ERISA Compliance - A unified HCM platform

ERISA Documentation
Creation and Distribution

Being in compliance with ERISA can help you avoid costly government penalties.

ERISA Penalties are Serious

For example, failure to submit an annual Form 5500 on time can result in penalties of up to $1,100 per day. The fine for late delivery of a SPD, SMM or SAR
can be as much as $110 per day.

Employee Retirement Income Security Act of 1974

ERISA is a set of federal laws and regulations that govern welfare benefit plans and qualified retirement plans. Employers must have a written plan document and are required to deliver a summary of it, a Summary Plan Description (SPD), to their participants—regardless of how many employees participate. The SPD is the main vehicle for communicating plan rights to participants. ERISA generally applies to the following benefit plans and fringe benefits, whether they are fully insured or self-insured:

However, certain self-insured or uninsured plans, such as sick pay, short term disability, paid time off, overtime, jury duty, and vacation pay, may be exempt if benefits are paid:

  • as a “normal payroll practice,”
  • to currently employed individuals (i.e., not retirees, COBRA participants, or dependents),
  • without prefunding or using insurance,
  • entirely from the employer’s general assets, AND
  • without employee contributions.

*Voluntary individual or group insurance plans, in which the employees pay all of the cost, and the employer’s role is limited to withholding premiums through payroll deduction and remitting them to an insurer, may be exempt from ERISA—depending on the extent of employer involvement. However, even minimal “sponsorship or endorsement” (e.g., a company’s name on the brochures) by the employer may destroy this exemption. A voluntary individual or group insurance plan qualifies under the Voluntary Plan Safe Harbor if:

  • it is funded by group or group-type insurance,
  • it is completely voluntary,
  • there are no employer contributions, AND
  • the employer does not endorse the plan.

The following does NOT constitute endorsement:

  • Permitting the insurer to publicize the plan
  • Collecting premiums by payroll deduction
  • Remitting premiums to the insurer

The following MAY result in loss of Voluntary Plan Safe Harbor:

  • Selecting the insurer
  • Negotiating plan terms/linking coverage to employee status
  • Using the employer’s name/associating the plan with other employee plans
  • Recommending the plan to employees
  • Saying ERISA applies
  • Doing more than permitted payroll deductions
  • Allowing use of the employer’s cafeteria plan
  • Assisting employees with claims or disputes


ERISA generally does not apply to:

  • Cafeteria plans, §125 Plans, POPs (Premium Only Plans), Premium Conversion Plans, Pre-tax Premium Plans (However, the benefits funded by them are often subject to ERISA. NOTE: These plans must be referenced in the plan document and SPD if they are funding an ERISA Plan)
  • Dependent Care Assistance Plans (DCAPs, or Dependent Care FSAs)
  • Health Savings Accounts (HSAs) (if employer involvement is limited. DOL FAB 2004-012006-02)
  • Paid Time Off Plans (PTO)
  • Adoption Assistance Plans
  • State mandated benefits, e.g., STD (if not enhanced beyond mandated benefits)
  • Educational Assistance or Tuition Reimbursement Plans
  • On-site Medical Clinics (if providing First Aid only—not treatment, e.g., flu shots)

First of all, compliance is not optional; it’s the law! Second, employers who comply can avoid costly DOL penalties. Third, many states allow participants and beneficiaries to bring “bad faith” claims against insurers and administrators who deny benefits. In a state court, plaintiffs can collect the benefits that were denied plus compensatory damages, such as punitive or treble (triple) damages. Trials in state courts are decided by juries, which often favor the individual participant over a corporation or insurance company.

However, ERISA is a federal law which preempts state law. ERISA limits damages to the unpaid benefits and does not provide for jury trials. Having a plan that is in compliance with ERISA will help an employer avoid a lawsuit in a state court, and perhaps several different state courts. Being out of compliance creates exposure in either state or federal court.

In state court, every aspect of a case is subject to a “de novo” review, which disregards any previous decisions made in the matter, including issues that were not even in dispute. However, ERISA has a higher standard of review for overturning decisions of a plan administrator. In federal court, an administrator’s decision to deny a claim must be “arbitrary and capricious” before it can be overturned.

