Q&A Employee Retirement Income Security Act of 1974 (ERISA)

Is there a small employer exception for complying with ERISA?

No, virtually every private-sector employer is subject to ERISA  – there is no size exemption  This includes corporations, partnerships, and sole proprietorships   Remember, non-profit organizations are covered as well  However, the plans of governmental employers and of churches are exempt from the application of ERISA Title I.

What are the consequences if an employer if it does not have a plan document for its health and welfare benefits?

It could include:

• Increase the number of Form 5500 filings,

• Require courts determine plan terms for employees,

• Force letters & company communications could become plan terms to determine benefits,

• Make fiduciaries liable for benefit breaches,

Are there any exceptions from any health and welfare benefit being considered an ERISA benefit?

Yes. There is a safe harbor under DOL Reg. § 2510.3-1(j) for certain voluntary employee-pay-all” benefits. To qualify for this exemption from ERISA, an employer allows an insurance company to sell voluntary policies to interested employees who pay the full cost of the coverage. The Employer must then permit employees to pay their premiums through payroll deductions and permits the employer to forward the deductions to the insurer   However, the employer may not make any contribution toward coverage and the insurer may not pay the employer for being allowed into the workplace. The employer may not “endorse” the program – This element is the key element in treating the program as an ERISA benefit.

What makes up an endorsement?

• Selecting insurers
• Negotiating terms or design
• Linking plan coverage to employee status
• Using employer’s name
• Recommending plan to employees
• Doing more than permitted payroll deduction

Is there a small plan exemption for providing Summary Plan Descriptions to employees?

No, almost every private sector employee benefit plan must comply, as provided in DOL Reg. § 2520.104-20(c).

Can insurance contracts or polices serve as a Summary Plan Description for an employer’s benefit programs?

No. Insurance contracts or policies cannot serve as a Summary Plan Description because they are:

• missing many important provisions – These can include:

• Employer right to terminate or amend provisions,
• What state law applies in case of benefit disputes,
• Any important employer limitations on eligibility for employees,
• Any detailed procedures for Qualified Medical Child Support Orders and
• Provisions for other state and federal mandates.

• not written in understandable language that employees can understand.

Can corporate officers or board directors be held liable for losses under an ERISA health welfare Plan?

Yes if any individual is determined to be “functional fiduciary” under ERISA Section 3(21). A person is a “fiduciary” with respect to an employee benefit plan to the extent that the person:

• exercises any discretionary authority or discretionary control respecting management of the plan or exercises any authority or control respecting management or disposition of plan assets;

• renders investment advice for a fee or for any other compensation, direct or indirect, or has any authority or any responsibility to do so; or

• has discretionary authority or discretionary responsibility in the administration of the plan.

Under ERISA Section 409, any person who is a fiduciary with respect to a plan is liable for breach of fiduciary duty.  Liability includes:

• personal liability for losses caused to the plan;

• personal liability to restore to the plan any profits that the fiduciary made through the use of plan assets; and

• other equitable or remedial relief, as a court may deem appropriate, including removal of the fiduciary.

Are there any exceptions from any health and welfare benefit being considered an ERISA benefit?

Yes. There is a safe harbor under Labor Regulations Section 2510.3-1(j) for certain voluntary employee-pay-all” benefits. To qualify for this exemption from ERISA, an employer allows an insurance company to sell voluntary policies to interested employees who pay the full cost of the coverage. The employer must then permit employees to pay their premiums through payroll deductions and permits the employer to forward the deductions to the insurer   However, the employer may not make any contribution toward coverage and the insurer may not pay the employer for being allowed into the workplace. Additionally, the employer may not “endorse” the program – this element deciding is the key element in deciding whether the program is treated as an ERISA benefit.

What makes up an endorsement?

• Selecting insurers;
• Negotiating terms or design;
• Linking plan coverage to employee status;
• Using the employer’s name;
• Recommending the plan to employees; and
• Doing more than the permitted payroll deduction.

What are the consequences for an employer if it does not have a plan document for its health and welfare benefits?

The consequences for not having a Plan document may include:

• Increasing the number of Form 5500 filings;
• Forcing a court to determine the plan terms for employees;
• Having letters & company communications become the plan terms that would determine benefits for employees and their dependents, and
• Making fiduciaries liable for benefit breaches

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