Webinar | Training the Technique: Advanced ERISA Compliance

Training the Technique: Apr. 17, 2018
Advanced ERISA
Compliance
BY
LARRY GRUDZIEN
ATTORNEY AT LAW

Training the Technique
Who Must Comply?
• 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

• 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 as certain:
▪ 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)

• 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

SUMMARY OF 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
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 nine 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.
Summary of Benefits
and 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.
Summary of Benefits
and 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.
Summary of Benefits
and 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.
Summary of Benefits
and 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.
Summary of Benefits
and 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
▪ a statement as to whether the plan provides minimum essential
coverage and pays at least 60 percent of the total cost of the benefit.
Summary of Benefits
and 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
$1,087 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.
Summary of Benefits
and Coverage

• 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 $2,063 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 claims:
• 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, in
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

• Insured group health plans 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.
• Self-insured group health plans must:
▪ Meet Federal external review procedures.
▪ The DOL has provided an interim enforcement safe harbor for
self-insured group health plans
External Appeals

CONSEQUENCES FOR
NON COMPLIANCE

• 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 six 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, Attorney at Law
708-717-9638 | larry@larrygrudzien.com| www.larrygrudzien.com

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