Reporting and Disclosure
Daniel N. Janich
Janich Law Group
222 North LaSalle Street
Suite 2500
Chicago, IL 60601
Tel. 312.609.4528
Fax 312.609.5005
djanich@janichlawgroup.com
1
Background



Limited reporting and disclosure requirements
under Welfare & Pension Disclosure Act
ERISA enacted in response to concern that
participants were acting on inaccurate or
incomplete plan information
ERISA Part 1, Title I establishes reporting and
disclosure obligations for covered pension and
welfare plans
2
Background

ERISA requires reporting and disclosure to:




One or more federal agencies (IRS, DOL, PBGC)
Plan participants and beneficiaries
Disclosure obligations cover automatic and
responsive disclosures
Plan administrator responsible for compliance


Individual or group of individuals
By default, sponsoring employer
3
ERISA’s Role in Reporting & Disclosure

Why require reporting and disclosure?

To inform participants and beneficiaries
know their plan rights
 provided information to make informed decisions


Assist compliance efforts
Encourage employer compliance by public filings
 Assist government monitoring of plans

4
Plans Exempt from the Reporting &
Disclosure Requirements

The following plans are excluded from ERISA’s reporting
and disclosure requirements:
 governmental plans
 certain church plans
 plans maintained solely for the purpose of complying
with applicable worker's compensation,
unemployment compensation or disability insurance
laws
 plans maintained outside the United States for
nonresident aliens
 certain individual retirement accounts
 certain self-employed individuals' plans
5
Review of ERISA Disclosure &
Reporting Requirements



Part One: Plan Participants & Beneficiaries
Part Two: Specific Disclosures Required
Part Three: Miscellaneous Disclosures
6
Part One: Reporting & Disclosures to
Plan Participants & Beneficiaries





Annual Report (Form 5500)
Summary Annual Report (SAR)
Summary Plan Description (SPD)
Summary of Material Modification (SMM)
Participant Benefit Statements
7
Annual Report

Annual report must be filed for each
ERISA covered plan

Several popular benefit plans and programs,
such as cafeteria plans, educational
assistance programs, adoption assistance
programs, and accidental death &
dismemberment plans, are exempt
8
Annual Report

Annual report is one primary form and several
attached schedules




Five pension schedules cover plan operations over
previous year
Seven financial schedules cover plan expenses and
financial transactions involving plan assets
Accountant’s report provides details on qualified plan
assets and related matters
DOL filing deadline: Last day of 7th month after
end of plan year
9
Annual Report


Plans exempt from filing annual report:
 Small insured or unfunded welfare plans
 Certain group insurance arrangements
 Top-hat plans
Accountant’s report not required for:
 Unfunded or fully insured welfare plans
 Pension plans holding solely insurance contracts
 Plans electing to defer accountant’s report for first two
years
 Small pension plans under certain conditions
10
Annual Report

Civil penalties for inaccurate or incomplete
reports:



Criminal sanctions for willful violations of Title I



IRS $25/day penalty; maximum $15,000 per report
DOL $1,100 /day penalty, plus separate penalties if
certain schedules are missing
Fine up to $5,000 ($100,000 for companies) or up to
one year in prison, or both
Additional criminal fines and imprisonment for fraud
DOL equitable relief
11
Annual Report


It is always cheaper to self-confess
Delinquent Filer Voluntary Compliance (DFVC)
Program requires:




All delinquent annual returns must be filed
Civil penalty of $10/day, up to $750 per report for
small plans
Civil penalty of $10/day, up to $2,000 per report for
large plans
IRS and PBGC will waive their separate penalties
12
Summary Annual Report (SAR)


SAR discloses plan’s financial condition
Must be provided to participants and
beneficiaries annually




Within nine months after plan year close, or
Within two months after end of extension period to file
annual report
SAR not required for small insured or unfunded
welfare plans or top hat plans
Only ERISA criminal penalties for willful failure to
provide SAR
13
Summary Plan Description (SPD)






SPD is summary of plan benefits, rights and features
Must be written in plain English, accurate and complete
Must be furnished within 90 days after participation or
benefits begin
Updated every 5 years if plan was amended or every 10
years otherwise
Must be furnished to DOL upon request; civil penalty for
ignoring request
Noncompliance with SPD requirements may result in
civil penalties of up to $110 per day
14
Summary Plan Description (SPD)

