While the big news in mid-May was the release of the exchange notices (the notice that has to be provided to all employees by October 1, 2013), the other news that comes from the release serves as more of a reminder. The reminder is subtle, but it is clearly contained in the text of the notice and is important for employers to remember and/or act upon: Make sure you have Employment Retirement Income Security Act (ERISA)-compliant summary plan descriptions (SPDs) prepared for your health and welfare plans.
The exchange notice provides employees with certain information related to the new marketplaces—state or federally operated exchanges—which are expected to begin open enrollment on October 1, 2013, and begin covering individuals on January 1, 2014. Employers must provide the exchange notice to all new hires and current employees regardless of plan enrollment status or part-time or full-time status.
Two separate model notices are now available, one for employers who offer a health plan to some or all employees, and another notice for those who do not offer a health plan. In the exchange notice for employers offering health coverage, a question in Part A of the first page suggests employees ” check their SPDs for more information.” While that seems simple enough, that statement may cause more issues for employers in the future than notifying employees of the existence of the exchanges.
Plan Documents and SPDs
All employers subject to ERISA are required to have a plan document and SPD describing the terms of the benefits offered under the plan. Most private employers are subject to ERISA (generally, only church and government plans are exempt) and the documents should include descriptions of all benefits subject to ERISA. Group medical, dental, vision, life insurance, accident and long-term disability benefits are just some of the benefits that are subject to ERISA.
Furthermore, it is not enough to simply have these documents drafted only to be kept in a drawer; the documents must be updated when the terms of the health plan change, and the SPD must be distributed to each individual eligible for benefits under the terms of the plan. In fact, the employer may be penalized $110per day if it does not provide an SPD within 30 days after a plan participant’s written request. One disgruntled or otherwise overly curious employee is all it takes to cause a potentially expensive problem.
Even if an SPD is not requested by a participant, the document is required to be distributed at certain times in the plan participant’s employment. For a newly covered employee, an SPD must be provided within 90 days after the individual first becomes covered under the plan. For newly established plans, an SPD must be furnished within 120 days.
Since the employer is typically the plan sponsor and the administrator of its health plan, the employer (and not the insurance company) is responsible for maintaining the plan document and providing the SPD. The employer will be liable for penalties if these documents are neither maintained nor provided to plan participants.
The United States Department of Labor (DOL) is now auditing company health and welfare plans. These audits represent a huge shift in focus due to healthcare reform, and employers may have to scramble to catch up. This is demonstrated on the DOL’s audit “checklist” where the first two items are the plan document and SPD.
Once again, insurance carrier contracts almost never meet the requirements of ERISA plan documents by the government or the courts. Any employer that relies on carrier contracts in order to be “compliant” is doing itself a disservice, and a potentially expensive one at that.
Before sending the exchange notice to your employees (before October 1, 2013), make sure that health plan SPDs are in existence and up to date. In addition, ensure that any summaries of material modifications (SMMs; explanations of changes to your SPD) are available, if you have made material changes to your health plan and have not updated and distributed the full SPD.
Corporate Synergies recommends that all employers with ERISA-covered health and welfare plans adopt a plan document and SPD to ensure compliance with ERISA and avoid preventable issues with a potential DOL audit. The decision whether or not to adopt plan documents is really one of risk management, balancing the possibility of a lawsuit/audit against the possibility that no plan documents are ever requested and that no lawsuit will be brought by a current or former plan participant. Ultimately, only an employer’s leadership can make the decision about risk management. However, the changing health insurance landscape (including DOL audits and healthcare reform exchanges) is likely to lead to all employers to take the SPD requirement more seriously moving forward.