How your business can survive, avoid Labor Department benefits-compliance audits
“Compliance” and “audits” — two words that strike fear in most business leaders.
In addition to the more well-known rules surrounding financial disclosures and human resources practices, employers have compliance requirements related to their employee benefits programs as well. Being non-compliant can cost you significant pain financially and cause you and your team the major inconvenience of spending precious time and resources to meet requirements after-the-fact.
When we talk with North Bay businesses, we ask them if they think their benefits program would pass a Department of Labor (DOL) audit.
Most of the time, they quickly — often mistakenly — answer, “Yes.”
To ensure our clients and business partners are indeed compliant, we conduct a compliance audit, or ask a few clarifying questions. Nine times out of 10, our audit reveals that the answer is a definite “no.” They are decidedly not in compliance and would be challenged to pass a DOL audit.
A compliance caution
The biggest issue we see is a belief that when an employer implements an employee benefits program, their job is done. They feel that after all, they are buying a product or plan from another company and are paying the premium; what more do they need to do?
The truth is, there is a lot that employers need to do after implementing their benefits programs.
Unfortunately, we find that many brokers do not thoroughly discuss compliance with their clients. These employers are then unaware that they are vulnerable and only find out they are out of compliance too late when the DOL audits them.
Some key Items (but not all) that you need to ensure compliance with the DOL:
Section 125 plan
Also known as a “cafeteria plan,” a Section 125 plan is a written document that offers employees the ability to contribute to certain benefits (e.g., health insurance) on a pre-tax basis.
Summary plan description (SPD)
Unless your organization is a church or government entity, your benefits program falls under Employee Retirement Income Security Act (ERISA) rules.
You, as the administrator, are required to possess and distribute a summary plan description. In particular, ERISA mandates that an SPD be distributed to covered participants within 90 days after their coverage begins, or within 120 days of the establishment of a new benefits program.
An updated SPD must be given to all participants every five years.
Summary of benefits and coverage (SBC)
The Affordable Care Act (ACA) requires that an summary of benefits and coverage be provided under the following circumstances:
- Upon application. If a plan or an issuer distributes written application materials – including electronic formats - for enrollment, the SBC must be provided as part of those materials.
- By the first day of coverage (if there are any changes). If there is any change in the information required to be in the SBC that was provided upon application and before the first day of coverage, the plan or issuer must update and provide a current SBC no later than the first day of coverage.
- Special enrollees. For employees experiencing a qualifying event and enrolling in the benefit plan, the SBC must be provided in the same timeframe as the SPD which is 90 days from enrollment.
- At renewal. If, during an open enrollment period, a plan or issuer requires participants and beneficiaries to actively elect to maintain coverage, or provides them with the opportunity to change coverage options, the plan or issuer must provide the SBC at the same time it distributes open enrollment materials.
- Upon request. When an employee or another entity asks for an SBC or summary information about the health coverage, it must be provided later than seven business days following receipt of the request.
These are required communication pieces which contain information regarding an employee’s health benefit plan. Annual Notices are designed to inform plan members of their rights, opportunities, and obligations. These notices include:
- Medicare Part D notice of creditable (or non-creditable) coverage
- Children’s Health Insurance Program (CHIP) notice
- Woman’s Health and Cancer Rights Act (WHCRA) notice
- Summary of benefits and coverage (SBC), as mentioned above.
Avoiding the danger of a DOL audit of your employee benefits program doesn’t have to be an overly complicated proposal.
Your broker can, and should, be your first resource to ensure you are in compliance. As we mentioned, we find that most employers who are referred to us assume that they are compliant. But after asking a few questions, or running a full audit of their program, unfortunately, they are often not.
After reading just some of what you need to be compliant, do you think you are? It is not worth the risk to wait for a DOL audit to find out.