SPD content requirements revised by DOL:





Model ERISA Rights Statement
Claims Procedure Disclosures – health plans required
to provide detailed disclosures
Support Order Procedures – pension/QDRO and
health plan/QMCSO procedures
Claim Management and Utilization Control – health
plan coverage issues
PPO providers, HMO coverage, NMHPA and COBRA
rights
15
Summary Plan Description (SPD)

Frequent litigation arising from
noncompliance with SPD requirements:



Content requirements not satisfied
Insurance policy and employer letter did not
constitute SPD
SPD in conflict with plan
16
Summary of Material Modification (SMM)





SMM as SPD amendment - required when material
modification to plan or change made to SPD
Like SPDs, clarity and brevity required
Furnished to current participants and beneficiaries within
210 days following end of plan year of change, but—
HIPAA requires group health plans to notify participants
and beneficiaries within 60 days after adoption of any
material reduction in covered services and benefits
SMMs furnished to DOL upon request; same penalty for
noncompliance as SPDs
17
Participant Benefit Statements





Participant benefit statement addresses amount and
form of deferred vested benefit for participant
Must be provided to participants no later than annual
report
Separated participants of qualified plans are entitled to
updated individual benefit statement
Pension plan participants and beneficiaries may request
additional statement of total accrued benefits
Proposed Enron related legislation would require
quarterly benefit statements for defined contribution
plans and tri-annual benefit statements for defined
benefit plans
18
Part Two: Specific Disclosures Required







COBRA
HIPAA
Survivor Annuity Notices
Eligible Rollover Distributions
Sarbanes-Oxley Blackout Notices
Notice of Reduction in Benefit Accrual Rate
ERISA Title IV Filing & Notice Requirements
19
COBRA



Proposed regulations establish minimum standards for timing and
content of required notices and for administering notice process
Various notices associated with COBRA rights:
 Initial notice to employee and spouse when plan coverage begins
 Events requiring employer to notify plan administrator
 Events requiring employee or qualified beneficiary to notify plan
administrator
 Events requiring plan administrator to notify qualified beneficiary
 Election notices
 Notice of unavailability of continuation coverage [New]
 Notice of early termination of COBRA coverage [New]
Employer acting as plan administrator has 44 days after qualifying
event to notify qualified employee or beneficiary on COBRA rights
20
Sanctions for COBRA Noncompliance




Excise tax of $100 per day for noncompliance
with COBRA
How long? Excise tax does not extend beyond
six months after maximum period of COBRA
coverage for employee or qualifying beneficiary
Unintentional failures subject to lesser excise tax
amount and waivable by Treasury Secretary
Failure to furnish COBRA notice subjects plan
administrator to additional $110 per day penalty
21
Health Insurance Portability and
Accountability Act of 1996 (HIPAA)




Preexisting Condition Exclusions:
Notice to participant disclosing imposition
of preexisting condition exclusion
Group health plans required to provide
notice of special enrollment rules
Group health plans must provide
certificate of creditable coverage to former
participants and beneficiaries
22
Health Insurance Portability and
Accountability Act of 1996 (HIPAA)



Privacy Rules:
Covered entity with direct treatment relationships
must provide privacy notice
Privacy notice must explain in plain language:


uses and disclosures of protected health information
for treatment, payment and health care operations
other permitted or required uses or disclosures under
law without specific authorization
23
Defined Benefit & Money Purchase Pension
Plans: Survivor Annuity Notices




Qualified Joint & Survivor Annuity (QJSA) notice must be
provided to each participant soon before or soon after
annuity starting date
Qualified Pre-Retirement Survivor Annuity (QPSA) notice
must be provided after individual becomes plan
participant
Notices must describe relative value of optional forms of
benefit compared to QJSA and QPSA
Failure to provide QJSA or QPSA notice may result in
plan disqualification; subject plan to civil penalties for
ERISA disclosure noncompliance
24
Eligible Rollover Distributions

Eligible rollover distribution notice to participants
explains potential tax consequences of
distribution



Generally provided within 90 days prior to distribution;
model notices available from IRS
Failure to furnish explanation: $100 per failure excise
tax, up to $50,000 per calendar year
Distribution that is not eligible rollover
distribution requires withholding tax notice

Failure to provide: excise tax of $10 per failure, up to
$5,000 per calendar year
25
Sarbanes-Oxley Act (SOA) : Blackout
Notices



