The federal law ERISA (Employee Retirement Income Security Act) imposes administrative obligations on employers with employee benefit plans.
Employers offering an employee welfare benefit plan, such as health insurance or a retirement plan, are subject to the provisions of the the Employee Retirement Income Security Act (ERISA). ERISA is a federal law that covers administrative aspects of employee benefit and retirement plans.
Even if your benefits administrator or insurance company takes care of most of your ERISA obligations, you should make sure you are familiar with the requirements of the law so that you can assess whether the administrator is performing adequately.
Which benefits does ERISA cover?
Under ERISA, a welfare plan is any plan, program, or fund that an employer maintains to provide:
- medical, surgical, or hospital care
- benefits for sickness, accident, disability, or death
- unemployment benefits
- vacation benefits
- apprenticeship and training programs
- day care centers
- scholarship funds
- prepaid legal services
- holiday or severance pay
- retirement plans
Self-employed and partnerships. If you are self-employed or if you have a partnership and only you and your partner are covered under the plan, you would not be subject to ERISA because no employees would be covered under the plan. However, even though your plan does not cover any employees, it must still satisfy all the applicable requirements of the Internal Revenue Code in order to qualify for employee benefit tax breaks.
Administrative requirements under ERISA
ERISA requires that plan administrators do most of the legwork in complying with ERISA so you may not have to do much of anything unless you're acting as your own administrator. In many cases, if you have a plan with an insurance company, that company acts as plan administrator and takes care of these obligations. There are three main components to ERISA compliance:
- Reporting. ERISA requires that plan administrators file certain informational returns with the Department of Labor and the IRS, including a summary plan description that describes the coverage levels and claims procedures of your plan. Plans are also required to report when modifications (such as increased or decreased coverage, for example) to the plan have been made.
- Disclosure. ERISA requires that plan administrators share information with the plan participants and the Department of Labor upon request. Plan participants can get a wide array of information ranging from coverage levels to financial information.
- Paying claims. Every welfare plan subject to ERISA must establish a claims procedure to process claims for benefits. Plans are to provide information to a participant when the participant's claim has been denied.
Requirements for welfare plans. If you offer welfare plans subject to ERISA, your portion of the burden, if you have an insurance contract, will be to distribute plan information to employees, which is easily done when the plan goes into effect, or at orientation for new hires. To be on the safe side, you should still make sure that your plan administrator (whether it's a third party, the insurance company, or an agent) is complying with ERISA requirements.
Requirements for retirement plans. Retirement plans are subject to complex requirements under ERISA that can impact a long list of retirement plan features such as fiduciary responsibility and reporting and disclosure requirements, just to name a couple.
Forms required by ERISA
There are a great many forms that must be completed for each ERISA plan. If you're lucky, your administrator (agent/insurance company/retirement plan administrator) will take care of these for you. Make sure you're both clear on who's going to do what. Don't leave getting these forms completed to chance!
IRS forms. Welfare plans must file an annual report with the IRS (Form 5500 or Form 5500-SF).
Generally, though, all of the other forms required by the IRS for retirement plans don't have to be filed by welfare plans. There are certain rare instances where other forms might have to be filed with the IRS, but those situations are so unlikely to occur that they aren't worth going into here. In the unlikely event that you fall into one of those categories, your administrator should let you know.
Department of Labor forms. There are many forms that welfare plans must file with the U.S. Department of Labor. Fortunately, small welfare plans are exempt from most of them. A welfare plan with fewer than 100 participants whose benefits are fully insured or whose benefits are paid from the employer's general assets are exempt from ERISA's reporting and disclosure rules.
Warning: It's important that you make sure at the outset which tasks the insurance agent/company will handle and what, if anything, you need to do. In the unlikely event that you end up being designated the plan administrator, you should contact an attorney to help you comply with ERISA's complex requirements.
As a small employer, the form that your administrator will have to file with the Department of Labor is a financial statement that sets out the plan's financial condition. Small employer plans can fulfill that obligation by filing with the Department of Labor a Form 5500 (or Form 5500-SF), with attachments.