Why Comply?

A study recently released by Corporate Synergies showed that 49% of employers were improperly filing or failing to file 5500 reports for their health and welfare plans1. Incredibly, it appears these employers didn’t know they needed to file a 5500, thought someone else was doing it, didn’t have the time, or simply didn’t care.

It has been our experience that 5500 filings are just the tip of the noncompliance iceberg. Health and welfare plans are governed by a wide array of laws. Many employers are not even aware of their obligations and fiduciary responsibilities under the Employee Retirement and Income Security Act (ERISA) and other federal mandates.

Why Does It Matter?

Employers who take a casual or careless approach to compliance expose themselves to large fines and potential lawsuits. For example, the penalty for not filing a 5500 is up to $1,100 a day per plan (ERISA plans may include medical, dental, vision, disability, FSA, group life, or severance plans). So, let’s say that an employer has failed to file a 5500 on three of its plans for the last three years. That’s a potential penalty of over $3 million.

What’s more, employees are paying more for their healthcare benefit than ever before. As a result, they want to know how their money is being spent and how well their plan is being managed. They have a right to this information and will go to the Department of Labor or even to court, to get it if need be. Employers can head this off by simply supplying the disclosure documents required by ERISA and other federal mandates.

If It Hasn’t Already, Noncompliance Will Catch-up to You

There are three trends happening right now that will put compliance at the top of every HR Manager’s priority list.

Increasing Department of Labor Scrutiny
The DOL has been carefully scrutinizing pension and retirement benefits in recent years and they are now shifting their attention to health and welfare plans. In addition, the passage of any type of healthcare reform will likely increase healthcare laws and mandates and put this whole area in the spotlight for years to come.
Demand for Greater Transparency
The government, the courts and the public are demanding greater transparency in all business dealings, and greater transparency is exactly what most of the laws that govern health and welfare plans are trying to accomplish. Employers that comply with these laws benefit by giving plan participants a clear understanding of their rights and responsibilities under the plan.
Employee Rights
With the high cost of healthcare, plan participants are more likely to go to court when they feel they are mistreated or a claim isn’t paid correctly. Even if their complaint has nothing to do with compliance, the litigation process will often look at how well the plan is being administered. If it is found that laws are being ignored, it certainly will not help an employer’s position with the court.

Compliance Matters

Employers who do not fulfill their obligations under the laws that govern their health and welfare plans expose themselves to a wide variety of fines, penalties and potential law suits.

A plan participant filed a lawsuit against an employer who did not provide a copy of a Summary Plan Description (SPD) after written requests. The case eventually settled, but not until the employer paid significant attorney fees and paid the participant $24,000 as part of the settlement.

COBRA compliance is an actively litigated area with many pro-employee and beneficiary interpretations by the courts.

In a 2005 case, a court ordered a plan administrator (employer) to pay $279,840 in penalties for failure to provide COBRA notices to two qualified beneficiaries. In another lawsuit, the court ordered an employer to pay a COBRA qualified beneficiary’s medical expenses of approximately $125,000 and attorney fees of $27,000.

Employers often do not understand that most of their group insurance benefit plans (such as medical, dental, vision, life, LTD, STD) are subject to ERISA. Failing to follow ERISA’s reporting and disclosure requirements, such as filing a Form 5500, can result in penalties of $1,100 per day for each plan not properly reported.