1. ERISA Regulatory Framework

Question 1

An EWBP has 4 basic elements:

Answer 1

1. A plan/fund/program
2. The plan/fund/program is established or maintained by an ER
3. The plan/fund/program is for the purpose of providing specifically listed benefits, thru the purchase of insurance or otherwise
4. Benefits are provided to participants and beneficiaries

Question 2

How is a plan/fund/program for an EB plan defined?

Answer 2

It’s not defined by ERISA but has been laid out in case law. Courts held that a plan/fund/program under ERISA is established if, from the surrounding circumstances, a reasonable person can ascertain the intended benefits, the class of beneficiaries, the source of financing, and the procedure to receive benefits.

Question 3

Describe the procedures required to establish an ERISA EWBP

Answer 3

No formalities required, no single action constitutes establishment. Plans are deemed to be “established or maintained” by a practice that would cause a reasonable EE to perceive an ongoing commitment by the ER to provide EB. This would include any contribs by the ER toward payment of bens, or by the ER simply administering the benefit.

It’s easy to have a plan/fund/program - -generally any ongoing admin scheme will satisfy. Showing an ER maintains a plan is also easy: any contrib by the ER toward payment of bens or admin of plan is enough, including contrib towards ins cvg.

Question 4

EWBPs not covered by ERISA - that is, those (6) specifically excluded under the statute:

Answer 4

1. Governmental plans, incl. any agency, or a plan to which the Railroad Retirement Act applies, and also certain plans associated w/ tribal gov’ts
2. Church plans including conventions/associations exempt from tax under IRC Ss.501
3. A plan maintained to comply with state WC, UI, or SDI law
4. Plan maintained ex-US primarily for nonresident aliens
5. Plans that cover only self-employed folks and that cover no “common-law EEs” are generally not subject to ERISA
6. Plans that cover only married shareholders of a corp

Question 5

List the types of (7) benefits provided by ERISA HWBPs. Provide examples of such plans.

Answer 5

1. Medical/surgical/hospital care
2. Benefits in the event of sickness, accident, disability, death, unemployment
3. Vacation benefits
4. Apprenticeship, other training benefits
5. Daycare center
6. Scholarship funds
7. Prepaid legal services

Examples: medical insurance, dental, vision, Rx drug plans, drug/alcohol treatment programs, HC-FSAs, EAP, wellness programs, AD&D, STD, LTD

Question 6

Are plans that involve payroll practices treated as ERISA HWBPs?

Answer 6

Mostly no, except for insured disability plans.

Payment of an EE’s normal comp in full/part out of the ER’s general assets for periods when the EE is unable to work (that is, an unfunded STD plan) is not generally a WBP subject to ERISA. However, if a disability program provides more than an EE’s normal comp or is funded in any way (i.e., insurance), the program will be an ERISA WBP.

Furthermore the DOL regs list additional types of payroll practices as NOT being ERISA plans, including loans where comp is paid to an EE:
1. On holiday/vacay
2. Activate military duty
3. Absent for jury/witness duty
4. Periods of time when EE performs little/no productive work while engaged in training
5. Relieved of duty on sabbatical or during further ed.

Question 7

For a vol benefit to be exempt from ERISA based on the DOL safe harbor, what (4) reqs must be met?

Answer 7

1. No ER or EE org contribs
2. Participation is completely voluntary
3. No ER consideration, except for reasonable comp for admin
4. No ER endorsement

Question 8

Explain “no employer endorsement” re: vol Ben arrangements’ DOL safe harbor exemption

Answer 8

Employer can: publicize, collect & remit premium, provide EE info to ins co, maintain a file on vol plan.

Employer cannot: express positive normative judgment or urge/encourage EE participation.

Participation of ER or EE org should be limited to the duties specified in the regs, none of which involve the exercise of discretionary duties. An ER hoping to rely on the exemption should also be careful not to create the impression that the benefit is part of its benefit package by, for example, including it in enrollment materials or encouraging EEs to enroll. DOL warns in the final FMLA regs that if a plan is intended to be exempt from ERISA under this provision, ER shouldn’t pay an EE”s premium while EE is on FMLA leave.

Question 9

Define ERISA term: Plan administrator/plan sponsor

Answer 9

A person with statutory responsibility for ensuring all of the req’d filings with federal gov’t are timely made, and is the person upon whom the statute imposes authority to make important disclosures to participants about plan bens. Generally the plan admin is designated in the plan doc.

