It's not easy being compliant, and administrators of employee benefits plans need to be on their toes lest they mess up and fail to satisfy one or more requirements.
So says a Smart Benefits report that highlights some commonly violated precepts, beginning with the right way to communicate with plan participants.
All plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), for instance, have disclosure or communicating requirements, such as distribution of a Summary Plan Description, Summary of Benefits and Coverage and numerous other notices.
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But that's not all. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the report says, many administrators don't realize they have to provide several more notices than just an election notice—including, but not limited to, an initial notice, notice of early termination and notice of unavailability of COBRA coverage.
Then there are other notices: the Medicare Part D notice, HIPAA Special Enrollment Rights, Women's Health and Cancer Rights Act notice and the Children's Health Insurance Program Reauthorization Act of 2009 notice. All are the plan administrator's responsibility.
Then there's the question of just who the plan administrator is. Most laws that govern employee benefit plans place the responsibility for compliance with the plan administrator, the person usually designated in the plan documents.
But if there isn't any such designation, guess who is the default administrator: The plan sponsor, namely, the employer.
Many employers believe that some of the plan administrator responsibilities—disclosures to participants, plan document preparation and penalties for any noncompliance—are the domain of either the insurer or the insurance broker.
But that's not the case. Even for a self-insured plan, the third-party administrator rarely agrees to be the plan administrator, but may assist with an employer's documentation responsibility.
Then there's the issue of pretaxing an employee's premium contribution share. Since many employers require their employees to pay part of benefits premiums—especially for medical, dental and vision insurance coverage—those employers will help employees to do so by deducting the premium from employee's pay prior to applying taxes (hence the term pretax).
The end result is to reduce federal and state withholding on an employee's taxable wages, according to the Federal Insurance Contributions Act. This practice is often referred to as being a tax-favored treatment for employees.
But the capability to pretax benefits comes under Section 125 of the IRC. The code requires that an employer establish its pretax plan, often referred to as a cafeteria plan, Section 125 plan or premium-only-plan, in writing.
If an employer has failed to meet this requirement, that means that the plan is not a Section 125 plan and that the employer is more than likely improperly taxing its employees' benefits.
Being unaware of these, and other, pitfalls could let employers in for big noncompliance penalties. Before you end up in the soup over one or more of these—or other—responsibilities, review your plan's governance and seek help to comply if you need to.
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