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ERISA Plan Mistakes to Avoid

ERISA Plan Mistakes to Avoid: Health and Welfare Plans

At some point, all benefit plans experience operational errors.  The trick is to identify and remedy the errors before the Department of Labor or IRS notice them.  The following is a list of common errors made by plan sponsors to assist you in identifying compliance “blind spots.”

Failure to Identify Benefits as Subject to ERISA
It’s not always easy to identify which plans are subject to ERISA.  For instance, most plan sponsors know that their health, dental and vision plans are subject to ERISA.  However, plan sponsors often fail to recognize that other benefits are also subject to ERISA.  For instance, employee assistance programs and severance plans are often subject to ERISA as well. Failure to identify a benefit as being subject to ERISA likely results in failure to comply with ERISA’s numerous requirements with respect to that benefit (e.g., Form 5500 reporting).

Plan Document Failures
Many plans, particularly those that rely on insurers for documentation, do not have plan documents that contain the required ERISA provisions.  A written plan document is important for a number of reasons, including compliance with (a) the statutory requirement that there be a written plan document; (b) the requirements of ERISA and other federal mandates; (c) reporting and disclosure requirements; and (d) the fiduciary’s duty to follow the plan document.  Plan documents must be formally adopted by the plans sponsor, must include all ERISA-required provisions and must be consistent with administrative practices.

Failure to Have an Adequate SPD for an Insured Plan
Employers with insured plans often look to the insurer to provide them with a booklet summarizing the plan for distribution to their employees. Insurers typically respond by furnishing a certificate of insurance that, by itself, lacks basic provisions required under ERISA for an SPD (e.g., ERISA statement of rights, COBRA information, QMCSO information).

Failure to Satisfy Recordkeeping Requirements for ERISA Plans
Most ERISA plans are required to file a Form 5500 annual report.  ERISA also requires retention of records sufficient to document information contained in the Form 5500. These records must be retained for a period of not less than six years after the Form 5500 is filed.

Failure to Adequately Bond
ERISA requires every fiduciary of an employee benefit plan and every person who “handles” plan “funds or other property” to be bonded. Failure to obtain adequate bonding for persons who handle plan funds or other property is a common problem for ERISA welfare benefit plans. Compliance issues can arise from (1) failing to cover all persons that handle funds or other property; (2) determining the bond’s required minimum value; and (3) purchasing the bond from an “acceptable surety.”

McGrath North’s attorneys are available to discuss any of the above items with you and determine what additional corrective actions may be needed.  In the event your plan experiences an operational error that is not discussed above, you should contact your McGrath North attorney to evaluate the scope of the error and identify potential solutions.