Happy New Year! It’s that time when we all vow to better ourselves in the months ahead. Resolutions abound, and they need not be limited to individual self-improvement. Employers too have many opportunities for betterment in the New Year. In the area of employee benefits, we offer these four goals for 2018.
ONE. Clean up the house! Whether it’s shredding those electric bills from 2003 or organizing your kids’ toys into color-coded bins, January is a great time for getting your house in order. Similarly, it’s a great time to tidy up your employee benefit plan documents! Some ideas to get you started:
- Adopt a wrap document for your ERISA-covered health and welfare plans. As described on our earlier post, most health and welfare plans (medical dental, and vision, among others) are subject to the Employees Retirement Income Security Act of 1974 (ERISA) and required to distribute an ERISA-compliant summary plan description (SPDs). Many employers assume that the insurance certificates provided by insurers meet ERISA’s requirements, but that’s not usually the case, and this noncompliance can lead to a variety of penalties including a penalty of up to $147 per day for failure to furnish the SPD upon request). ERISA “wrap documents” are documents that incorporate all of your insurance contracts into one document and also contain all of the “bells and whistles” needed to bring your company in line with these legal requirements.
- Straighten up your retirement plans. It’s always best for employers to find (and fix) problems before they are discovered on audit by the IRS or DOL. Some common mistakes include the use of definitions of “compensation” that are not in accord with plan terms, the exclusion of otherwise eligible employees, the failure to implement or properly administer automatic enrollment and escalation features, missed amendments, and delayed transfer of payroll deductions to the plan. Luckily, many problems can be corrected easily and inexpensively through the IRS’ Employee Plans Compliance Resolution System (EPCRS) program or the DOL’s Voluntary Fiduciary Correction Program (FVCP) – but these programs are beneficial only if employers discover and fix the problems before the agencies do. Employers are advised to gather and review all plan documents and consult with their advisers to identify problems and make corrections. .
- Make sure all 5500 filings have been timely made. 5500 filings are required for all ERISA-covered retirement plans and for any ERISA-covered health and welfare plans with 100 or more participants. The penalties for late filings can run up to $2,063 per day; luckily, late filings can be corrected by filing through the DFVCP program and paying a minimal fee.
- Adopt a cafeteria plan. Do you allow employees to pay for insurance coverage on a pre-tax basis through payroll deductions? You need a plan document for that too. Go ahead and adopt one before the IRS comes around and makes you undo all of those tax benefits.
And by the way, are you perhaps hoping that someone will buy or invest in your company? If you or the government haven’t already identified benefit plan compliance problems, a buyer’s or investor’s due diligence team might – and may demand immediate and costly corrections or purchase price adjustments before closing the deal.
TWO. Fall in love (all over again). The New Year is a great time to evaluate your relationships, and perhaps spark up your current partnership, end a toxic friendship or relationship, or set your sights on new romance!
Likewise, how are things going with your benefit advisers? Re-evaluation of your benefits advisers (third party administrators, investment advisers, auditors and even us attorneys) is not only good common sense, it’s required under ERISA. ERISA requires benefit plan fiduciaries (including employers who sponsor plans) to not only choose advisers wisely, but also to monitor advisers’ performance and fees. Even if your advisers seem to be doing a pretty good job and fees seem fair, it’s a good idea to put out a request for proposal (RFP) every few years to confirm that you are getting the best value and that your service agreement contains up-to-date protections. Further, activist litigation is on the rise, with plaintiffs arguing that employers’ failure to diligently choose and monitor service providers resulted in high costs to plan participants, particularly from fees on investments. Careful selection and diligent monitoring can protect an employer from this sort of ligation.
All that said, changing advisers can itself be a costly undertaking and should not be taken lightly. A switch may involve, among other things, document review and negotiation, data transfer, investment changes, the learning curve presented by new people and new software, and education of employees. If your RFP reveals that your current adviser is offering good services at reasonable prices, there’s no reason to subject your company to a switch. As with romance, sometimes you are already right where you need to be.