Many employers think “It’s not going to happen to me.” However, it happens all the time. Here is a brief list of court cases, awards, and DOL fines related to employers not being in compliance with ERISA laws pertaining to welfare benefit plans:

$4,540 – Employer indifference and irresponsibility led to disclosure violations1
$5,215 – Employer inattentive in providing Life Insurance plan document and refused to furnish copy of Form 5500 to participant until ordered to by court2
$5,880 – Failure to deliver SPD within 30 days of request.3
$8,910 – Delay in providing copy of policy upon request. $55/day, 162 days4
$9,270 – Failure to timely provide TPA internal claim guidelines5
$9,800 – Failure to provide LTD plan document; employer only provided SPD6
$10,220 – Excessive delay in providing Severance Pay plan document7
$10,560 – Late delivery of SPD to employee after 3 written requests, max. penalty $110/day8
$11,550 – Failure to provide SPD after written notice9
$13,750 – Failure to provide SPD upon written request. Maximum penalty for employer’s unresponsiveness and lack of excuse. $110/day for 125 days.10
$17,475 – Employer did not have SPD; only provided Certificate of Insurance to participant; repeatedly insisted they were the same thing11
$17,550 – Failure to provide requested plan document and SPD to participant12
$18,400 – Failure to deliver SPD on request13
$25,000 – Continuous failure to provide COBRA election notice to a terminated employee and children14
$26,100 – Failure to respond to document request over very long time15
$32,850 – Delay, indifference, disregard in failure to provide copy of requested plan document to participant16
$34,540 – Failure to provide participation agreement between employer and LTD carrier prejudiced participant’s ability to establish enrollment date17
$37,650 – Requested documents provided at widely spaced intervals18
$50,000 – Failure to file Form 550019
$50,000 – HIPAA breach of unsecured electronic protected health information20
$50,000 – Breach of GINA by requesting family medical history (i.e., genetic info.)21
$55,760 – Incompetence and neglect delivering policies to participants22
$62,250 – Failure to deliver SPD to participant in manner required by DOL23
$64,900 – Provided SPD, but failed to provide requested full plan document24
$74,140 – Provided SPD, but failed to provide plan document and policy25
$83,050 – Failure to provide COBRA Notice. Penalties and legal costs26
$86,500 – Failure to file complete and accurate Form 550027
$99,000 – Failure to provide claim guidelines; max. penalty $110/day x 900 days28
$105,840 – Plaintiff’s attorney’s fees in LTD claim case; award unknown29
$159,000 – Late entrant; employer gave employee wrong waiting period & ordered to pay claim30
$215,000 – General and widespread noncompliance with HIPAA privacy and security rules31
$241,000 – Failure to provide SPD to participant32
$275,000 – Hospital’s unauthorized disclosures of PHI to Newspapers33
$1,000,000 – AD&D claim averted by having wrap plan with discretionary authority34
$1,000,000 – Class action. COBRA violations. $375,000 award & $625,000 attorney’s fees.35
$1,700,000 – Failure to implement appropriate safeguards as required under HIPAA36
$2,166,725 – Bad faith failure to provide COBRA notices to 711 employees over 7 years. $1,852,500 penalty, $302,780 attorney fees, and $11,445 costs37
$5,000,000 – Claim wrongfully denied. State court jury trial. Punitive damages38
$8,692,000 – Bad faith claim denial. Punitive damages. State court jury trial39
Prison – Ten months & $46,844 fine for failure to file 5500 and diverting employee contributions.40
Award N/A – Court reversed administrator’s decision to terminate disability payments based on a de novo review of the facts.41

