Employer Benefit Compliance: Are You Covered?
Written by Rebecca Tipton, SHRM-SCP
BMSS HR Advisory Services
Many people might not realize, but April 6th is National Employee Benefits Day, a day to celebrate and embrace the important role that benefits play in recruiting and retaining top talent. However, as much as we would like for it to be as simple as just picking out a package that meets the employer’s budget constraints, determining how contributions should be handled, and then managing the employees’ enrollments; benefits come with a lot of compliance requirements. For example, just some of the benefit compliance issues facing employers include plan documents, required notices, and mandatory reporting. While employers absolutely should offer benefits to their employees to stay competitive in the labor market, they should also be careful to fully understand their responsibilities as a plan sponsor to avoid unnecessary penalties and fines.
Arguably the first thing to consider is ensuring that the required plan documents are in place, and no, this does not refer to the health plan booklet or Summary of Benefits Coverage available through the benefit provider. If the employer intends on setting premium contributions up as nontaxable under Section 125 of the IRS Code, then they are required to establish and maintain a 125 cafeteria plan document that includes the adoption agreement, eligibility requirements, contributions, ERISA rights, election procedures, and many other specifications. Unfortunately, failure to have this document can lead to penalties, including being liable for all of the taxes that should have been paid on the income used for contributions due to failing to meet 125 plan requirements. Another plan document for which the employer is responsible is the Summary Plan Description (SPD), which is required under ERISA. It is a common misunderstanding that the plan booklet issued by the plan provider satisfies this requirement, but it, unfortunately, does not. The main purpose of the SPD is to identify participant rights and responsibilities, but it also includes similar components to the 125 plan document in language designed to be accessible to employees at all levels of the organization. In addition to having an SPD on file, the employer must also be regularly distributing it to all eligible employees; within 90 days after becoming covered by the plan, after updating the SPD every 5 years (if changes have been made to the plan) or 10 years (if no changes have been made), and upon request. Penalties for failing to do so are not kind, either. An employer can be charged $110 per day for failing to provide the participant with a copy. Of course, providing a copy of the SPD is not the only required notice employers should be prepared for.
Another key compliance issue for employer benefits is ensuring that all of the required notices are being distributed, and there are a lot of required notices. Luckily, however, most can be incorporated into the SPD for simpler distribution, which includes the Special Enrollment notice, Wellness Program Disclosure, NMHPA rights, WHCRA notice, Medicaid/CHIP notice, Michelle’s Law rights, MHPAEA criteria, Summary of Benefits and Coverage, Internal Claims and Appeals and External Review notice, External Review Process Disclosure, Employer Notice of Coverage Options, COBRA rights (if applicable), and information regarding primary care provider designation. Additionally, employers must provide the ACA Exchange Notice within 14 days of hire, COBRA Election notice within 14 days of loss of eligibility for coverage (if applicable), and the applicable Medicare Part D Notice of Creditable Coverage to any Medicare-eligible participants by October 15 each year. While this can be complex for compliance, particularly since some notices require annual distribution while others do not, sometimes the simplest way to ensure compliance, with the exception of a certain few, is to bundle required notices together with the SPD and provide them to employees at time of hire or initial enrollment, and open enrollment each year to avoid having to track each notice individually.
Keeping up with reporting requirements for employer benefit plans can be exhausting as there are multiple reports required, under different agencies, all with different rules about which employers have to comply or which reporting avenue the employer should use. For example, under the ACA, employers must report to the IRS for their health plan, but whether this requirement applies, or which type of report to use, varies based on the employer’s size and type of insurance provided. Another example is Form 5500, also reported to the IRS but this time under ERISA, which again is contingent on the size of the employer (in some cases) and the specific type of benefit offered, whether for a retirement plan or a health and welfare plan. Additionally, if an employer does have any Medicare-eligible participants, CMS requires online reporting of the employer’s prescription coverage as either creditable or non-creditable. As one last example, employers are additionally now responsible for the Prescription Drug Data Collection (RxDC), which was established under the Consolidated Appropriations Act (CAA) and must be reported to CMS annually, with the next reporting date being June 1, 2023 for 2022 data. Considering the depth of information required in this report, it is typically handled by the benefit provider. However, it is identified as the employer’s responsibility to ensure it is completed, so employers still need to stay aware of this process in addition to any other required reporting that applies.
In an ideal world, benefit programs really would be as simple as identifying what the employer’s budget would allow, selecting a plan, and then onboarding/offboarding employees as needed. However, many laws and regulations add more steps and can make it very expensive for employers not to comply. Employers should be careful and aware of their obligations for plan documents, required notices, and mandatory reporting. It is also important to keep in mind that this is not an exhaustive list of all of the compliance issues at play for group benefits as there are also elements such as special enrollment, nondiscrimination, required leave interactions, and more. As overwhelming as it may seem, it may be helpful to know that help is available through outsourced HR support, such as BMSS HR Advisory Services, where we are dedicated to putting the “Resource” in Human Resource Consulting. If you are interested in learning more, please reach out the BMSS HR Advisory Team at (833) CPA-BMSS or visit our website for more information.