27 Apr The (Benefits) World Revolves Around Plan Documents
Original post ubabenefits.com
How would you be sitting if a Department of Labor (DOL) investigator asked for your company’s group health plan documents? Would you be able to put your hands on an updated copy of the plan document, summary plan description, summary of benefits and coverage, all amendments and summaries of material modification since the last restatement of the plan? What kind of shape are those documents in? Do they comply with the changes imposed by the Affordable Care Act? Can you demonstrate that you actually distributed the summary plan description and other plan disclosure documents that are required to be distributed? Take a glance at the kind of documentation a DOL agent often requires in an audit on the DOL website.
Bear in mind that the DOL is not the only federal agency that might demand your company’s plan documents. The Internal Revenue Service (IRS) enforces the federal tax code provisions that apply to employee benefit plans, including group health plans and cafeteria plans. To enjoy the tax benefits of offering and participating in such plans, the employer sponsoring the plan has to comply with a host of laws and regulations including documentation requirements. Also, you need to know that the agencies will share information with each other, so what’s collected by the IRS in an audit will be shared with the DOL to the extent the IRS examiner sees fit. Take a closer look at an actual IRS document request for a retirement plan on the IRS website.
So, what are the significant consequences of plan document mistakes like failing to have a plan document, failing to update it, or failing to provide it to a plan participant? The IRS can require recharacterization of pre-tax amounts used to pay for group health coverage under a cafeteria plan if there’s no cafeteria plan document and, under the Employee Retirement Income Security Act (ERISA), the company can be liable for civil penalties for failure to provide requested documents. Perhaps more significant is the litigation risk that arises when you fail to maintain or provide well-written plan documents to participants, especially summary plan descriptions (SPDs), which must be written so that they’re understandable by the average participant. The bottom line is that plan document mistakes can cost an organization a lot of money and, as in everything else you do, an ounce of prevention is worth a pound of cure.
To prevent plan document mistakes, you first need to satisfy the content requirements of the applicable laws and regulations. For health and welfare plans (like those providing medical, dental, vision, life, or disability benefits), this generally means your company’s SPDs must satisfy the content requirements specified under ERISA by the DOL in regulations, including the requirement that the content be understandable by the average participant. The SPD usually can double as the plan document for health and welfare plans, with a few important additional provisions. Not so for retirement plans! The content requirements specified by the IRS for retirement plan documents make the plan document too technical and confusing for the average participant to understand. For cafeteria plans, there is no SPD requirement, but the IRS requires specific content for the plan document as enumerated in proposed regulations.
Having the required content and ensuring it’s wellwritten, of course, is not enough. You also have to make sure that plan documents are provided to participants within no more than 30 days of being requested and that SPDs (and certain other disclosures) are distributed even if they’re not requested. SPDs need to be distributed to participants within 90 days after the person becomes a participant. If you’re not mailing or hand-delivering the SPD and want to use email instead, make sure that using email is an integral part of your employees’ jobs or get affirmative consent – there are specific rules about how you do that. ERISA requires that an updated summary plan description be distributed every five years unless there have been no amendments effecting the content of the summary plan description. In that case, the summary plan description just needs to be redistributed every 10 years.