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The Employee Retirement Income Security Act, commonly known as ERISA, was enacted in 1974 to address public concerns that funds from private pensions needed protection from mismanagement and abuse. Many employers offering employee insurance benefit plans are unaware that provisions of this Act apply to all plans, not just pensions.
What Employers are Subject to ERISA?
Most employers who are corporations, partnerships, sole proprietorships and non-profit organizations are subject to ERISA. Explicitly exempt from the rule are governmental and church plans. There is no exemption from compliance for employers based on size.
ERISA identifies the following common insurance plans as being subject to its jurisdiction:
• Medical, surgical or hospital benefits
• Sickness, accident, disability, or death benefits
Some benefits offered through payroll deduction are considered “voluntary,” and paid 100% by the employee such as supplemental life insurance, critical illness, accident or cancer benefits, are considered exempt from ERISA. However, as an employer if you have any participation in the selection of the vendor or promotion of the program, these benefits will not maintain that exemption.
What is the most common ERISA error?
Every ERISA plan must have a written plan document describing the benefits being provided. Some plans may exist without this document. If so, the plan will be out of compliance and could be subject to violation fines and penalties.
Many employers erroneously believe that their insurance contract is the written plan document. While these contracts and certificates of coverage contain part of the information requirement of the plan document, an audit by the Department of Labor would consider this incorrect. A simple solution to this issue is to work on a form called a “Wrap SPD document.” This incorporates most of the missing information, together with the insurance certificates, to meet all of the required ERISA elements for the plan document.
The broad requirements of ERISA additionally include reporting and disclosure, recordkeeping, and fiduciary requirements.
*There are many businesses, including Allen, who can assist you with an ERISA compliance audit. Because of the recent uptick in Department of Labor audits, and the size of the penalties involved, we recommend you start working with a benefits professional as soon as possible.
BY Sherree L. Craig, CEBS.