The Devil is in the Details
Once annual enrollment has come and gone, it’s a good time to brush up on some basic employee benefit plan requirements, to help avoid the common mistakes made in plan administration. The following list of potential errors is by no means exhaustive, but represents a sampling of issues to steer clear of:
• Keep your plan documents up to date and reference them in related plan communications. ERISA requires that all employee benefit plans be maintained pursuant to a written plan document. As the governing document for the plan, it should be reviewed on a regular basis, and amended if necessary, to keep up with new laws and regulations (such as health care reform). Since this will be the most detailed document regarding any given plan, it should be referenced in disclaimer materials included in less formal plan communications (such as annual enrollment materials) as the document that will control in the event of discrepancies, or errors or omissions in these other ancillary communications.
• Keep summary plan descriptions (SPDs) up to date and distribute them to employees. ERISA requires that employees receive an SPD covering each benefit plan, and specifies the information that must be included. Plan vendors may supply booklets or other communications materials to distribute to employees that describe the plan, but these are unlikely to meet the requirements for an SPD. When plan changes result in an SPD needing modification, an employer may distribute a summary of material modifications in the interim before preparing an updated SPD.
• Include only eligible employees (and dependents) in your plans. To do otherwise will run contrary to plan documents and represent unnecessary coverage costs for your company. Improperly covering ineligible individuals — contractors, leased employees, former employees, etc. — can be a costly proposition. Similarly, maintaining formerly eligible dependents who, for example, have aged out of the plan, unnecessarily adds to plan costs. Eligibility audits can help to mitigate this problem.
• Follow plan terms in administrative practices. The plan document governs, and both internal staff and outside administrators must follow the terms of the plan when making eligibility and claims decisions, issuing plan notices, handling appeals, etc.
• Make sure plan contributions are properly calculated. This includes taking into account the definition of compensation that is in the plan (which might involve such things as bonuses, commissions, etc.) and correctly calculating matching and profit sharing contributions.
• Keep in mind that if you allow employees to pay for any benefits on a pretax basis, a cafeteria plan is required. While the term “cafeteria plan” may conjure up images of employees selecting from a menu of benefit choices, a cafeteria plan is, at its most basic level, a premium only plan, and is required to be adopted before employees can pay their health (or dental, vision, etc.) plan premiums with before-tax dollars, or to make before-tax contributions to a health care or dependent care flexible spending account.
• If employees make salary deferrals to a 401(k) plan, deposit these deferrals into the plan trust on a timely basis, as by DOL regulation they become plan assets as soon as they can be reasonably segregated from the employer’s general assets.
• Review your COBRA administrative practices to make sure all individuals qualified to elect COBRA coverage receive the proper notices, for all plans subject to COBRA (the health plan, but also the dental and vision plan, and the health care flexible spending account).
Administrative errors can result in fines and penalties, lawsuits, and employee discontent. An annual plan self-review can avoid these potential costly consequences of common mistakes.
What Must Your SPD Include?
At a minimum, present employees with Summary Plan Descriptions that provide the following, within 90 days of the time they become covered by a plan:
• The name and type of plan.
• A plan’s requirements regarding eligibility.
• A description of benefits and when participants have a right to those benefits.
• A statement that the plan is maintained pursuant to a collective bargaining agreement, if applicable.
• A statement about whether the plan is covered by termination insurance from the Pension Benefit Guaranty Corporation.
• The source of contributions to the plan and the methods used to calculate the amount of contributions.
• The provisions governing termination of the plan.
• The procedures regarding claims for benefits and remedies for disputing denied claims.
• A statement of rights available to plan participants under ERISA.
For more information contact Bill Edwards at [email protected].