This is from Kevin M. Ohara at Life Health Pro:
To their surprise and dismay, some employers have learned that their voluntary benefit programs are ERISA programs, subject to all of the same requirements and liabilities as their traditional benefit plans of the Employee Retirement Income Security Act.
Despite assurances from carriers that such programs are not subject to ERISA, mistakes made by the employer in the design and administration of the plans may cause the programs to fall under the ERISA umbrella. Should that occur, the noncompliance penalties and obligations can be quite severe. It need hardly be said, too, that the customer relationship the agent or broker has built with the hapless employer would be in tatters.
By being aware of the rules under ERISA, and through proper planning, agents and brokers of voluntary worksite benefits can help guide their employers around potential exposures.
Truly voluntary plans--that is, those fully paid by the employee without contributions from the employer--are by definition ERISA-exempt under the Act's "safe harbor" provisions. But the U.S. Dept. of Labor has recently stepped up efforts to uncover programs that, due to an employer's mishandling, fail to qualify for that exemption.
Some employers only become aware that their voluntary benefit plans have become ERISA-eligible when they receive an inquiry from the DOL. More often, the situation comes to light when a voluntary benefit carrier, having been challenged over a claims-payment issue, seeks to invoke ERISA protection to avoid a state insurance department investigation, along with the possibility of penalties or a large jury award. Either way, the employer is generally caught unaware and must scramble to meet its newly discovered obligations.
Most benefit programs that make the shift into the ERISA category do so because the employer has stepped over a legally defined line and becomes too closely involved with the plan.
To avoid ERISA liability, the plan sponsor must have minimal interaction with the program. Other than offering the plan, collecting premiums and remitting those premiums to the carrier, the employer must avoid any direct intervention with the voluntary benefit program whatsoever.
In an effort to be helpful to its employees, the plan sponsor may cross the line and risk exposure. Even the level of enthusiasm the employer shows in promoting the plan will be considered in the DOL's assessment of whether ERISA applies.
Some behaviors that could jeopardize the safe harbor status of voluntary benefits include:
- Employer contributions to the plan costs, even relatively insignificant ones.
- Employer's staff intervention on behalf of an employee in day-to-day carrier dealings.
- Tying participation in the voluntary plan to eligibility for other benefits.
- Listing the voluntary plans alongside traditional ERISA programs in companywide communication materials.
- Placing the employer's logo on a voluntary product carrier's marketing materials.
- Publicly taking credit for introducing the benefit.
- Company managers and supervisors actively recommending voluntary benefits to rank-and-file employees.
A particularly difficult situation arises when deciding whether to include the plan in the employer's cafeteria program. By commingling the voluntary plans with the basic health programs within the Section 125 plan, the employer is at risk of tacitly promoting the plan. In addition, since including the program in communication materials about the cafeteria plan may imply the plan's similarity to other, ERISA-qualified benefits, a case could be made that the employer misled employees about the plan's status.
If, despite the sponsor's best efforts, a voluntary program has been determined to be an ERISA program, all of the standard requirements would apply. These include triggering obligations to file 5500 Forms, develop plan documents and summary plan descriptions, include HIPAA-COBRA and other required language where appropriate, and follow nondiscrimination rules. Even increased obligations under the Family and Medical Leave Act and the Uniformed Services Employment and Reemployment Rights Act of 1994 may be triggered.
Producers selling voluntary benefits can help employers steer clear of such possibilities by making sure the producer or an outside administrator, not the employer, handles one-on-one sales and enrollment for the benefits. Except for the truly financial aspects of these plans (e.g., premium collection via standard payroll processes), all communications about the plan must take place directly between the employee and the carrier or its representatives.
The availability of voluntary programs has proven to be a boon to employees, providing a range of benefits at a cost unavailable in the individual market. But in an employer's exuberance to provide these expanded opportunities to their staff, there is a danger that the "Law of Unintended Consequences" may drag it into a regulatory morass. To maintain the plan's ERISA exemption, help keep your employer clients aware of the need to remain at arm's length from these benefits.