If the plan admin is not so designated, responsibility defaults to the plan sponsor, which is usually the ER. Generally in a single ER situation, ER is the plan sponsor, therefore, the ER is ultimately responsible for all reporting and disclosure reqs and should implement a process to make sure those are being followed.

Question 10

Define ERISA term: participant

Answer 10

Interpreted broadly to include EEs in, or reasonably expected to be in, currently covered employment. Would include EEs eligible for a plan but not enrolled. However, EEs in a class not eligible to participate in a plan aren’t participants under ERISA definition. Additionally bc def’n isn’t limited to current EEs, it can include COBRA QBs, covered retirees, and other former EEs who may remain eligible under a plan.

Question 11

ERISA term “participant” might include these additional non-actively-employed people (3)

Answer 11

1. COBRA QBs
2. Covered retirees
3. Other former EEs who may remain eligible under a plan

Question 12

Define ERISA term: beneficiary

Answer 12

Any person designated by a participant (or the terms of an ERISA plan) who is or may become entitled to a benefit under the plan.

A beneficiary has rights provided under the plan in question, and the plan fiduciaries owe fiduciary duties to plan beneficiaries as well as participants. A beneficiary may sue under ERISA for plan benefits and to remedy ERISA violations. Beneficiary also has the right to examine and request copies of plan docs.

Question 13

What are the main disclosure reqs under ERISA? (6)

Answer 13

1. A plan document must exist for each plan
2. A summary plan description (SPD) must be furnished automatically to participants
3. A summary of material modifications (SMM) must be furnished automatically to participants when a plan is amended
4. A 4-pg (double sided) summary of benefits and coverage (SBC) must be provided to applicants and enrollees before (re)enrollment.
5. Copies of certain plan docs must be furnished to participants & beneficiaries upon written request, within 30 days!
6. Claim procedures must be established & followed when processing benefits claims and when reviewing appeals of denied claims.

Question 14

What are the main reqs that pertain to ERISA plan assets (3)?

Answer 14

1. Plan assets, including participant contribs, may be used only to pay plan benefits & reasonable admin costs
2. For some plans, assets may have to be held in trust
3. A fidelity bond must be purchased to cover every person who handles plan funds

Question 15

Define “plan document,”; explain why it is vital to meet the written doc req.

Answer 15

ERISA requires that every ERISA H&WP be established and maintained in writing, and the scope of an ERISA plan is defined by the official plan doc.

The plan doc describes the plan’s T&C related to the operation & admin of the plan.

An insurance co’s master contract, COC, or Summary is usually insufficient to serve as a legal plan doc, and rarely fully protects the plan sponsor. Every plan participant has the right to examine the plan doc.

Question 16

Describe an ERISA wrapper plan doc

Answer 16

A wrap doc is the typical way of supplementing an insurance co’s COC or contract with the missing ERISA provisions. The wrap doc should make clear to the participants that its contents + the carrier’s docs together constitute the plan document for the plan.

If more than one Ben program is included under a single ERISA plan no (e.g., health, vision, dental, and EAP), then a wrap doc should be prepared to evidence the bundled approach. The result will be a single plan doc that lists all of the welfare benefit options under that ERISA plan number. When multiple contracts or benefit arrangements are bundled together under a single wrap plan doc, differences are inevitable and should be identified/addressed at the outset, as a matter of wrap plan design.

Question 17

Explain the two often-conflicting requirements embodied in ERISA SPDs

Answer 17

ERISA provides that an SPD must be “written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.”

Great care must be taken in composing the SPD language to meet these conflicting reqs. Additionally plan sponsors generally want SPDs and other comms materials to convey positive messages to EE about their benefits…

Question 18

How often is a new ERISA SPD required?

Answer 18

ERISA Minimum: every 10y

For many plans, a 5y rule applies: a new SPD must be distributed every 5y if there has been a material change during that time.

Every time a new SPD is distributed, a new 5- or 10y clock begins to run.