1 Estate of Fields v. Provident Life & Accident Ins. Co., 26 EBC 2401 E.D. Pa. 2001)
2 Neuma, Inc. v. AMP, Inc., 27 EBC 1983 (N.D. Ill. 2002)
3 James Killian vs. Concert Health Plan, et. al., Case 07 C 4755
4 Cultrona v. Nationwide Life Ins. Co., 2014 WL 1378131 (6th Cir. 2014)
5 Mondry v. American Family Mutual Ins. Co., 2012 WL 5938681 (7th Cir. 2012)
6 Pisek v. Kindred Healthcare, Inc. Disability Ins. Plan, 2007 WL 2068326 (S.D. Ind. 2007)
7 Reddy v. Schellhorn, 38 EBC 1312 (N.D. Ill 2006)
8 Kasireddy v. Bank of America Corp., 2010 WL 4168512 (N.D. Ill. Oct. 13, 2010)
9 Brown v. Aventis Pharmaceuticals, Inc., U.S. Ct. of Appeals, 8th Circuit, No. 02-4063/03-2084, Sept. 9, 2003
10 Latimer v. Wash. Gas Light Co., 2012 WL 2119254 (E.D. Va. 2012)
11 Sunderlin v. First Reliance Std. Life Ins. Co., 235 F. Supp. 2d 222, 29 EBC 2227 (W.D.N.Y. 2002)
12 Stegelmeier v. Doug Andrus Distributing Employee Health Benefit Plan, 40 EBC 2811 (D. Utah 2007)
13 Mullins v. AT&T Corporation, Nos. 04-2135, 04-2136, 07-1717, 10-2010 (4th Cir. 2011 ) Unpublished
14 Honey v. Dignity Health, 2014 WL 2765614 (D. Nev. 2014)
15 Daniels v. Thomas & Betts Corp., 263 F3d 26 EBC 2132 (3rd Cir. 2001)
16 Lampkins v. Golden, 1996 WL 729136 (6th Cir. 1996) (incl. cases from 1st, 3rd, 4th, 6th, 10th, and 11th Circuits)
17 Logan v. Unicare Life & Health Ins., Inc., 2007 WL 1875943 (E.D. Mich. 2007)
18 Hemphill v. Pers. Rep. of Est.of Ryskamp, 2008 WL 789894, mod. 2008 WL 1696722 (E.D. Cal. 2008)
19 PWBA v. Compgraphix, Inc., 199-RIS-52 (ALJ Oct. 14, 1999)
20 HHS v. Hospice of North Idaho HON) fine and corrective action plan to settle charges, 12/28/12
21 EEOC v. Fabricut, Inc., Civil Case No: 13-CV-248-CVE-PJC, (US Dist Ct., ND Oklahoma, May 7, 2013)
22 Amschwand v. Spherion Corp., 37 EBC 1842 (S.D. Tex. 2006)
23 Leyda v. AlliedSignal, Inc. 322 F.3d 199 (2d Cir. 2003)
24 Keogan vs. Towers, Perrin, Forster & Crosby, Inc., 30 EBC 2641 (D. Minn 2003)
25 Harris-Frye v. United of Omaha Life Ins. Co., No. 1:14-cv-72 (E.D. Tenn. Sept. 21, 2015), (U.S. District Court for the Eastern District of Tennessee)
26 Evans v. Books-A-Million, Civil Action No. CV-07-S-2172-S, (N.D, Ala., Oct. 29, 2012).
27 Airport Hospitality, LTD, King of Prussia, Penn., 2010
28 Butler v. United Healthcare of Tenn., Inc., 2013 WL 5488644 (E.D. Tenn. 2013). (Download)
29 Alfano v. CIGNA Life Ins. Co. of New York, 2009 U.S. Dist. LEXIS 28118 (S.D.N.Y. Apr. 2, 2009).
30 Hansen v. Harper Excavating, Inc., 2011 WL 1379821 (10th Cir.2011)
31 Resolution Agreement HHS and Skagit County, Washington (March 6, 2014)
32 Gorini v. AMP Inc., 117 Fed. Appex. 193 (3d Cir. 2004)
33 HHS Resolution Agreement; HHS News Release (June 13, 2013)
34 Johnson vs. Prudential Ins. Co., 2012 WL 5378313 (S. D. Ohio)
35 Slipchenko v. Brunel Energy, Inc., Case No. H-11-1465 (S.D. Tex. Sept. 30, 2014)
36 WellPoint settled with HHS $1.7 million for leaving ePHI accessible over Internet (July 8, 2013)
37 Pierce v. Visteon Corp., No. 1:05-cv-01325-LJM-DKL (S.D. Ind., June 25, 2013)
38 Fox v. HealthNet, 1993 Westlaw (Riverside County Super. Ct/Central Cal.Dec. 23, 1993).
39 Fisher v. Aetna, No. 3AN97-291, Alaska Super., 3rd Jud. Dist 1998.
40 U.S. v. Persons, Criminal Number 6:09-cr-00012; DOL News Release No. 09-875-ATL (220), 7.28.09.
41 Lundquist v. Continental Casualty Company, No.CV 02-9602-FMO, U. S. Dist. Ct., Cent. Dist. of CA, 9/30/05.

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