Being able to put aside money for retirement and understanding ever-changing benefit plans is a big concern for employees starting new jobs. Before 1974, individual states would handle how companies provided benefits and communicated those benefits with employees. With economic growth and more giant corporations forming that expanded across multiple states, new legislation was needed to give uniformity to all employees, regardless of state law. The Employee Retirement Income Security Act (ERISA) was the solution. While ERISA does NOT require employers to offer plans, it establishes minimum standards for retirement, health, and other benefit plans to protect employees and employers.
What is an ERISA Document?
Thanks to ERISA, employees now receive more information about their benefit plans. One such form of communication is the ERISA document, or a “plan document.” The plan document describes the plan’s terms and conditions and is required for each welfare benefit plan an employer offers. Plan documents must be provided to the employee in writing. If an ERISA plan exists without a plan document, it is out of compliance.
The plan document is a comprehensive document that lays out the rights of the plan’s participants and guides the plan administrator in executing their responsibilities. It sets forth what benefits are available, how they are funded, who is eligible to receive them, who is the named fiduciary, how the plan can be changed, and the procedures for allocating plan responsibilities. Specifically, a plan document should contain:
- Name of the plan administrator (typically the employer)
- Designation of any named fiduciaries other than the plan administrator
- Description of benefits
- Standard of review for benefit decisions
- Effective date of participation
- Who is eligible to participate ( classes of employees, hours worked, waiting periods)
- Participant cost of coverage
- Termination rights and procedures and what happens to plan assets in the event of plan termination
- Coordination of benefits
- How a plan is funded, either from employer and/or employee contributions
- How insurer refunds are allocated
- Information regarding COBRA, HIPAA, and other federal mandates such as preexisting condition exclusion, mental health parity, coverage for adopted children, women’s health Cancer Rights Act, special enrollment rules, and minimum hospital stays following childbirth
What Are Summary Plan Descriptions (SPD)?
ERISA also requires employee benefit plans to have summary plan descriptions (SPD). SPDs are easily understandable summaries of plan information and must be provided to participants within 90 days from the plan’s start. The SPD provides information on:
- When an employee can begin participation in the plan
- How benefits are calculated
- When benefits become vested
- When and how are benefits paid
- How to file a claim for benefits
In addition, employees must receive notice of any material changes to their benefit plans through a Summary of Material Modification (SMM) notice.
Non-Compliance
A company that does not adhere to ERISA’s minimum standards can be exposed to ERISA litigation and DOL or IRS penalties. Other consequences for non-compliance include fines, payments to plan participants, or required changes to the company’s procedures. If a company fails to comply with reporting requirements, it can be fined up to $1,000 daily.
Need Assistance with ERISA Documents?
If you need detailed guidance on creating ERISA plan documents or SPDs, let The Grigg Group help! Let us guide you to compliance by calling (704) 333-3255 or sending us a message through our contact page.
