ERISA is the federal law that sets minimum standards for private-sector retirement and health plans. It requires plans to disclose key information, imposes fiduciary duties on plan managers, and gives participants access to benefits and the right to appeal decisions.
What ERISA is
ERISA stands for the Employee Retirement Income Security Act of 1974. It is a federal law that establishes minimum standards for health plans, intended to protect those plans from fraud and mismanagement and to set minimum guidelines for administration. ERISA applies to many types of plans, including employer-sponsored health care, life insurance and pension plans.
ERISA does not require employers to offer plans, but it regulates the plans that are offered. Amendments such as COBRA and HIPAA have strengthened participant protections.
Important: ERISA's disclosure requirements are the responsibility of the employer, not the insurance company. Failure to comply could result in significant penalties and lawsuits for the employer. Under ERISA, employers are responsible for submitting detailed and time-sensitive documents to the government and to their plan participants.
Who has to comply, and who is exempt
ERISA generally applies to all private-sector employers – corporations, partnerships, proprietorships and non-profit organizations – regardless of the number of employees or the size of the employer.
ERISA generally does not cover:
- Plans established or maintained by government entities for their employees.
- Plans established or maintained by churches for their employees.
- Plans maintained solely to comply with workers' compensation, unemployment or disability laws.
- Plans maintained outside the United States primarily for the benefit of nonresident aliens.
- Unfunded excess benefit plans.
Which health and welfare plans are subject to ERISA?
Plans generally subject to ERISA:
- Major medical plans
- Dental
- Vision
- Life
- AD&D
- Accident
- Critical Illness
- Long Term Disability
- Short Term Disability
- Severance Insurance Policy
- Prescription benefits
- FSAs
- Specific EAPs
- Wellness programs
- Cancer policies
Certain self-insured or uninsured plans – for example sick pay, paid time off, overtime, jury duty and vacation pay – may be exempt if the benefits are paid:
- as a normal payroll practice;
- to currently employed individuals (no retirees, COBRA participants or dependents);
- without prefunding or using insurance;
- entirely from the employer's general assets; and
- without employee contributions.
Other benefits that are not subject to ERISA:
- Qualified Small Employer Health Reimbursement Arrangements (QSEHRA)
- Health Savings Accounts (HSA)
- Adoption Assistance Programs
- Transit and Parking Accounts
- Dependent Care Accounts
Form 5500: what it is, who files, and when
Form 5500 is a mandatory filing that requires plan administrators to report specified information to the Department of Labor (DOL) on an annual basis for each plan covered under ERISA.
| Item | Rule |
|---|
| Who must file | Plans with 100 or more covered participants (participating employees or former employees) as of the first day of the plan year |
| Small plan exemption | Plans below the 100-participant threshold are generally exempt unless they are self-funded and benefits are paid from a separate trust or account rather than from the employer's general assets |
| Deadline | The last day of the seventh month following the end of the plan year |
| Calendar-year example | Plan year ends December 31, so Form 5500 is due July 31 of the following year |
| Extension | A two-and-a-half month automatic filing extension is available by filing Form 5558 |
A plan that had fewer than 100 participants at the beginning of the plan year but exceeded that number during the year would not be required to file Form 5500 for that plan year, provided that none of the plan's benefits are considered funded for ERISA filing purposes.
What the form contains
The Form 5500 has a main body plus various schedules that must be filed based on the plan's size, funding method, and whether benefits are fully insured or self-insured. The main body requests information about the plan, plan sponsor and participants, including:
- Plan year
- Type of plan
- Employer Identification Number (EIN)
- Number of participants
Schedules A, C, D, H, I and G must also be included based on the type of plan. The appropriate schedule differs based on whether it is a large plan, small plan or DFE (Direct Filing Entity), and on the particular type of plan or DFE involved – for example a welfare plan, pooled separate account (PSA), master trust investment account (MTIA), 103-121E, or a group investment account (GIA).
Penalties for ERISA noncompliance
Penalties can be substantial because they tend to build each day the failure exists. That is why it is important to identify and correct plan failures before they are discovered during a DOL audit.
| Failure | Penalty |
|---|
| Failure to file Form 5500 | Up to $2,586 per day |
| Failure to furnish information requested by the DOL | Up to $184 per day, not to exceed $1,846 per request |
| Failure to furnish ERISA documents (plan document, SPD, SAR) on request by a participant or beneficiary | $110 per day |
| Failure to provide the plan document within 30 days of an individual's request | Up to $152 per day |
| Failure to provide the SAR to participants upon request | Up to $110 per day |
Note: A willful violation may result in a criminal penalty of $100,000 or imprisonment for 10 years, or both. A knowing misrepresentation or concealment of facts required to be disclosed by the plan administrator is punishable by a fine of up to $10,000 or imprisonment for up to five years.
