Avoiding the regulatory snares of ERISA, COBRA and the ACA

Andrew Brickman

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I’m typically one to avoid clichés but when I consider the current employee benefits landscape, I often think of the phrase, “No good deed goes unpunished.”

Consider that employers nationwide spend billions of dollars to give their employees access to medical care and other important insurance coverage. While most businesses offer health and welfare benefits to remain competitive for talent, they end up creating a valuable by-product in the process. Because group benefits often cost less than similar options on the open market, employees get access to richer and more affordable benefit programs over what they would obtain on their own. However, the act of providing employees with health coverage exposes employers to a litany of government compliance requirements and the potential for significant financial and criminal penalties for non-compliance.

Solid benefits administration processes and technology can be crucial in helping organizations achieve the “good” outcome of their willingness to offer benefits and avoid the compliance nightmares that occur when processes are not handled properly.

Take ERISA for example. The Employment Retirement Income Security Act entered our lexicon in 1974 to establish standards for employee benefit plans. While most of the initial scrutiny revolved around pension plans, health and welfare benefits are not immune to ERISA and its requirements. Establishing written plan documents and providing participants with summary plan descriptions, a summary of material modifications, etc., are all part of the ERISA statute.

To avoid the paper shuffle that occurs when distributing these documents, benefits administration technology can help you disseminate this information electronically. Be careful, though. Before you can ditch the paper, remember that only employees with work-related computer access are eligible to receive documents via electronic format. Employees who do not have computer access at work must receive hard copies or provide prior consent to receiving electronic documents. Also, before you make any changes to your processes concerning summary plan descriptions, please consult your compliance counsel. Mistakes with plan documents can cost your organization thousands of dollars. In fact, a public utility was recently fined nearly $14,000 for not providing a summary plan description to a participant in a timely manner.1

Although the string of words behind the acronym COBRA may be difficult to remember, the Consolidated Omnibus Budget Reconciliation Act has been a safety net for employees since the legislation was enacted in 1986. COBRA allows an employee to continue current health insurance coverage after leaving employment. Much like ERISA, the rules governing COBRA are complex and tricky to administer. COBRA administration is also fraught with significant risk for plan sponsors. Even small mistakes can add up to several thousands of dollars in penalties, and numerous COBRA penalties have crossed the million-dollar mark.

Because of COBRA’s inherent risk for mistakes, fines and penalties, I encourage all employers who are required to comply with COBRA to outsource its administration. Outsourcing is inexpensive compared to the costs of making a mistake. Also, if you have high levels of COBRA activity, it’s a great idea to electronically feed your COBRA provider from your benefits administration technology or HRIS system. The more automated your approach is, the less room you have for error. For those organizations with significant COBRA volume, a third party benefits administrator might be the answer. High COBRA volumes suggest other areas of benefits administration that may need attention. A third party can help you remain compliant and efficient with all of your benefits administration processes.

The Affordable Care Act (ACA) also affects benefits administration and makes having the proper technology and processes in place even more important. Among the rules embedded in the ACA, hours tracking and information reporting is getting a lot of attention lately. The tracking of hours, especially for employers with variable-hour employees, is critical in order to maintain compliance with the ACA’s Employer Shared Responsibility Mandate, also known as Pay or Play. Not having the proper mechanisms to track and compute eligibility for hours is a liability waiting to happen.

While the rules governing Pay or Play could fill volumes, it is critical to make sure you are offering affordable benefits to all of your eligible full-time employee population. Missing more than 30% of your eligible population in 2015 and more than 5% for 2016 and beyond could expose your organization to Pay or Play fines in addition to the premiums you are already paying. The costs can be astronomical. Information reporting is on the horizon for 2016 (on information gathered in 2015) unless it gets delayed. IRS Code 6055 (Individual Mandate) and 6056 (Employer Shared Responsibility Mandate) are even more reasons to make sure your benefits administration technology and processes are in place and up to speed.

Offering your employees benefits doesn’t have to punish you. Giving your employees access to truly valuable programs doesn’t have to trigger a penance. With a good technology platform and credible third party partners, your organization can easily navigate the employee benefits compliance landscape with minimal effort and reduced risk.

1 Latimer v. Washington Gas Light Co.


©2015 Corporate Synergies Group, LLC. No part of this material may be republished or distributed without prior written consent.