CPA & Business Advisory Blog

Employers providing health benefits to employees need formal documentation

Employers who provide their employees with health benefit programs (whether fully insured or self-insured) are subject to ERISA, the 1974 law which protects employee retirement and welfare (health) plan benefits from employer abuse.  Many employers are aware that ERISA requires that tax-qualified retirement programs, such as 401(k) plans, have formal plan documents and a formal Summary Plan Description (SPD) that is provided to employee-participants.healthcare_reform

Many employers are not aware, however, that the requirement for a plan document and an SPD also extends to health benefit programs.  The belief that an insurance policy and/or the booklet provided by the insurance company that describes the benefit will satisfy this requirement is incorrect.   The plan document and SPD are required to contain a discussion of other topics, including eligibility for the benefit and appeals procedures.

These requirements apply to plans of any size—an employer can have one employee and still be subject to these rules.

Why should an employer be concerned about not having these documents?

Failure to provide employees with an SPD and failure to maintain a plan document can cause the employer to violate various laws, including:

  • The failure to have a written plan document under ERISA 402
  • The failure to have a written plan document for self-insured medical plans under Internal Revenue Code Section 105(h)
  • The failure to provide an SPD to the employee upon request
  • The failure to provide employees with notification of changes under the program
  • The failure to provide employees COBRA notices
  • Criminal penalties for willful failure to maintain and/or provide these documents

The penalties for violating these laws can be significant.  For example, the penalty for failing to furnish an SPD to a participant who requests it within 30 days is $110 per day per participant.

Who is enforcing these rules and how is an employer chosen for enforcement?

The laws relating to welfare plans are enforced by the Employee Benefit Security Administration (EBSA), a division of the Department of Labor.  EBSA has approximately 900 auditors, and devotes a significant part of its budget to enforcement.  In 2014, EBSA reported that it closed over 3,900 examinations of employee benefit programs, and that approximately 65% of those examinations resulted in the employers paying a civil fine.  A recent study indicated that approximately 1/3 of the fines over the last 12 years were in excess of $10,000.

When the EBSA conducts an investigation of a health benefit program, the first two records that it reviews are the plan document and the SPD.  What triggers an investigation of this type of plan?

  • The EBSA’s Health Benefits Security Project, an audit initiative that started in 2012 which focuses on plan documentation and IRS reporting
  • Information contained in the annual report of the health program, IRS Form 5500
  • Actions by employees/plan participants—telephone calls to the EBSA to ask about their rights under a program
  • Referrals from other government agencies (such as the IRS, the Department of Labor and the Equal Employment Opportunity Commission)

 What should an employer do to minimize its risk of violating these rules? 

An employer who sponsors a health benefit program should review its current documentation and determine if it meets the ERISA requirements for plan documents and SPDs; it should also review the steps that it takes to provide employees with SPDs when they are hired and additional communications when the terms of the program change.  SPDs and the plan documents must reflect the current state of the program—for example, if the benefits offered under the program change, the related plan documents need to change.

We would be pleased to discuss issues related to the plan document and SPD compliance, as well as other areas involving health benefits, including ACA compliance.  For more information on this topic, please contact Ted Ginsburg at  or 440-449-6800.

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