ERISA — the Employee Retirement Income Security Act of 1974 — was originally designed for the protection of individuals enrolled in pension plans, but today it affects almost all employers very broadly.
Smart Business spoke with Tobias Kennedy, executive vice president at Montage Insurance Solutions, about how to adequately protect your company from ERISA regulations with ERISA Wrap.
What is ERISA’s history and the basics of how it works?
ERISA actually has a pretty interesting history. Back in the 1960s pension reform gained some momentum after the Studebaker Corporation, the automotive manufacturer, closed its plant. Due to a poorly funded program, thousands of people were left with no pensions at all and thousands more received lump sum settlement payments valued at a fraction of the proper amount.
The basics of the law require employers to meet certain standards for employee benefits programs and the responsibility really does extend beyond just the retirement piece.
To comply with all of the regulations that ERISA levies, employers need to take action on their benefits products as well, such as the group medical, dental, life insurance, etc.
Which employers are affected by these regulations?
While a lot employers know about ERISA broadly, many don’t realize that it is a federal law affecting almost all employers. It doesn’t matter what is the size of the company, or whether the plans are fully insured or self-funded. It impacts all employers including private sector, corporations and partnerships.
What else don’t employers realize about ERISA?
Additionally, not only are there a lot of employers who are a little under-informed, but the Department of Labor (DOL) also has been awarded funds to audit groups who may not be fully ERISA compliant by cross referencing retirement with the health and welfare.
It’s really a perfect storm where employers are being hit hard for thousands, sometime hundreds of thousands of dollars.
The DOL has the authority to assess penalties up to $1,100 per day, per line of insurance with no maximum cap and no statute of limitations, so non-compliance can be expensive!
How can employers best be aware of potential regulations and avoid these kinds of penalties?
You should consider looking into ERISA Wrap, because unfortunately master contracts, certificates and benefit summaries do not qualify as a written plan document. ERISA Wrap is an approved IRS solution because it includes all of the required information all in one place.
A good ERISA Wrap will gather things like the plan administrator’s name, how the plan is funded, eligibility requirements for employees, rules about protected health information, and required notifications such as Women’s Health and Cancer Rights Act enrollment, Newborn’s Acts, Michelle’s Law, information regarding COBRA administration and much more.
To make sure this is done properly, the easiest thing to do is simply call your broker.
But this isn’t just one document and then you’re good to go — it’s an annual upkeep, and you’ll want to be sure you’re working with a partner versed in the arena to ensure this gets completed after each renewal period.