Open Enrollment Season is Here – Are You Prepared?
Every fall, many employers which sponsor welfare benefit plans start to turn their attention to renewing benefits for the upcoming year. As a result, the open enrollment season provides the perfect opportunity to ensure certain welfare benefit legal requirements are kept up to speed: plan documents and summary plan descriptions; annual notices; and nondiscrimination testing.
Plan Documents and Summary Plan Descriptions
Most employers utilize a benefit program or insurance booklet prepared by a third party administrator or insurer as the substantive summary of key benefit provisions in their welfare plans. In fact, most plans and corresponding summary plan descriptions incorporate these very documents by reference. As a result, to keep the documents up-to-date, each employer should ensure that it requests from the third party administrator or insurer the updated benefit programs and descriptions for 2016. Once in receipt, these documents will become the attached booklets and information for the official plan, as well as the summary plan description.
Each year, ERISA and the Internal Revenue Code require plan sponsors to distribute specific notices regarding welfare benefits. Open enrollment provides the perfect opportunity to distribute these notices, as most employers can include the notices with any election forms provided to plan participants.
A sample of the relevant notices that must be distributed annually include:
- Summary of Benefits and Coverage
- Grandfathered Plan notice (if applicable)
- Notice of Patient Protections
- Children’s Health Insurance Program Reauthorization Act notice
- Women’s Health and Cancer Rights Act notice
- Medicare Part D Creditable Coverage notice
- Michelle’s Law notice (if the materials describe any requirement for certifying student status)
Certain welfare benefits must pass nondiscrimination tests on an annual basis. There are two tests for self-insured medical plans, three tests for cafeteria plans, and four tests for dependent care flexible spending accounts. These nine tests are required by the Internal Revenue Code, and failure to satisfy the tests results in taxation of these benefits to your highly compensated employees and possible under-withholding taxes and penalties.
Self-insured medical arrangements (including health flexible spending accounts and health reimbursement arrangements) are subject to the following two tests:
Cafeteria Plans are subject to the following three tests:
- Contributions and Benefits
- Key Employee Concentration
Dependent care flexible spending accounts are subject to the following four tests:
- Contributions and Benefits
- 5% Owners Concentration
- 55% Average Benefits
Although there appears to be some redundancy in the tests above (e.g., Eligibility and Benefits tests), each of the tests operates somewhat differently, with different data requirements and prohibited group members.
Due in large part to the Patient Protection and Affordable Care Act, the Department of Labor has stepped up its welfare plan auditing. Common failures found by DOL include a lack of complete plan documentation, inadequate summary plan descriptions, deficient claims procedures, and COBRA notice failures. In addition, noncompliance could be a source of significant participant claims, such as COBRA failures or HIPAA violations. Finally, the Internal Revenue Service requires employers to self-report various occurrences of welfare plan noncompliance and pay a corresponding excise tax (penalty) of $100 per day per participant.
In our experience, welfare plan sponsors’ “plans” and “summaries” often consist of an amalgamation of insurance or TPA contracts, open enrollment materials, COBRA or HIPAA notices and procedures, and summaries. Typically, these have come from different providers. Simply put, overall coordination is essential. Failure can result in participant claims for damages or large statutory penalties, and will pose risks on DOL or IRS audits. As a result, we recommend legal review of your overall welfare plan compliance.
Butzel Long can help you prepare, or review, the annual notices to ensure compliance and avoid costly penalties imposed by ERISA and the Internal Revenue Code. Butzel Long can also review your current nondiscrimination testing methodology and results, as well perform these tests for you and provide you with a readable, understandable report for your audit-ready files. Finally, Butzel Long can assist you to check current compliance, close and correct any deficiencies, and put your welfare plans on solid footing. With this done, future compliance and maintenance is less daunting.
If you have any questions about the above issues related to your welfare benefit plans, or if you need assistance with compliance, please contact the author of this alert or your Butzel Long attorney.