Plan administrators generally required to provide 30 to
60 day notice to affected defined contribution plan
participants and beneficiaries of suspension, limitation or
restriction of right to direct or diversify assets or to obtain
loan or distribution for more than three consecutive
business days
Plain language notice must explain reasons for blackout
period, rights of participants and beneficiaries affected,
expected beginning and ending dates of blackout period,
contact information for plan administrator; model
blackout notice available
Failure to provide timely and adequate notice: civil
penalties of up to $100 per day per affected participant
or beneficiary against plan administrator for
26
Defined Benefit & Money Purchase Plans:
Notice of Reduction in Benefit Accrual Rate




Significant reduction in rate of future benefit accruals
requires ERISA 204(h) notice to affected participants
Notice generally must be given prior to effective date of
plan amendment; timing requirement depends on size of
plan and factual circumstance involved
Egregious failures to comply entitle affected participants
to greater of plan benefits as calculated prior to or after
plan amendment
Employer subject to $100 per day excise tax for
noncompliance, up to $500,000 in any taxable year
27
ERISA Title IV Notice & Filing Requirements


Notice of Reportable Events
 Plan administrator must give PBGC timely notice of
“reportable events,” i.e., events revealing plan or
employer financial problems that impact PBGC
potential liability for benefits or increase likelihood of
an underfunded plan termination
 PBGC regulations list reportable events
 Penalty of up to $1,100 per day for noncompliance
with notice requirements, not to exceed $100 times
the number of participants
Reports on Large Underfunded Plans
 Annual financial reporting to PBGC required for large
underfunded defined benefit plans; PBGC penalties of
up to $1,100 per day against contributing sponsor for
noncompliance
28
ERISA Title IV Notice & Filing Requirements

Notice to Participants Regarding Underfunded Plans


Plan administrator must report to plan participants and
beneficiaries regarding plan’s funding status and limits on PBGC
guaranty should plan terminate while underfunded; failure to
comply subjects plan administrator to civil penalty of up to $1,100
per day; PBGC model participant notice available
Notices Upon Termination of Defined Benefit Pension
Plans





Notice to Participants: plan administrator issues notice of intent to
terminate 60 to 90 days in advance
Notice to PBGC: plan administrator thereafter notifies PBGC
Notice of Benefits: on or before date PBGC is notified, plan
administrator must also notify each participant, beneficiary and
alternate payee of his/her benefits under plan
Notice of Final Distribution: After PBGC approval of plan
termination, plan administrator files notice with PBGC confirming
completion of final distribution of plan assets
Missing Participants: plan administrator files with PBGC a
Schedule MP if plan has missing participants
29
Part Three: Miscellaneous Disclosures



Minimum Funding Notices
Transfer of Assets
Disclosures Upon Participant Request
30
Defined Benefit & Money Purchase Plans:
Miscellaneous Notices

Notice of Failure to Satisfy Minimum Funding
Requirements



Late payment of minimum funding contribution to defined benefit
or money purchase pension plan requires employer to issue
notice to each participant and beneficiary
Failure to issue notice: employer may be held liable to participant
or beneficiary up to $110 per day
Transfer of Excess Pension Assets to Health Benefit
Accounts


Plan administrator must give 60 day advance notice to each
participant and beneficiary before transfer; civil penalty for
noncompliance of up to $110 per day
Sponsoring employer must notify DOL, IRS, plan administrator
60 days prior to transfer date detailing plan assets before and
after transfer; employer may be held liable to participant or
beneficiary for noncompliance in amount up to $110 per day
31
General Disclosures

Participant Request for Additional Plan Information
 Plan administrator must furnish upon request copy of
latest SPD, annual report, any terminal report,
bargaining agreement, trust agreement, contract, or
“other instrument under with plan is established or
operated”
 Meaning of “other instruments”
 Recent case law: restricted to formal or legal
documents under which plan is established or
managed
 Early case law: broadly interpreted to include “all
documents helpful in determining rights, eligibility
or interest in plan”
32
General Disclosures


DOL Advisory Opinion 96-14A favors broad
interpretation
Penalties for Noncompliance
 ERISA civil penalties for failure to make
required disclosures apply
 Plan administrator subject to discretionary
$110 per day penalty for failure to timely
respond to proper request for documents
33
Questions
34