ERISA Basics

Copyright 2014- Not to be reproduced without express permission of Benefit Express Services, LLC
By Larry Grudzien Attorney at Law

•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

•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

•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)

•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
Summary Plan Description

•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.

•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.

•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.

•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.

•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.

•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.

•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.

•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?

•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
•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
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
•ALL OTHER CLAIMS reasonable period < 60 days
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

•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?

Contact Information
Larry Grudzien
•Phone: 708-717-9638
•Email: larry@larrygrudzien.com
•Site: www.larrygrudzien.com

ERISA Basics

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