The Delinquent Filer Voluntary Compliance Program (DFVCP)
The DFVCP allows employers who have not filed their Form 5500, or who filed incorrectly, to voluntarily participate and pay a reduced penalty for the delinquent filings.
- Penalties under the DFVCP are $10 per day per plan for each day the plan is delinquent, compared with penalties as high as $2,586 per day if the DOL discovers the delinquency.
- The DFVCP caps penalties at $2,000 per plan for a single year for large plans (100 or more covered participants at the beginning of the plan year).
- Plans submitting for multiple plan years benefit from a $4,000 cap per plan, regardless of how many years are filed delinquent for that plan.
Important: If the DOL finds the delinquency during an audit, the DFVCP is not available and the employer must pay the full assessed penalty.
Required plan documents
Every employer who maintains a health and welfare benefit plan subject to ERISA must have a separate written plan document. A written plan document is among the documents that must be furnished in response to a participant's written request. Without a formal plan document it can be difficult to prove plan terms exist and difficult to enforce plan provisions. An ERISA document also includes required disclosures that are not typically found in other benefit documents.
What the plan document must include
The plan document describes the participant's rights, benefits and obligations within the plan, as well as the plan's terms and conditions for administration. It should include the Trust Agreement (if applicable) and the Insurance Contract(s), plus:
- The plan administrator's name
- A description of the benefits provided in the plan
- The standard for benefit decision review
- Who is eligible to participate, and when they are eligible
To remain compliant with ERISA under the Health Care Reform regulations, employers must clearly define an eligible employee in their plan documents, including the qualifications that must be met to be considered an eligible employee. Employers must also include:
- What constitutes a full-time, part-time and seasonal employee
- The effective date of participation
- The cost of coverage for a participant
- The designation of any named fiduciaries (other than the plan administrator) under the benefit appeals claims procedure
- Amendment and termination rights of the plan sponsor
- What happens to plan assets in the event of plan termination
- The restriction rules and regulations associated with using Protected Health Information (PHI), where the plan sponsor uses PHI
- Subrogation, coordination of benefits, and offset provisions
What is not a plan document
- Summary Plan Description (SPD) – it may be attached to or incorporated by reference into the plan document, but it is not sufficient as a plan document
- Certificate of Coverage
- Summary of Benefits
- Master Contract
Note: In certain situations, worksite benefits – including those paid with pre-tax dollars – are excluded from ERISA under a safe harbor designed for voluntary benefits. However, in many situations worksite benefits paid through a cafeteria plan should be included in plan documents.
Wrap documents and certificates of coverage
A wrap document for ERISA wraps all of the carrier's certificates of coverage together with the applicable ERISA-required language about the plan.
Note: Most carrier certificates of coverage include state-mandated provisions of coverage but do not always include the required federal ERISA language and specifics about the plan itself. To comply with ERISA, the certificates of coverage must be wrapped with the necessary ERISA-required language.
Once the wrap document is in place, going forward only one Form 5500 will need to be filed, regardless of how many plans went over the 100-employee participant count.
Most recent certificates of coverage are needed because they are incorporated into the wrap document, and they are the controlling documents, so they must be up to date with the plan's eligibility provisions.
Participant disclosures and their deadlines
| Document | What it does | When it must be provided |
|---|
| Summary Plan Description (SPD) | Informs participants and beneficiaries of their benefits and rights under the plan | Within 90 days after becoming covered; new plans within 120 days of the plan becoming subject to ERISA |
| Updated SPD | Reflects plan changes | Every 5 years if the plan has changed or been amended; otherwise every 10 years even if unchanged |
| Summary of Material Modification (SMM) | Informs participants of material changes to the plan or SPD | Within 210 days (30 weeks) after the end of the plan year in which the change was adopted |
| Summary of Material Reduction (SMR) | Informs participants of changes that reduce benefits or services | No later than 60 days after the material reduction was adopted |
| Summary of Benefits and Coverage (SBC) | Concise handout (up to four double-sided pages) summarizing the certificate of coverage – deductibles, copays, coinsurance, exclusions and more | Before open enrollment or re-enrollment; to new employees when first eligible to enroll; to any employee in a special enrollment period; and upon request |
| Summary Annual Report (SAR) | Recaps the information provided on the Form 5500 | Within 9 months after the end of the plan year, or within 2 months after the Form 5500 is filed if an extension is granted |
More on the SPD
Almost every employee benefits plan is required by ERISA to have an SPD on file, and it must be distributed to plan participants in a manner that confirms receipt. The SPD must be delivered to participants and to pension plan beneficiaries receiving benefits whether or not it has been requested.
