Module 1 ERISA Regulatory Framework

Question 1

What are the four basic elements of an employee welfare benefit plan?

Answer 1

• must be a plan, fund, or program
• that is established/maintained by an employer
• for the purpose of providing specifically listed benefits, through the purchase of insurance or otherwise
• to participants and beneficiaries

Question 2

What types of employee welfare benefit plans are not covered under ERISA and specifically excluded under the statute?

Answer 2

• governmental plan
• church plan
• a plan maintained to comply with state laws on workers’ compensation, unemployment, or mandated disability insurance
• a plain maintained outside the US primarily for nonresident aliens
• plans that cover only self-employed individuals which cover no “common law employees”
• plans that cover only married shareholders of a corporation

Question 3

What payroll practices are not considered ERISA plans by the DOL?

Answer 3

if a plan pays up to an employee’s normal wages and is not funded then it is not covered under ERISA
if a plan is funded and pays over an employee’s normal wages then it is considered an ERISA plan
- holiday/vacation
- active military duty
- jury/witness duty
- while employee is engaged in training
- sabbatical leave

Question 4

What are the requirements for a voluntary benefit arrangement to be exempt from ERISA based on the DOL safe harbor?

Answer 4

• no employer or employee organization contributions
• participation is completely voluntary
• no employer consideration except for reasonable compensation for administration
• no employer endorsement

Question 5

Plan administrator

Answer 5

a person with statutory responsibility for ensuring that all of the required filings with the federal government are timely made and the person upon whom the statue imposes authority to make important disclosures to participants about plan benefits

Question 6

Participant

Answer 6

employees in or reasonably expected to be in, currently covered employment

Question 7

Beneficiary

Answer 7

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

Question 8

What is a plan document?

Answer 8

describes the plan’s terms and conditions related to the operation and administration of a plan

Question 9

What specific liabilities or problems exist for an employer that fails to have a plan document?

Answer 9

• participants and beneficiaries can file suit
• $110/day if document is not provided within 30 days of a participant’s written request
• $100,000 and/or imprisonment against individual for up to 10 years or $500,000 if it is against a company
• difficult to prove plan terms and thus enforce plan provisions
• participants can base their claims on past practice or other evidence outside the actual terms of a written document that is favorable to their position
• plan sponsor may not be able to amend or terminate an informal plan
• fiduciary must act in accordance with the documents and instruments governing the plan

Question 10

What is a wrapper plan document?

Answer 10

typical way of supplementing an insurance company’s certificate of coverage with the missing ERISA provisions

Question 11

When is a new SPD required?

Answer 11

at least every 10 years or every 5 years if there has been a material change in the plan during that time

Question 12

How can an SPD, SMM, or other required ERISA notice be distributed?

Answer 12

• in hand delivery to employees
• first class mail
• second or third class mail, but only if return and forwarding postage is guaranteed and address correction is requested
• inclusion in a union or company publication
• may be made electronically

Question 13

What is the purpose for the summary of benefits and coverage (SBC)?

Answer 13

must accurately describe the benefits and coverage

Question 14

When should an SMM related to a material reduction in covered services be distributed?

Answer 14

Within 60 days after the adoption of the modification or change

Question 15

How is a plan, fund, or program for an employee benefit plan defined?

Answer 15

a reasonable person can ascertain the intended benefits, the class of beneficiaries, the source of financing, and the procedure to receive benefits (not defined by ERISA but by court cases)

Question 16

What are the procedures required to establish an ERISA employee welfare benefit plan?

Answer 16

no particular formalities are required, but, it is generally any ongoing administrative scheme will satisfy this condition, any contribution made by the employer toward payment of benefits or administration of the plan is enough

Question 17

What types of benefits are provided by ERISA health and welfare plans?

Answer 17

1) medical, surgical, or hospital care or benefits
2) benefits in the event of sickness, accident, disability, death, or unemployment
3) vacation benefits
4) apprenticeship or other training benefits
5) daycare centers
6) scholarship funds
7) prepaid legal services

Question 18

What does ‘no employer endorsement’ mean?

Answer 18

an employer can publicize, collect premiums, remit premiums, provide employee information to an insurance company, and maintain a file on the voluntary plan, however, an employer cannot express positive normative judgement and cannot urge/encourage employee participation

Question 19

What are the main disclosure requirements under ERISA?

Answer 19

1) a plan document must exist for each plan
2) summary plan description (SPD)
3) summary of material modifications (SMM)
4) summary of benefits and coverage (SBC)
5) copies must be furnished to participants and beneficiaries upon written request
6) claim procedures must be established and followed

Question 20

What are the main requirements that pertain to ERISA plan assets?

Answer 20

1) may be used only to pay plan benefits and reasonable administration costs
2) may have to be held in trust
3) a fidelity bond must be purchased to cover every person who handles plan funds

Question 21

What are the two often conflicting requirements embodied in SPDs?

Answer 21

1) must be written in a manner calculated to be understood by the average plan participant
2) must be sufficiently accurate

Question 22

How does the DOL define ‘material reduction in covered services or benefits?’

Answer 22

1) eliminated benefits payable under the plan
2) reduces benefits payable under the plan
3) increases deductibles, copayments, or other amounts paid by a participant or beneficiary
4) reduces the service area covered by a HMO
5) establishes new requirements to obtain services or benefits

Question 23

What are the basic rules for presenting the SBC to entitled parties?

Answer 23

• must be presented in a uniform format
• utilize terminology understandable by the average plan participant
• must not exceed 4 pages in length
• cannot include print smaller than 12 point font
• must be presented as a standalone document
• must be presented in a culturally and linguistically appropriate manner

Question 24

What are the penalties or problems a plan sponsor might incur if they do not provide SPDs or SMMs as required?

Answer 24

1) may be charged a penalty per day if it does not provide a plan participant with an SPD or SMM within 30 days of an individual’s request
2) an SPD is important evidence of the benefits employees have been promised by the employer
3) the plan may be forced to provide benefits described in any other written documents describing the plan
4) participants and beneficiaries may bring a civil action in federal district court to enforce any provision of ERISA
5) criminal penalties may be imposed against any individual or company that willfully violates any ERISA reporting and disclosure requirements
6) failure to distribute SPDs or SMMs could be used against the plan sponsor in actions brought by the government or plan participants and beneficiaries

Question 25

What is a summary annual report (SAR)?

Answer 25

an SAR is a summary of certain information contained in a plan’s form 5500 annual report/return along with notification to participants of their rights under ERISA to receive additional information

Question 26

What are the general types of information that must be maintained for an ERISA welfare benefit plan and the record retention requirement for these documents?

Answer 26

employers are required to keep sufficiently detailed information and data necessary to verify, explain, clarify, or check on documents for accuracy and completeness, including vouchers, worksheets, receipts, and applicable resolutions for six years for ERISA

Question 27

What obligation does the plan administrator have for an ERISA welfare benefit plan when electronic recordkeeping has been delegated to another party?

Answer 27

the duty to maintain records as required by ERISA cannot be avoided by contract, delegation or otherwise