, as well as what happens to any Plan assets if the Plan is terminated
• Rules about the use of Personal Health Information (PHI), if the Plan Sponsor uses PHI
• Information regarding COBRA, HIPAA, and other federal mandates like preexisting conditions exclusions, Women’s Health Cancer Rights Act, special enrollment rules, mental health parity, coverage for adopted children, Qualified Medical Support Orders, and minimum hospital stays after childbirth.
• Subrogation, coordination of benefits, and offset provisions
• Allocation and designation of TPA or committee administrative duties
• Process for allocation of insurer refunds to Participants (e.g., dividends, demutualization)

Any employer sponsoring health or welfare benefits must determine the best way to document benefits for legal compliance and to effectively communicate with employees. Employers sponsoring insured benefits must also worry about missing ERISA provisions in their insurance documentation. Sometimes using a “wrap document” to bundle benefits into one plan and/or supplement insurance documents is much easier for the employer.

Plan Document Compliance for Insured Plans
Special plan document considerations exist for insured plans. Insurers typically do not draft contracts with ERISA plan document requirements in mind because their principal focus is complying with applicable insurance laws. As a result, insurance policies often fail to include all of the provisions required for ERISA plan documents and don’t always protect the plan sponsor and plan administrator. The best approach is to combine the insurance documents with a “wrap” document.

Plan Document Compliance for Other Third-Party Contracts
Similar plan document considerations exist where plan benefits are provided pursuant to a contract with a third party other than an insurer. For example, benefits under many employee assistance plans (EAPs) are provided through a contract with third-party service providers. The contract often is not designed to be the plan document for ERISA purposes and may lack many of the required elements and provisions intended to protect the plan sponsor and plan administrator. The wrap document supplements existing documentation to include required elements and other optional provisions that protect the plan.

Plan Document Compliance for “Bundled” Plans
Some plan sponsors may wish to combine two or more ERISA benefits into one plan for ERISA compliance purposes. The component plan benefits may be fully insured, self-insured, or a combination of both. The plan document for this kind of bundled plan consists of the insurance policies and self-insured plan descriptions combined to make a “mega-wrap” using a “mega” or “umbrella” document. A common use of a mega-wrap document is to collect all of the plan sponsor’s welfare benefits under a single plan