WHAT ADVISORS NEED TO
KNOW:
A "TOP FIVE" LIST OF
COMPLIANCE CHALLENGES
FOR HEALTH AND WELFARE
PLAN SPONSORS
Dan Bond, Principal
Capstone Benefits Group
dbond@capstonebenefits.com
877.328.7880
Challenge #1: Liability
• Myriad of federal laws apply to employersponsored welfare benefit plans
– ERISA
• Reporting (Form 5500, Form M-1)
• Disclosure (SPDs, SMMs, new SBC)
– COBRA (general notice, election notice)
– HIPAA (creditable coverage notice,
notice of special enrollment rights,
privacy notice)
Liability
– Internal Revenue Code (Section 125
regulations, nondiscrimination
requirements)
– Medicare (MSP compliance,
coordination of benefits, Section 111
mandatory reporting, Part D
notices/reporting)
– PPACA (eligibility and coverage
mandates, internal claims and
external review requirements,
participant disclosures, W-2 reporting
and Summary of Benefits and
Coverage begin in 2012)
Liability
• General Rule: The plan sponsor (the
employer) is responsible for compliance
with these federal laws and regulations
– Plan sponsor is “plan administrator” and
“named fiduciary” under ERISA unless
another party is appointed for this
purpose
– Many fiduciary obligations cannot be
delegated
– ERISA will look beyond contractual
designations to actual duties in
determining fiduciary liability; cofiduciary liability commonly results
Liability
• Over Reliance On:
– Third Party Administrators
– Insurance Companies
– Vendors
• Perception of responsibility does
not match actual legal obligations
• Gaps inevitably result
Liability: Action Steps
• Identify roles and
boundaries
1. Employer
2. Service Providers
3. Advisor
Reflect these in written client
agreement (define your role in
compliance and what liabilities you
are willing to assume)
Liability: Action Steps
• Identify gaps and provide
solutions
1. Referral to Legal Assistance
2. Administration Services
3. Compliance Tools
Challenge #2: Eligibility Administration
• Eligibility “gaps” are common and can be
costly to employers
• Gaps result from inconsistencies between
employer policies/administrative
practices, insurance contracts, and plan
documents
– If employer promises coverage to employee
who is not eligible under criteria in insurance
contract or self-funded plan document,
insurer can deny claims, stop-loss carrier
can deny reimbursement
– Employer may be “on the hook” regardless
of the availability of insurance coverage or
stop-loss reimbursement due to contractual
promise to provide benefits
Eligibility Administration
• Common mistakes that create gaps
– Failure to clearly define eligible employees
• Example: insurance contract/plan
document will have minimum hours
requirement for eligible employee, but
employer defines multiple job
classifications (such as salaried or
commissioned employees) as eligible
without minimum hours requirement
– Failure to clearly define eligible dependents
• Example: eligible dependents (including
spouse, domestic partner, children) are
defined in insurance contract/plan
document, but employer defines
differently (or not at all)
Eligibility Administration
– Failure to address
inconsistencies between
employer leave of absence
policies and plan provisions
• Example: insurance contract/plan
document extends eligibility for
employees who are not actively
working only for FMLA leaves of
absence, but employer’s personnel
policies permit longer or nonmedical LOAs along with continued
eligibility
Eligibility Administration
– Failure to monitor and enforce
eligibility rules as required by
insurance contract/plan document
• Examples:
– Employer does not seek documentation
for spouse or domestic partner
– Employer does not require proof of
continuing disability
– Employer does not remove terminated
employees or dependents who lost
eligibility from coverage
Eligibility: Action Steps
• Ask clients the right
questions
• How is eligibility defined in
HR resources?
– Handbook
– Enrollment materials
• What are employer’s LOA
policies and practices
Eligibility: Action Steps
• Coordinate employer
plans and policies
• Insurance contracts
• Plan documents
• Secure approval from
carriers!
Challenge #3: Health Care Reform
• “PPACA” eligibility and coverage
mandates apply to all employersponsored health plans and health
insurance policies
– Many mandates directly impacting
plan provisions are already in effect
– How mandates impact a particular
health plan still depends on
maintaining grandfathered plan
status
Health Care Reform
• Grandfathered plans must revisit whether
status maintained with each plan
design/cost change (remember required
disclosure on all written materials
– If grandfathered plan status is lost:
• Include first-dollar preventive care,
incorporate “patient protections”
• Incorporate new internal and
external claims review process
• Fully-insured plan Section 105(h)
compliance (after IRS issues
guidance)
Health Care Reform
2012
• Health cost reporting on 2012 W-2s
• Comparative Effectiveness Research
Fees
• Medical Loss Ratio Rebate
• Summary of Benefits and Coverage
2013
• $2500 health FSA limit
• Elimination of Retiree Drug Subsidy
Deduction
• Health Benefit Exchange notices
Health Care Reform:
Action Steps
• Monitor status of Supreme Court
decision (expected June/July of
2012)
• Provide consistent communication
• What has taken place
• What is on deck
• What is down the road
• Where does your client stand
Health Care Reform:
Action Steps
• Revisit your clients’
grandfathered plan status
upon renewal
• Re-educate clients on
practical impact of
grandfathered status
Health Care Reform:
Action Steps
• Assist clients in getting
resources in place for 2012
and 2013 requirements
• W-2 reporting
• Summary of Benefits and
Coverage
Health Care Reform:
Action Steps
• Begin to put future
requirements on
employers’ radar
2014
Exchanges, New Reporting, PCE
Prohibition, Pay/Play Penalty,
Annual Limits, Cost Sharing
Limits, etc.
