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By
Larry Grudzien
Attorney at Law
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• 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?
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• 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?
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• 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?
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• 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?
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• 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?
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• 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?
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• 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?
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• 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?
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• 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?
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• 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?
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• 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?
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• 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?
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• 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
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• Statutory and Regulatory exemptions include:
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
Important Statutory and
Regulatory Exemptions
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• Statutory and Regulatory exemptions include:
“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)
Important Statutory and
Regulatory Exemptions
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• Statutory and Regulatory exemptions include:
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
Important Statutory and
Regulatory Exemptions
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• 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?
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• ERISA plan -
• Plan sponsor -
• ERISA Plan Administrator -
• Participants and Beneficiaries -
• Named Fiduciary -
• Other ERISA Fiduciaries -
• Third-Party Administrator (TPA) -
Important Terms to Remember
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• 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
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• 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
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• 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
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• 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
Plan Document Requirements
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• 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
Plan Document Requirements
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• 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
Plan Document Requirements
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• 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
Plan Document Requirements
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• 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
Plan Document Requirements
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• 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
Plan Document Requirements
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• 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
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• 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
Fiduciary Requirements
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• 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 Requirements
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• 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
Fiduciary Requirements
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• 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
Fiduciary Requirements
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• 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
Fiduciary Requirements
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• 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)
Fiduciary Requirements
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• 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)
Fiduciary Requirements
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• 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 Requirements
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• 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
Fiduciary Requirements
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• 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
Fiduciary Requirements
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• 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
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• 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 Preemption of State
Laws
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• 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
ERISA Preemption of State
Laws
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• 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)
Disclosure
Requirements
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• 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
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• 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
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• 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
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• 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”)
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• 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
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• 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
Summary Plan Description
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• 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
Summary Plan Description
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• 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)
Summary Plan Description
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• 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”)
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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
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• 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.
Summary of Benefits and
Coverage
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• 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.
Summary of Benefits and
Coverage
Reporting
Requirements
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• 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
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• 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
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• 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
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• 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
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• 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?
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• 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?
Claim Procedures
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• 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
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• 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
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• 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
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• Claim must be in writing
• Claim must be processed within certain
timeframes: Health
Disability
Other
• Special notice requirements
Initial Benefit Claim
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• 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 15-day extension w/ notice
• 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 90-day extension w/ notice
Processing Initial Claims
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• 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
Initial Benefit Claim
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• 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
Initial Benefit Claim
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• 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
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• The adverse determinations must:
Be made within specific timeframes
Be in writing
Contain the specified information
Appeal Process
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• 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
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• 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
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• 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 45-day extension w/ notice • ALL OTHER CLAIMS reasonable period < 60 days 60-day extension w/ notice
Processing Benefit Appeals
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• 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
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• 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
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• ERISA penalties
• Employee confusion
• Participant lawsuits: • Denied benefits
• Bad press
Consequences for
Noncompliance
ERISA Recordkeeping
Issues
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• 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
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• 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?
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• 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?
Questions?
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Contact Information
Larry Grudzien
• Phone: 708-717-9638
• Email: [email protected]
• Site: www.larrygrudzien.com