Once annual enrollment has come and gone, it’s a good time to brush up on some basic benefit plan requirements, to avoid some of the common mistakes made in employee benefit plan administration. The following list of potential errors is by no means exhaustive, but represents a sampling of issues to steer clear of:
Keep your plan documents up to date and reference them in related plan communications.
ERISA requires that all employee benefit plans be maintained pursuant to a written plan document. As the governing document for the plan, it should be reviewed regularly, and amended if necessary, to keep up with new laws and regulations (such as health care reform). Since this will be the most detailed document regarding any given plan, it should be referenced in disclaimer materials included in less formal plan communications (such as annual enrollment materials) as the document that will control in the event of discrepancies, or errors or omissions in these other ancillary communications. For related administration services, see Administration of Social and Manpower Programs Insurance.
Keep summary plan descriptions (SPDs) up to date and distribute them to employees.
ERISA requires that employees receive an SPD covering each benefit plan, and specifies the information that must be included in the SPD. Plan vendors might supply booklets or other communications materials to distribute to employees that describe the plan, but these are unlikely to meet the requirements for an SPD. When plan changes result in an SPD needing modification, an employer might distribute a summary of material modifications in the interim before preparing an updated SPD.
Include only eligible employees (and dependents) in your plans, as to do otherwise will run contrary to plan documents and represent unnecessary coverage costs for your company.
Improperly covering ineligible individuals — contractors, leased employees, former employees, etc. — can be a costly proposition. Similarly, maintaining formerly eligible dependents who, for example, have aged out of the plan, unnecessarily adds to plan costs. Eligibility audits can help to mitigate this problem.
Follow plan terms in administrative practices.
The plan document governs, and both internal staff and outside administrators must follow the terms of the plan when making eligibility and claims decisions, issuing plan notices, handling appeals, etc.
Make sure plan contributions are calculated properly.
This includes taking into account the definition of compensation that is in the plan (which might include bonuses, commissions, etc.) and calculating matching and profit sharing contributions correctly.
If you allow employees to pay for any benefits on a pretax basis, a cafeteria plan is required.
Although the term “cafeteria plan” might conjure images of employees selecting from a menu of benefit choices, a cafeteria plan is, at its most basic level, a premium only plan, and is required to be adopted before employees can pay their health (or dental, vision, etc.) plan premiums with before-tax dollars, or to make before-tax contributions to a health care or dependent care flexible spending account.
If employees make salary deferrals to a 401(k) plan
These deferrals must be deposited into the plan trust on a timely basis, as by DOL regulation they become plan assets as soon as they can be reasonably segregated from the employer’s general assets.
Review your COBRA administrative practices
Review your COBRA administrative practices to make sure all individuals qualified to elect COBRA coverage receive the proper notices, for all plans subject to COBRA (the health plan, but also the dental and vision plan, and the health care flexible spending account). Administrative errors can result in fines and penalties, lawsuits, and employee discontent. An annual plan self-review can avoid these potential costly consequences of common mistakes; if you need assistance, see SBA Surety Bonds (Small Business Administration Bonds), or talk to an agent.
Frequently Asked Questions
What is a summary plan description (SPD)?
An SPD is a document required by ERISA that explains the plan’s benefits, eligibility rules, and participants’ rights and obligations in clear language.
Who should be covered under an employer benefit plan?
Only employees and dependents who meet the plan’s eligibility rules should be covered; covering ineligible individuals can increase costs and create compliance issues.
When must 401(k) deferrals be deposited into the plan?
Deferrals must be deposited promptly; by regulation they are plan assets once they can be reasonably segregated from the employer’s general assets.