The Employee Retirement Income Security Act (ERISA) sets standards on voluntary retirement and health plans offered to employees in the private sector. While it doesn’t require employers to offer healthcare, retirement, disability, or welfare plans, for those that do, it dictates what must be included in these plans.
Failure to comply with the basic standards of ERISA can result in hefty fines and penalties. Participants will also have grounds for civil suits against their employer if the information was not appropriately and clearly disclosed. With such heavy penalties, employers must make themselves aware of ERISA law to avoid falling afoul.
Who Does ERISA Apply to?
ERISA applies to any private sector employer that offers benefits to employees. It does not apply to governmental employees, churches, state-level plans, plans offered by other countries to non-residents, or employers that do not offer benefits.
Also, if the employer doesn’t specifically offer the benefits themselves, but instead permits an insurer to sell directly to their employees, they are exempt. However, if the employer contributes towards the insurance payments, they are required to abide by the ERISA standards.
ERISA Provisions
ERISA can be broken down into five specific sections. It covers the employer’s conduct, reporting and accountability, disclosures, safeguards, and financial interest protection. Employers must be in compliance with all five sections to avoid ERISA violations.
ERISA mandates that employers regulate the conduct of managed care services. It must offer detailed financial reporting to government bodies, disclose the plans limitations, guidelines and conditions to the participants, and provide clear guidance on how claims should be filed. Employers must also provide adequate information on the appeals process should a claim be denied.
ERISA also requires plan funds are managed in the best financial interests of plan members. It also sets out strict guidelines prohibiting discrimination in the practices of collecting plan benefits.
Penalties
Common employer violations, such as failure to adequately inform participants in easy-to-understand language of the limitations and exemptions in their coverage, carry stiff penalties.
The Department of Labor (DOL) can bring penalties against employers for not filing their annual IRS 5500 report or for filing it late. These penalties can be as much as $2,140 per day for not filing. There is a cap at $30,000 per year for plan filing penalties.
There is also no statute of limitations on this. If an employer misses a 5500 filing, it can be penalized years later.
Other ERISA violations carry even tougher financial penalties. Failure to meet the information requirements can result in penalties to the tune of $569,468. The penalties are also cumulative. If an employer repeatedly violates ERISA regulations, they can receive additional fines of up to $1,964 per violation.
These fines quickly add up. As an employer that offers employees healthcare, retirement or disability benefit, it pays to make yourself aware of the intricacies of ERISA to protect your finances and your assets. The ERISA regulations are there to protect both employers and employees. Strict adherence to them should be a top priority.
