Common Misconceptions ERISA ACA Compliance

By Christy Showalter, JD, MBA
Senior Human Resources Consultant
Christy.Showalter@McGriff.com

I’ve always been a rule-follower … to the point that my own family makes fun of me for never even breaking the speed limit! So, naturally, I am attracted to the field of Human Resources where we are bombarded with over 50 categories of rules and regulations affecting virtually every aspect of the employment relationship, particularly benefits administration. But to follow the rules, you first have to know them, right? And that can certainly be a challenge! Amidst the sea of legal acronyms - from ERISA, ACA and DOL to COBRA, HIPAA and HCE–benefits administration is rife with often obscure rules. Many mistakes are made because we simply don’t know a rule exists or misunderstand it. Following are just a few examples of the more common violations and misconceptions that I see regularly in benefits administration.

Let’s jump in with probably one of the most non-compliant areas for most health and welfare benefit plans, the Employee Retirement Income Security Act of 1974 (ERISA). This is an area that has received more attention over the past several years as the DOL has increased its enforcement activity through audits…and would you believe they find close to a 75% error rate?!

We don’t have to worry about ERISA … we have less than 100 employees. Many employers think that ERISA applies only to organizations with over 100 employees. ERISA, however, applies to plans sponsored by virtually all private-sector employers, including corporations, partnerships, sole proprietorships and even non-profit organizations – regardless of size – with limited exceptions for governmental, tribal and church plans. While ERISA’s reporting requirements, including Form 5500 and Summary Annual Reports, primarily impact welfare benefit plans with 100 or more participants, it is very important to note that there is no exemption for small businesses from ERISA’s other requirements, such as maintenance of plan documents and summary plan descriptions (SPDs) and adherence to fiduciary standards. And speaking of SPDs, this leads us to another common misconception:

We have an ERISA-compliant SPD … our medical insurance carrier gave us the booklet. ERISA has very specific content requirements for both the plan document and the SPD. While some carrier-prepared documents are better than others, these documents generally lack at least some of the ERISA-required content. To understand why, keep in mind that carriers’ main concern is state insurance law – they are not responsible for the plan document’s and/or the SPD’s compliance with ERISA. Rather, that compliance is the responsibility of employers in their role as plan administrators of ERISA-covered benefit plans. It is often a best practice to use a “wrap” plan document to supplement existing documentation, adding the required ERISA language.

We distribute the SPD to all of our employees … it is posted on our company’s intranet site. ERISA also requires that the SPD be furnished to all participants within 90 days of being covered under the plan, in a manner “reasonably calculated to ensure actual receipt of the material.” Typically, this means distribution by first class mail or hand-delivery, unless a safe harbor rule is satisfied. Employers are permitted to use electronic delivery only if 1) employees have work-related computer access as an integral part of their duties; or 2) employees have given prior written consent to receive electronic documents. Employers using electronic distribution must also be certain to provide notice of any posting, explaining the significance of the document and the right to request a paper copy. Merely providing employees with access to a computer in a common area (for example, a computer kiosk) is generally not, by itself, a permissible means to electronically furnish ERISA-required documents.

Of course, ERISA is not the only benefit regulation with misunderstandings about its rules. Let’s take a look at a couple of the more confusing rules from the Patient Protection and Affordable Care Act of 2010 (ACA):

We use a 12-month measurement period to determine full-time status. An employee just asked to reduce her schedule to 10 hours per week … we should terminate her insurance immediately due to her reduction in hours worked and offer COBRA. Prior to the ACA, when an employee had a reduction in hours, it was understood that a change from full-time to part-time status generally resulted in a loss of eligibility for benefits. Post-ACA, however, the rules have changed! When electing to use the look-back measurement method and calculating hours over a historical period of time, called the measurement period, employers are determining employees’ eligibility for coverage – at least for purposes of ACA reporting – for a future period of time, called the stability period. Under these new rules, a change to part-time status may no longer result in an immediate loss of eligibility for coverage.

The ACA’s nondiscrimination rules have been delayed indefinitely … I don’t have to worry about conducting annual nondiscrimination testing on our health plans. While this may currently be true for fully-insured plans funded on an after-tax basis, there are a number of nondiscrimination rules that may still apply. Are you offering any benefits through a cafeteria or Section 125 plan, such as pre-tax deductions? If so, are you conducting annual Section 125 nondiscrimination testing? Similarly, if your plan is self-funded, are you testing under Code Section 105(h)? Remember, health FSAs and HRAs are self-funded health plans subject to Section 105(h) testing! Discriminatory practices, such as different waiting periods or contribution rates, could have a negative impact on your highly compensated employees (HCEs); so, it is important to conduct required testing to ensure your plan satisfies nondiscrimination rules.

And to think that these are just a sample of the many misconceptions common in benefits administration today! Given the number and complexity of the rules governing employee benefit administration – with new ones being enacted regularly – it is difficult for even the most seasoned HR professional to stay on top of compliance, making it more important than ever to have trusted benefits advisors to guide you through the process and minimize risk for your organization. Who’s helping you follow all the rules?