Challenge #4: Plan Documentation
• ERISA § 402 requires a “written
instrument” in order to “establish” a
employee welfare benefit plan – this
written instrument is commonly called
the plan document
• Certain details must be included in the
plan document in order to comply with
ERISA
• Applies to employer-provided welfare
benefit plans regardless of size or
funding mechanism unless exempt
from ERISA (e.g.. government or
church plans)
Plan Documentation
• Plan document must include:
– Funding policy and method
– Procedure of allocation of
responsibility for plan operation and
administration
– Amendment procedure/authority
– Basis for plan payments (triggering
events for receipt of benefits)
– One or more named fiduciaries for
plan operation and administration
(defaults to plan sponsor, not
claims administrator or insurer)
Plan Documentation
• ERISA § 101 requires the ERISA plan
administrator to furnish a summary plan
description (“SPD”) to plan participants
• Per DOL, SPD is “primary vehicle” for
informing participants of plan rights and
benefits
• ERISA and DOL regulations specify
content of SPD – not state insurance
regulations
• Insurer-prepared certificates meet insurer’s
obligations under state law and are not
modifiable due to state regulatory
filing/approval requirements
Plan Documentation
• Named “Plan Administrator”
under ERISA is legally
responsible for preparing and
distributing SPDs
– This will almost always be the
employer/plan sponsor
– The Plan Administrator is not the
TPA or insurer unless formally
designated in plan document and
service agreement (uncommon)
Plan Documentation
• Compliance gaps develop because
employers and advisers rely on
insurance policy and certificates to
serve as written plan document and
SPD
– Insurers prepare policies and certificates in
accordance with state insurance law, but often
ignore group policyholder’s ERISA obligations
– Policies and certificates often do not contain all
DOL requirements, and do not reserve right to
amend/terminate plan or otherwise protect
employer from liability for payment of benefits
Plan Documentation
• DOL relies on existing plan
documentation to determine number
of welfare plans an employer
maintains
– If employer sponsors several insured
welfare benefits under separate insurance
policies, DOL considers each separatelydocumented benefit as a “plan”
– Separate Form 5500s should be filed
unless documentation combining all
benefits into single plan is maintained; filing
single Form 5500 without documentation
risks nonfiling penalties
Plan Documentation
• IRC §125 requires an employer to
adopt a written plan if pre-tax salary
reductions (premium, health or
dependent care FSAs, HSA
contributions permitted)
– Welfare benefit documents (plan
documents, insurance policies, and
SPDs) are not Section 125 plan
documents
– A separate written plan in compliance with
Prop. Treas. Reg. § 1.125-1 is required
or plan loses tax qualified status and all
pre-tax payments become taxable
Documentation:
Action Steps
• Add value to the process
by providing access to
resources to fill the
documentation gaps
• Summary Plan
Descriptions (SPD)
• “Wrap” Document
Documentation:
Action Steps
• Add value to the process
by providing access to
resources covering health
care reform changes
• Summary of Benefits and
Coverage
• Material Modifications
Challenge #5: Reporting and Disclosure
• ERISA and DOL regulations
contain specific reporting
and disclosure obligations
– Annual Form 5500 obligation
required for all welfare plans
with 100+ employee
participants on the first day of
the plan year or if “funded”
(through trust or segregated
account containing plan
assets)
Reporting and Disclosure
• Summary Annual Report (“SAR”)
must be distributed to participants
2 months after Form 5500
deadline
• Plan documents and SPDs need
not be filed or otherwise reported
to DOL or IRS unless specifically
requested, but must be provided
to participants within 30 days of a
request or statutory penalties
could result ($110 per day under
ERISA § 502)
Reporting and Disclosure
• Participant disclosures required
for group health plans
– General COBRA notice
– USERRA rights disclosure
– HIPAA portability (special enrollment
and PCEs) disclosures
– NMHPA and WHCRA disclosures
– QMCSO disclosure
– Michelle’s Law disclosure
– Grandfathered plan and “patient
protections” disclosure
Reporting & Disclosure:
Action Steps
Failure to provide many required
group health plan disclosures
creates $100 per day excise tax
penalty for each affected
participant!
Failure to properly file a Form
5500 can lead to a penalty
assessment by DOL of $1,100
per plan, per day!
Reporting & Disclosure:
Action Steps
• Understand definitions
and identify ERISA Plans
• Medical
• Dental
• Vision
• Life
• Disability
• Health FSA
• Severance Benefits
Reporting & Disclosure:
Action Steps
• As noted earlier, identify
roles and boundaries to
ensure all notices and
disclosures are covered
1. Employer
2. Service Providers
3. Advisor
Reporting & Disclosure:
Action Steps
• Add value to the process
by providing access to
resources that trigger
notices and disclosures,
and serve to avoid
potentially expensive
penalties
Thank you!
Dan Bond, Principal
Capstone Benefits Group
dbond@capstonebenefits.com
877.328.7880