• LinkedIn
  • YouTube
  • Twitter
  • Facebook
  • Google+

ERISA: Monitor compliance to avoid legal challenges

by on
in Employee Benefits Program,Firing,Human Resources

THE LAW. The Employee Retirement Income Security Act of 1974 (ERISA) governs the administration of private employers' employee benefit plans and the rights of plan beneficiaries. Congress passed the law in response to perceived retirement-plan abuses by private companies. But ERISA covers many other areas beyond retirement benefits, including:

 

  • Medical, surgical or hospital benefits.

     

     

  • Benefits for sickness, accident, disability or death.

     

     

  • Vacation benefits.

     

     

  • Apprenticeship and training programs.

     

     

  • Holiday or severance pay.

     

     

    Under ERISA, employees can participate in your plan if they are age 21 with at least one year of service (any 12-month period in which they work 1,000 hours or more).

    ERISA pre-empts state laws relating to employee benefits with a few exceptions regarding insurance, banking or securities laws. Government benefit plans, foreign plans, church plans and self-employed individuals are exempt from ERISA. Plus, your plan isn't subject to the law if participation is completely voluntary for employees: You make no contributions.

    WHAT'S NEW. Thanks largely to the corporate scandals involving Enron, Global Crossing and WorldCom, ERISA-related claims challenging employers' benefits policies are rising rapidly.

    The Employee Benefits Security Administration (EBSA), a subset of the U.S. Labor Department, enforces ERISA. In fiscal 2003, it recovered more than $1.4 billion in ERISA-related lawsuits, an increase of almost 60 percent over 2002.

    Also, while ERISA is designed to protect pension plans, some observers feel the law falls short in protecting workers' rights regarding welfare plans, such as health insurance. That sentiment is spurring calls for Congress to overhaul the law.

    HOW TO COMPLY. ERISA holds a reputation as one of the most complex regulations to follow. There are three components to compliance: reporting, disclosure and paying claims.

    You must submit certain reports to the IRS each year and comply with Labor Department requests; advise employees of certain facts about their benefits packages; and spell out to workers the procedures for processing and paying claims.

    Disclosure requirements

    Your benefits package must take the form of a Summary Plan Description (SPD), which you must give to employees and beneficiaries. Thanks to a law change, you no longer need to file your SPD with Labor, but you must still prepare it in case of an audit.

    Reporting requirements

    Your pension and other employee benefit plans are required to file annual returns and reports about the plan's financial condition and operations. Those reports are known as Form 5500 (or 5500EZ).

    The Labor Department, IRS and EBSA created an electronic filing system called "EFAST" to streamline filing those required forms. Go to www.efast.dol.gov for details.

    Filing requirements differ based on the size of your plan. Typically, "small plans" contain less than 100 participants. Large plans contain 100 or more. An important exception is the 80/120 rule, which applies when an organization files a small plan in one year but then increases the number of its employees beyond 99 during the following year. In that situation, the company can still file as a small plan as long as it doesn't exceed 120 workers.

    Under ERISA, you have a "fiduciary responsibility" to conduct and manage the plan to minimize the risk of losses. Practically, that means you should not only use common sense

    in administering the benefits plan, but also:

     

    • Maintain documents in an organized way.

       

       

    • Keep a diversified portfolio of investments in a retirement plan.

       

       

    • Periodically review the portfolio for continued positive growth.

       

       

    • Consult with an attorney who

       

       

     

    specializes in ERISA to ensure compliance.

    Paying claims

    When a participant or beneficiary is denied benefits, your plan is required to send a notice of denial with specific reasons for the denial. It should describe the additional information necessary to pay the claim and review it.

    When employees are denied benefits, ERISA lets employees take the issue to court.

    To keep ERISA issues out of court in the first place, put all claims procedures in writing. That helps resolve benefits disputes, reduce the chance for frivolous lawsuits and provides a framework for claims review.

    Resources: ERISA

    Compliance help. For advice on meeting ERISA's requirements, visit the "Compliance Assistance" section of the EBSA Web site at www.dol.gov/ ebsa/ compliance_assistance.html.

    ERISA guide. Download a new EBSA guide on ERISA reporting rules and disclosure rules at www.dol.gov/ebsa/pdf/rdguide.pdf.

  • Like what you've read? ...Republish it and share great business tips!

    Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...

    We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.

    The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.

    " This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/451/erisa-monitor-compliance-to-avoid-legal-challenges "

    Leave a Comment