ERISA Compliance for Small and Large Employers
Despite its name, Employee Retirement Income Securities Act (ERISA) regulations apply not only to retirement plans, but to all “welfare” plans, including health benefits.
ERISA became law in 1974 and is intended to safeguard participants’ pension and welfare benefits. With the passage of the Affordable Care Act in 2010, more focus is directed to both health and welfare benefits.
Benefits that are subject to ERISA include employer-sponsored welfare plans such as:
• Medical, surgical or hospital care
• Sickness, accident, disability or death benefits
• Unemployment benefits
• Vacation benefits
• Apprenticeship and training programs
• Day care centers
• Scholarship funds
• Prepaid legal services
• Holiday or severance pay
• Retirement plans
ERISA regulations apply to any employer who offers benefits for two or more employees. Organizations exempt from ERISA include churches and government entities, as well as employers who offer plans maintained to comply with workers’ compensation or disability that fall under a statutory exemption status.
Small and Large Employer Responsibilities
Regardless of size, employers who offer benefits have three primary administrative requirements under ERISA. Much of this work usually is handled by the plan administrator:
• The U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) require plans to submit certain documents including a summary plan description that describes the coverage levels and claims procedures of your plan. Plans also are required to report when modifications (such as increased or decreased coverage, for example) to the plan have been made.
• ERISA requires plan administrators share information with the plan participants and the DOL upon request. Plan participants can get a wide array of information ranging from coverage levels to financial information.
• For welfare plans, it’s easiest to distribute the information at orientation for new hires.
• Be aware that the requirements for retirement plans are different and can have an impact on a long list of retirement plan features including fiduciary responsibility and reporting and disclosure requirements.
• Plan administrators must establish a claims procedure to process claims for benefits and provide information to a participant when the participant’s claim has been denied.
The DOL requires small employers to provide a financial statement that describes the plan’s financial condition. Small employer plans can fulfill that obligation by filing a DOL Form 5500 (or Form 5500-SF) with attachments.
Small employers who have a 401(k) program (or other retirement plan) that is insured or self-insured must fill out a Form 5500. Form 5500 is a report that businesses must file annually so as to provide the IRS and DOL details about the company’s employee benefit plans, including information about investments, operations and conditions of the plan.
Employers with 100 covered participants at the start of a plan year must fill out Form 5500.
The Employee Benefits Security Administration, an agency of the DOL, enforces ERISA regulations. Here are some of the penalties.
• Failure to provide a summary plan description (SPD) of your benefits can cost an employer $1,176 per failure.
• Failure to furnish information requested by the DOL penalty is up to $159 per day.
• Failure to file the plan’s annual report (5500 filing) could cost an employer $2,233 per day.