ERISA may be something you’ve heard if you’re an employer who provides benefits to your employees. What is it exactly, and why should you care? Well, if you don’t want to be fined or get in trouble with the law, you want to get familiar with it. ERISA compliance is something you have to be aware of if you’re the retirement plan manager or the one responsible for health insurance and other employee benefits.
What Does ERISA Cover?
Group health and disability plans are not retirement plans like 401(k)’s, but they come under ERISA. It also includes health insurance, disability benefits, life insurance, and other welfare benefits. Any benefit plan you provide for your employees can be an ERISA-covered plan. There are exceptions, however. For example, some government plans, church plans, and plans with fewer than 100 participants may not. However, in general, if you’re offering a benefit plan, you’re likely to meet certain standards.
ERISA Compliance Requirements for Employers
ERISA compliance includes a lot of requirements. Here are a few of the biggest ones.
Plan Information Disclosure
ERISA mandates that employers provide employees with clear, easy-to-understand information about the benefit plans they offer. Included are plan details, eligibility criteria, and how to file claims for employees. When you join the plan, your employees need to get this information, and then again and again.
For example, when a worker joins your company, you have to give them a Summary Plan Description (SPD). This is a plan document containing the main features of the plan. Essentially, it’s the rule book for how benefits are going to work.
Fiduciary Responsibility
As an employer, you have a fiduciary duty to act in the best interest of your workers as an employer. It means you have to handle or choose the plans with care, loyalty, and prudence. You can’t use plan assets for your benefit, and you have to make decisions that put employees’ welfare first.
In practical terms, this means that the plan investments are good, that the fees are low, and the plan providers are reputable.
Reporting and Plan Filings Requirements
ERISA plans also have strict reporting requirements for employers of ERISA plans. For those of you with something like a 401(k), you’re going to have to file those annual reports with the Department of Labor (DOL) and the IRS. These reports include, for example, the plan’s financial statements, and the plan’s financial statements must be accurate and submitted on time. It’s the most common form to file because it gives the government a quick overview of your plan. You can be penalized if you don’t file your return correctly or on time.
Employee Rights to Sue
Under ERISA, employees can sue for benefits if they believe their claims were wrongly denied or if they are unhappy about how their plan is being run. And that is a big deal because it provides employees with an avenue to make their employers responsible for their benefit plans. This means as an employer you must have clear procedures regarding how claims and disputes are handled. Just providing benefits isn’t enough; you also have to be prepared to respond if something goes wrong.
ERISA Non-Compliant Penalties
If you break ERISA’s rules, then what happens? The consequences can be pretty steep well. To begin with, failure to comply with reporting requirements can be expensive, with hefty fines. You could be fined up to $2,000 per day if you don’t file your Form 5500. That can add up quickly. Second, if you don’t meet the fiduciary responsibility, or if you don’t disclose the required disclosures to employees, you will be sued, fined, and perhaps in trouble with the law. Don’t forget to consider the damage it can do to your reputation. If your employees think their benefits aren’t being managed properly, you can be in for some major trust problems with your company.
Conclusion
Employers who offer benefits are responsible under ERISA compliance. That’s not about following the law. It’s about making sure your employees are safe and that your benefits are handled the right way. Being informed and organized will help you avoid costly penalties and keep your workforce happy and healthy.
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