Beware Plan Sponsors, the Department of Labor May be Knocking on Your Door

The U.S. Department of Labor (“DOL”) has substantially increased the number of ERISA compliance audits it conducts each year.  Document requests covered in the typical audit letter are striking fear into the hearts of executives charged with HR responsibility. While in most cases the companies and their staff members do not deliberately violate the law’s requirements, this responsibility often suffers from benign neglect – especially in the welfare benefit side of the equation (pension compliance, although not perfect, is much better).  The truth is that, since 1974 when ERISA was first passed, welfare plan ERISA compliance has been largely ignored by both the government and by plan sponsors.

The Employee Benefits Security Administration (“EBSA”) is the division of the DOL that is responsible for protecting the integrity of pensions, health and other employee benefits, and is the agency charged with administering and enforcing ERISA.  EBSA’s current budget includes significant increases in staff and resources to conduct welfare benefit plan audits as the government views this as a revenue generating activity.

Indeed, it is found that three out of four plans audited have one or more ERISA violations. These violations must be taken seriously as they are, as a matter of law, breaches of fiduciary duty that expose both the plan sponsors and the individual fiduciaries (officers and directors of the company among others) to personal liability.  In 70 percent of the audits conducted, the government finds some sort of failure, either in the operation of the plan or in the interpretation of the plan’s provisions.

With new requirements of the Patient Protection Affordable Care Act (“PPACA”) already in force, this adds additional compliance concerns and exposure to plan sponsors that may be audited. Those with HR responsibility need to double-check that:

• The people running the plan know the plan document inside and out.
• Plan operations are in compliance with the plan document.
• The plan document must be in compliance with all current laws and regulations.
• Summary plan descriptions (“SPDs”) must be prepared, current and properly distributed.

SPDs are often the main target of the audit as the legal requirements are numerous and have increased significantly over the years since the passage of ERISA.  Many plan sponsors assume that the booklets prepared by the plan’s insurer meet the requirements for an SPD.  This frequently is not true.  Further, new PPACA eligibility requirements need to be explained in the SPD, and this area is of particular concern to the EBSA auditors.

The second most frequent item in DOL audits relates to HIPAA and whether the SPD informs participants about special enrollment rights. COBRA compliance is another focus point as there are frequent lapses by plan sponsors in meeting the law’s many requirements.

If you are not ready to demonstrate your company’s ERISA compliance in an EBSA audit, do not wait until you get an audit letter to act as that will be too late.