Simplify Compliance

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. 

Some employers will ask: “Why does it matter? I haven’t been caught so far.”  And, that’s true for many employers.  But, change is coming and these employers may not realize their potential liability.  In fact, we see three trends coming together that may very well put compliance at the top of every HR Director’s priority list.   

Change #1:  Increasing Department of Labor (DOL) Focus 

As many ERISA professionals know, pension and retirement benefits have been under a great deal of government scrutiny in recent years.  These professionals have observed that actions taken by the government with regard to pension and retirement plans are later applied to health and welfare plans.  Such action will likely come in the form of increased DOL inquiries and audits.    

Does an employer really need to care if it is audited by the DOL?  Absolutely!  Most federal laws carry fines for noncompliance, but let's look at just the 5500 noncompliance mentioned earlier.  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.   

Is the DOL realistically going to assess a $3 million penalty for 5500 noncompliance? Not likely.  But, here’s the problem.  Your penalty negotiations will start at $3 million, and you have to work down from there.  So, if you walk out of the DOL office with a $100,000 fine you may be patting yourself on the back for being a pretty smart negotiator, until you realize you just paid $100,000 for simply not filing a form. 

Change #2: Increased Transparency 

Four years ago, transparency became the new buzzword in the insurance market when Eliot Spitzer exposed undisclosed fees in broker compensation arrangements.  The need for greater transparency is affecting other industries as well.  It will surely be a theme in any new regulations that arise out of the subprime mortgage fiasco.  And, it’s likely that the government, the courts and the public will continue to demand greater transparency in all business dealings. 

Keeping with this trend, greater transparency is exactly what most of the laws that govern health and welfare plans are trying to accomplish.  Disclosures required by ERISA, the Women's Health and Cancer Rights Act and the Newborn's and Mother's Health Protection Act (just to name a few) insure that plan participants have a clear understanding of their benefits, rights and responsibilities under the plan. 

Employers can also learn a great deal about their plan by studying the information in required disclosure documents.  Failing to file disclosures (such as the 5500) is not just a bad idea because of the potential fines; it’s a poor management decision.  These disclosures can be important business tools that help employers know how and where their healthcare dollars are being spent.   

Change #3: More than a “Fringe” Benefit 

With the high cost of healthcare, employees no longer consider their health plan to be a “fringe” benefit, but an important component of their total compensation package.   Because of the dollar amounts involved, 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.   

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 the plan is being managed.  They have a right to this information and will go to the DOL, 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.   

Where to Start 

For employers who want to understand their compliance obligations, but don’t know where to start, the DOL has some very good compliance assistance tools on their web site: http://www.dol.gov/dol/topic/health-plans/complianceassist.htm.  ERISA attorneys, brokers and consultants are also a valuable resource and can perform a compliance audit that highlights areas of non-compliance and potential risks. 

Remember, that it’s one thing for an employer to understand its compliance obligations and quite another to fulfill them.  HR Personnel are often overloaded with other responsibilities and frequently have to coordinate compliance tasks with multiple sites and locations.  Therefore, the administrative process an employer uses to ensure compliance is just as important as understanding the laws. (See sidebar for information on a tool that helps employers with this process.)  

¹ Whiddon, Robert L. “Comedy of Errors.” Employee Benefit News. Vol. 22, No. 12 (September 15, 2008): 13-14.