An Essential Outline on Establishing an ERISA Plan
By: Emily Marr
If an employer asks you what steps are to be taken to form a Health and Welfare Plan under ERISA, how would you answer? Many feel the question leads to a blank canvas with plenty of uncertainty on how to move forward with their client(s).
Emily Marr, from Wrangle’s ERISA Desk who prepares clients’ Plan Documents and SPDs, offers an instructive outline to help fill in gaps and provide a guideline for a basic framework for a Health and Welfare Plan.
1. Maintain the plan in compliance with applicable laws. As required by ERISA (as well as by the regulations for cafeteria plans and self-insured group health plans) execute a written plan document. In addition to the written plan requirement, ERISA also requires that a Summary Plan Description (SPD) be distributed to plan participants.
– Review ERISA requirements such as plan number, content/formatting, and document distribution requirements to make sure documents are compliant.
– Decide how many plans to administer. Combining all benefits under one wraparound plan document will save administrative time and money.
– If selecting a plan document vendor, review several to select quality document services provided at a reasonable fee.
– Maintain procedures for reviewing the plan documents to ensure they follow current plan operations and are updated when changes are made. After amending the plan, distribute an updated SPD or Summary Material Modification (SMM).
– Ensure the plan has reasonable claims and appeals procedures that are being followed by the plan fiduciaries.
– Ensure the SPD outlines benefit(s) provided, eligibility and loss of coverage rules, and statement of ERISA rights
– Ensure the plan documents provide all required federal legal provisions (e.g. QMCSO procedures, FMLA, USERRA, COBRA, HIPAA, etc.).
– Ensure all required disclosures have been timely filed with the government (e.g. Form 5500) and all participant distributions have been timely provided.
2. Designate and administer staff and named fiduciaries managing the plan benefits. There are essentially two entities that perform activities for health and welfare plans that affect welfare benefit plans: the sponsoring employer and outside vendors that the employer contracts with to provide plan services. Those services may include claims administration, provider network creation, pharmacy management services, and health care risk insurance.
– Designate staff authorized to establish and maintain the plan in the employer’s capacity as plan administrator. Have an authorized representative of the Plan Administrator sign and date the Plan Document(s) [Generally-speaking, the Plan Administrator is almost always the company; as a result the Plan document goes to an authorized representative of the company who signs anything for the Plan].
– Understand the different responsibilities associated with the employer’s role as plan sponsor, plan administrator, and named fiduciary.
– Identify plan fiduciaries (e.g. insurance issuers, contract administrators), make sure they understand their fiduciary responsibilities (especially in their role administering claims), and, if hiring TPAs, interview several and review proposals to make sure fees are reasonable for services provided.
– Monitor all employees and outside vendors for compliance purposes.
– For self-funded benefits run nondiscrimination tests [Be on the look-out for a future blog entry on these tests].
3. Benefits and participant contributions.
– Choose the funding method for benefits carefully (i.e. fully-insured, self-insured, etc.). By purchasing fully-insured benefits, an employer can budget costs and protect itself during the policy year against higher-than-expected claims. However, self-insuring benefits allows the employer to leave monies in general assets until a claim is paid while avoiding the premium tax costs of fully-insured plans.
– Document the funding arrangement in the Plan Document and SPD for the Plan Participants to know.
– If the plan will take pre-tax salary reductions out of payroll, set the contribution levels for premiums for the plan year and announce the requirements during open enrollment. It’s a Section 125 rule. Furthermore, because ERISA generally requires communications about the benefits and eligibility requirements and changes thereto, contributions fall into this realm as well.
– Be aware of the schedule to deposit participant contributions and payments by participants. Question and review if Employee contribution are handled correctly under Technical Release 92-01* or if a trust is to be in place for plan Assets (please note an official trust agreement is not required by ERISA).
* Technical Release 92-01: The DOL will not assert a violation solely because of a failure to hold participant contributions in trust, if benefits are paid solely from the general assets of the employer maintaining the plan provided that contributions by participants through a Section 125 plan are forwarded to the insurance carrier within three months of receipt.
Please note that this is a starting point. The outline above is not comprehensive, and we do recommend consulting with an ERISA Plan Document expert to complete the process.
If you have any questions or need additional information, please contact Emily Marr, Employee Benefits Consultant from Wrangle’s ERISA Desk at email@example.com or (415) 461- 3912.