Question 19

How does the DOL define “material reduction” in covered services/benefits in a health plan, which would require an SMM be distributed within 60d after the modification or change? (5 possible)

Answer 19

DOL defines “material reduction” as any change that:
1. Eliminates benefits payable under the plan
2. Reduces benefits payable under the plan (e.g., change in formula, methodology or schedule that serves as the basis for benefit determinations)
3. Increases deductibles, copayments, or other amount paid by participant/beneficiary
4. Reduces the service area covered by a HMO
5. Establishes new reqs (e.g., preauth) to obtain services/bens

Question 20

5 acceptable methods of distributing ERISA disclosure docs

Answer 20

SPDs and SMMs must be furnished in a manner “reasonably calculated to ensure actual receipt of the material.” Acceptable:
1. In-hand delivery to EE
2. First-class mail
3. 2nd- or 3rd-class mail if return & forwarding postage is guaranteed & address correction req’d
4. Inclusion in a union/company publication if certain reqs are met
5. Electronic disclosure (e.g. email/internet/intranet), with certain DOL safe harbor rules. [Safe Harbor rules mean plans aren’t required to comply with the inductions, but compliance ensures DOL will find the electronic method acceptable]

Question 21

What’s the purpose of an ERISA SBC?

Answer 21

ERISA disclosure reqs were expanded by healthcare reform (PPACA) to provide a 4-pg (double sided) SBC to applicants & enrollees before (re)enrollment. The summary must accurately describe the “benefits and coverage under the applicable plan or coverage.” The SBC req applies in addition to SPD & SMM under ERISA.

Question 22

Describe the (7) rules for presenting an ERISA SBC to entitled parties

Answer 22

1. Presented in a uniform format
2. Utilize terminology understandable by the average plan participant
3. Not exceed 4 (double sided) pages
4. Not include print smaller than 12-point
5. Must be a standalone doc
6. Must be presented in a culturally, linguistically appropriate manner
7. In certain US counties, provide interpretive services

Question 23

List (6) penalties/problems plan sponsor might incur if it doesn’t provide SPDs or SMMs as req’d

Answer 23

1. Daily penalty ($110+) if not provided to requesting participant within 30d
2. Courts look to the SPD and other plan descriptive material as evidence of the benefits EEs are promised by ER. A clearly worded SPD is an important defense for ER in disputes
3. Plan may be forced to provide benefits described in any other written docs describing the plan.
4. Participants/bens may bring a civil action in federal district court to enforce any provision of ERISA
5. Criminal penalties may be imposed against any individual/company that willfully violates any ERISA reporting/disclosure reqs
6. Failure to distribute SPDs or SMMs could be used against the plan sponsor, in actions brought by the gov’t or plan participants/bens, to argue the sponsor has engaged in a pattern of violations/noncompliance w ERISA. Pattern would cause DOL/court to be less sympathetic to sponsor’s arguments. May give gov’t impetus to initiate an audit of the sponsor’s Ben programs to look for other violations.

Question 24

Discuss ERISA SAR

Answer 24

-Considered a plan disclosure doc under ERISA
-A summary of certain info contained in the plan’s Form 5500 Annual Report/Return, along with notification to participants of their rights under ERISA to receive add’l info
-ERISA requires the SAR be given to each participant, incl. former EE who are still covered by a plan (e.g. COBRA QB, retirees), in an ERISA WBP
- Not necessary to file the SAR w/ DOL bc the SAR contains info already reported to DOL on 5500
- SAR doesn’t have to be provided if the plan is a totally unfunded WBP under which bens are paid solely from ER’s general assets

Question 25

Describe the general types of info that must be maintained for an ERISA WBP, and record retention reqs for them

Answer 25

ERs must keep sufficiently detailed info & data necessary to verify, explain, clarify, or check on docs for accuracy & completeness, including: vouchers, worksheets, receipts, and applicable resolutions.

Records must be maintained for 6 years for ERISA purposes. Other laws may require longer.

-> 6y from date the associated 5500 is filed. Sue to extensions, best practice is 8 years after end of applicable PY

Question 26

Discuss the obligation that the plan admin has for an ERISA WBP when electronic record keeping has been delegated to another party

Answer 26

Duty to maintain records as req’d by ERISA can’t be avoided by contract, delegation, or otherwise. Use of a 3rd party for electronic record keeping doesn’t relieve the person responsible for maintaining/retaining records under ERISA of those duties.

The preamble states that when a plan admin contracts with a service provider for prep/maintenance/retention of plan records, it nonetheless remains the plan admin’s obligation to ensure that the records are properly maintained and retained under ERISA. In addition, in the event of a DOL investigation, the plan admin would be req’d to provide the necessary equipment & resources (hard/software, personnel) for inspecting, examining, and converting electronic records into legible paper copies.