UNDERSTANDING EMPLOYER RESPONSIBILITIES FOR GROUP BENEFITS UNDER ERISA

The Employee Retirement Income Security Act (ERISA) is a federal law enacted to set minimum standards for the majority of voluntary pension and health plans in the private industry to protect involved individuals. This federal statute went into effect on September 2, 1974. ERISA requires plan sponsors to provide participants with thorough information about features and funding. In addition, it mandates fiduciary responsibilities for managers and controllers of plan assets. The statute also requires plans to have an established grievance and appeals process that is easy for participants to use in order to get benefits from their plans. Participants who are the victims of fiduciary duty breaches have the right to sue under this statute's provisions.

Important ERISA Changes. Over the years, there have been several amendments made to the ERISA statute. These changes were made to further the protections offered to health benefit plan participants and beneficiaries. One of the most important amendments is the Consolidated Omnibus Reconciliation Act (COBRA). This amendment provides selected workers and their families the opportunity to continue their health coverage for a specified amount of time following the loss of a job or other certain events.

Another important amendment to the ERISA statute is the Health Insurance Portability Act (HIPAA). This provision created new protections for workers and their families with preexisting medical conditions. Such individuals would have likely faced discrimination in applying for health coverage prior to this act. The Mental Health Parity Act, Newborns' & Mothers' Health Protection Act and the Women's Health & Cancer Rights Act are also important changes made to ERISA.

(...continued)

Definition of Responsibilities. Employers who are fiduciaries need to be familiar with the amendments made to the ERISA statute. This knowledge is helpful in understanding responsibilities. All fiduciaries have an important set of responsibilities since they act on behalf of the plan participants and beneficiaries. The following are important responsibilities to memorize:

  • Act in the interest of the plan participants and beneficiaries with the purpose of providing them with their benefits.
  • Follow plan documents that are consistent with ERISA.
  • Carry out all duties in a prudent manner.
  • Hold the assets of plans in trusts.
  • Only pay reasonable plan expenses.

Prudent action requires extensive expertise. This is one of the most important responsibilities employers have under ERISA. Fiduciaries lacking such expertise must hire a professional who has the proper knowledge to complete those functions. Prudence requires excellent skills in making fiduciary decisions. Every decision must be documented properly. It's best for fiduciaries hiring service providers to interview several candidates, make comparisons and then make a decision. Following plan terms is also a vital responsibility. This includes memorizing the plan, reviewing it regularly and keeping it current.

Employer Liability Information. It's important to know the potential liabilities that accompany employer responsibilities. Any fiduciaries who don't follow standards of conduct face personal liability for restoration of losses to the plan. They also must restore profits that were obtained through personal misuse of plan assets. Fiduciaries have the ability to limit their liability in some circumstances. Proper documentation is an essential way to reduce the likelihood of undue liability issues arising.

Fiduciaries may also hire service providers to handle their responsibilities. In doing this, it is essential to include verbiage in the service contract that places responsibility of mismanagement of the plan on the service providers. Employers are responsible for the selection of service providers. However, they're not liable for the decisions and actions of the providers they choose. It is important to remember that monitoring the service providers is essential. Keep documentation of all periodic monitoring to further reduce liability risks.

Need insurance for You, Your Family or Your Business?
We can match you to a qualified, local insurance expert!
Further Reading
The late enrollment penalty of Part D Medicare is an amount that is added to the Part D premium. After the initial enrollment period ends, if there is a period of 63 or more days in a row when an individual doesn't have Part D coverage, there may be ...
Coinsurance clauses are commonly found in a Builder's Risk Completed Value policy. As one might deduce merely from the name, a coinsurance clause involves the policyholder becoming a co-insurer of the risk of loss with the insurer. In other words, ce...
Having adequate insurance is the best way to protect your business and your assets from most risk-related losses. But deciding how much coverage you need isn't always easy. If you're reviewing your insurance needs, here are a few tips to help make su...
Risk management experts, safety experts, accountants, actuaries, and other professionals make the distinction between direct and indirect costs of accidents, lawsuits, and so forth. For example, the cost of turnover in the HR That Works Turnover Cost...
Injuries can be difficult to define, and it can be hard for people to agree upon both the event in question and the outcome it deserves. Fortunately, we have laws in this country that help settle the debate. However, claims can be filed without emplo...