The ACA and your ERISA Plan Documents

The year 1974 was a watershed for employee benefits. For the first time, the federal government undertook the complicated task of providing a statutory and regulatory framework for employee benefit plans and employee pension plans.The result was the Employee Retirement Income Security Act of 1974, ERISA.

The net effect of ERISA was that it normalized how employers were required to deal with employee benefits.

In turn, ERISA—in taking its cue from common law of trusts—effectively foreclosed most state regulation of employee benefit plans, including pension plans. The attraction of ERISA, in part, was that employers that did business in multiple states were no longer subject to the vagaries of the differing state laws as they related to employee benefits. Some 40 plus years later, ERISA is still the bedrock upon which employee benefits, as we know them, exist today.

For other, similar reasons, 2010 also proved to be a watershed year, not only for employee benefit plans, but the health insurance market in general. In 2010, Congress passed the Affordable Care Act of 2010 (“ACA”).  The purpose of the ACA, broadly speaking, was to open the health insurance market to millions of Americans who were uninsured. As part of the ACA, health insurers were required to cover certain services and to cover individuals with pre-existing conditions, among other things. Ultimately, each state opened a health care exchange (either on its own or in conjunction with the federal government) to effectuate lower cost plans to some who had never had access to the same by virtue of cost.

Individual Mandate

Much has been made of the “individual mandate,” which imposes certain requirements upon those meeting key criteria to purchase insurance or else incur a penalty. At the same time, one of the purposes of the ACA was to entice employers to provide benefit plans to their employees.

Employer Mandate

This facet of the ACA is known as the “employer mandate,” which required entities that employed more than 50 full-time equivalent employees to offer affordable coverage to those employees and their dependents, although spouses were not included within the mandate. In turn, many employers began employee benefit programs for the first time; whereas, other employers who had previously provided employee benefits were required to make changes to their existing plans in order to comply with the ACA.

The end result of the employer mandate was a proliferation of new plans. At this point, it is worthwhile to describe a typical employer’s role with respect to an ERISA plan. Absent an enforceable delegation to the contrary, an employer (or, in ERISA parlance, a “plan sponsor”) also serves as the default “plan administrator.” The plan administrator can delegate many of its duties to other entities. For instance, some employers choose to purchase a policy of insurance to cover their employees, and deduct a percentage of the employee’s wages in order to cover the premiums. Another common form of employee benefits plans are employers who elect to self-insure their benefit plans.

A typical self-insured plan will still deduct a certain amount of an employee’s income for the cost of administrating the plan, which may include hiring third-party claim administrators and other professionals to assist in claims management and so on. Self-insured plans typically have a fund under which the employer retains a certain amount of the risk. But, such plans usually include stop loss insurance as a backstop to catastrophic claims. There are, of course, various other employee benefit arrangements, such as multi-employee plans. In any event, the passage of the ACA should cause employers to take a fresh look at the documents that govern their employee benefit plans.

In the majority of cases, the employer also serves as the plan administrator.

A plan administrator under ERISA has several functions, including reporting certain information to the Internal Revenue Service, ensuring the proper funding of a plan, and ensuring overall compliance with ERISA’s requirements. One of the key duties of a plan administrator is to maintain up-to-date and accurate plan documents, and to provide the same to employees upon request. While it may appear to be counterintuitive, even in the case of a fully insured plan, responsibility to provide plan information is the responsibility of the employer, and not the insurer.

While some insurers may provide certain documents required by ERISA, many do not. The plan documents an administrator “shall” provide “upon written request of any participant or beneficiary” include “a copy of the latest updated summary plan description and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract or other instruments under which the plan is established or operated.” In addition, administrators are required to provide other documents automatically, such as the notice of material modification of the plan.

As noted above, the ACA imposed new requirements upon health plans, such as the provision of enumerated preventive services without imposing cost-sharing on the insured. As a result, the plan documents should have been changed to reflect the new regulatory regime. Thus, if a plan was fully insured, when the entirety of the ACA’s requirements took effect, insurers updated their policies to provide key minimum requirements established by the ACA. However, many insurance companies do not provide summary plan descriptions to the employer/plan administrator.

Your health plan in plain English 

A summary plan description is, in essence, a version of the plan written in plain English so that an average individual could understand what is and is not covered, the manner of funding, appeal rights, and so forth. Therefore, a plan administrator may well have a plan document that complies entirely with the law, but did not update its summary plan description at the same time. The result is increasingly we have seen cases in which the plan document (such as an insurance policy) is no longer reflected in the summary plan description.

This issue, on its surface, may seem somewhat trivial. The United States Department of Labor, unfortunately, disagrees. ERISA provides a set of civil remedies, the majority of which deal with denial of benefits, breach of fiduciary duties or other wrongdoing concerning the operation of the plan itself. Yet, ERISA’s civil enforcement provision contains a provision whereby a participant or beneficiary may seek a monetary penalty in the event that a plan administrator fails to provide information required by ERISA within 30 days of receipt of the request. The penalty itself amounts to $110.00 per day per violation.

Functionally, this means that if an employer/plan administrator’s documents are not properly updated or properly kept, it is conceivable that a plan administrator may face awards in excess of $22,000, or more. While courts do consider various factors in awarding these discretionary penalties, there is still a substantial risk that a plan administrator (i.e. the employer) can rack up a penalty of $110.00 per day without necessarily being aware that its plan documents are out of date, or, in some cases, non-existent.

ERISA and the ACA

While the issue explored in this article is nothing new, the ACA brought these requirements into sharper relief. From a best practices standpoint, it is imperative for an employer to ensure the documents associated with their ERISA plan are both in order and up-to-date. Because of the ACA, there is a greater likelihood that, for example, a plan document and a summary plan description are not consistent. That inconsistency can allow a clever lawyer to exploit ERISA for the purposes of seeking the statutory penalties described above.

Additionally, it is evident the question of the continued viability of the ACA, in whole or in part, is far from settled. While it appears at the moment the law survived its sternest challenge, it is unlikely congressional republicans will stop attempting to overturn the ACA any time soon. Therefore, it is entirely possible there may be another sea change on the horizon.

In sum, it is always good advice any time the details of an employee benefit plan changes to ensure the summary plan description reflects those changes. Likewise, it goes without saying that maintaining proper ERISA documents is a must. In this relatively new environment, the chances of having contradictory or outdated documents are higher than usual. Consequently, it pays to be vigilant when it comes to employee benefit plans. Otherwise, one may wind up paying a penalty for an honest oversight.

In conclusion, consult the insurer, third-party administrator like Payworx, or an ERISA professional whenever making changes of any kind to the benefits being provided to employees. In this instance, it is truly better to be safe than to be sorry.