THREE. Get tech savvy. Are you tired of being the last one in your social circle to get the new phone or download the latest app? This could be the year you take that great leap forward into the digital age and get the smartest smartphone! Then you can download all the apps to help you monitor your fitness efforts, organize your finances, order groceries, track your home thermostat from miles away, or figure out why the bus hasn’t shown up yet! Similarly, now may be a good time to consider modernizing your benefit plans. Two suggestions here:
- Cybersecurity review. By now, most employers are aware of (and hopefully compliant with) the Health Insurance Portability and Accountability Act of 1996 (HIPAA) requirements affecting health plans. But there’s a wide variety of sensitive information involved with benefit plans that is not covered by HIPAA. For example, 401(k) plan administrators may collect and retain participant information such as social security numbers, compensation, account balances, addresses and beneficiary designations. In addition, third-party administrators may have access to sensitive employer information such as yet-unexecuted plan design changes or particularly challenging claims. Yet, while many companies have taken great efforts to enhance cybersecurity protections with respect their general business, protection of benefit plan information from cyber-threats is often an afterthought (if it is considered at all). To be sure, cybersecurity is a moving target, and besides HIPAA there are no rules specifically geared towards benefit plans. That said, ERISA imposes general fiduciary obligations on plan sponsors and advisers to act in the best interest of participants, and as noted above, to wisely choose and monitor service providers. In addition, general cybersecurity laws and industry standards may apply to benefit plans, or at least provide inspiration for internal standards. One thing employers should do is carefully review cybersecurity protections offered (or perhaps not offered) by service providers. Questions to ask include (among others): Which service providers have access to sensitive data? What sorts of data are potentially exposed? Where and how the data is transferred, stored, retained and destroyed? Does the employer have audit rights? Who handles the data and how are they trained? How is access to the data controlled? And what happens if there’s a breach? If a service provider is not willing to offer cybersecurity protection, or seems to have very loose standards, it may be time to move on.
- Review electronic distribution of benefit plans. ERISA requires that benefit plan administrators use measures reasonably calculated to ensure actual receipt of ERISA-covered notices and documents by participants. In addition, notices must be sent by a method or methods of delivery likely to result in full distribution. ERISA offers an electronic distribution safe harbor for this requirement, which allows employers to distribute ERISA documents electronically but requires affirmative consent from employees who do not regularly work at a company computer. As discussed in our prior post, electronic distribution of documents is a great way to meet ERISA’s requirements while fostering environmental stewardship. However, employers who use electronic distribution should do so in a thoughtful way, including by adopting and following an electronic distribution policy, and, wherever reasonable, tracking ERISA’s electronic distribution safe harbor.
FOUR. Try something new. Whether it’s that new rock climbing gym up the street, exotic travels, a new language, or a different haircut, the new year is a time of re-invention and adventure. So why not try out some new benefits?
These days, there is an endless variety of fun perks and benefits that can help excite and retain your current employees and attract new talent. Many employers are adding health advocacy or health concierge programs, for example, to help employees choose doctors and navigate health insurance costs and claims (and hopefully make cost-saving choices that may save money for both the employer and employee). Other novel benefit offerings include pet insurance, healthy vending machines, student loan payoff assistance, mindfulness seminars, and even assistance with wedding costs.
Employers who offer these perks, however, do need to ask some questions. Are the benefits subject to ERISA? If so, a summary plan description is required and a 5500 filing may be required. Is the plan a group health plan? If so, additional notices, and COBRA continuation coverage, may be required. And employers must consider how these benefits are taxed (depending on the benefit, there may be tax consequences for both the employer and employee). When setting up any new benefit, employers are advised to proceed with caution and consult counsel.
In closing, may your 2018 be decluttered, romantic, tech forward, adventurous, and (most of all) legally compliant! Now get out there and climb that rock wall!