Even though a third party administrator (TPA) or insurer may produce and distribute the SPD, distribution is the sole responsibility of the plan administrator, not the insurer or TPA. The lack of an SPD could trigger a DOL audit.
ERISA requires the SPD to be clear for the average participant, outlining their rights and obligations. Plan administrators should consider participant comprehension and education levels, and may provide SPDs in multiple languages for a diverse workforce.
A separate SMM need not be furnished if the plan changes or modifications are sufficiently described in an SPD distributed within the applicable SMM deadline.
ERISA compliance checklist
- Plan documentation – maintain written plan documents for all employee benefit plans subject to ERISA. At a minimum they should cover plan eligibility, benefits provided and relevant funding.
- Summary Plan Descriptions – provide SPDs to plan participants summarizing key plan terms. The SPD should be simple to navigate and digestible. Distribute SPDs to eligible employees within 90 days of enrollment in the plan.
- Reporting and disclosure – file Form 5500 annually with the Department of Labor for each ERISA-covered plan.
Fidelity bonds
ERISA requires a fidelity bond to cover the fiduciary – the person responsible for managing the benefit plan – and those persons who handle funds or other property of an ERISA-covered plan. Fidelity bonds protect plans from dishonesty and fraud committed by individuals associated with them. If the employer has discretionary authority over benefit plan management or administration, the employer has a fiduciary relationship under ERISA and will need fidelity bonds to comply. The fidelity bond must be put in place at the beginning of the plan year.
Note: No bonding is required when premiums for benefit plans are paid from the employer's general assets. There is also no ERISA bonding required for banks, trust companies and insurance carriers.
Wellness plans subject to ERISA
If a wellness plan provides health services, such as vaccinations or counseling by a licensed professional, it constitutes an ERISA benefit. Screening services such as biometric and cholesterol checks, and more detailed wellness initiative services such as progressive prescription monitoring and personalized coaching, generally constitute ERISA wellness plans.
If an employer simply provides a Flex or HRA credit for completing a health risk assessment, or adjusts employee-portion premiums based on something like tobacco or non-tobacco status, that would commonly not fall under an ERISA wellness plan.
Benefit claim procedures
The claims procedure regulation under ERISA changes the minimum procedural requirements for processing benefit claims for all employee benefit plans covered under ERISA, although the changes are minimal for pension and welfare benefit plans other than those providing group health and disability benefits. For group health and disability benefit claims, the regulation substantially changes the procedures for benefit determinations. Among other things, it creates new procedural standards for initial and appeal-level decisions, new time frames for decision making, and new disclosure rights for claimants.
Why a Section 125 plan and an ERISA plan are both called 501
501 is a designation for an ERISA health and welfare plan for reporting under the Form 5500 instructions.
Note: A Section 125 plan is not an ERISA plan. It is a funding mechanism and a document mandated by the code. The name is not relevant for Form 5500 reporting purposes, and identifying the 125 as plan 501 has no impact on ERISA-covered plans or their reporting requirements.
Multiple employer welfare arrangements (MEWAs)
A MEWA is an employee welfare benefit plan, or any other arrangement, that provides welfare plan benefits to employees of two or more employers that are not members of the same commonly controlled group. There are exceptions for plans maintained by bona fide collective bargaining agreements, rural electrical cooperatives, and rural telephone cooperative associations. Preparing these documents typically requires specialized counsel.
Related laws that affect ERISA plans
USERRA
The Uniformed Services Employment and Reemployment Rights Act of 1994 was signed into law on October 13, 1994. USERRA is intended to minimize the disadvantages to an individual that occur when that person needs to be absent from civilian employment to serve in the uniformed services. It expands the cumulative length of time an individual may be absent from work for uniformed services duty and retain reemployment rights, clarifies the law, improves enforcement mechanisms, and provides employees with Department of Labor assistance in processing claims.
Note: USERRA applies to all public and private employees in the United States. There are no exceptions, regardless of employer size.
HIPAA
HIPAA amended ERISA in 1996 to provide new rights and protections for participants and beneficiaries in group health plans. HIPAA contains protections both for health coverage offered in connection with employment ("group health plans") and for individual insurance policies sold by insurance companies ("individual policies").
For group health plans, HIPAA:
- Limits exclusions for preexisting conditions.
- Prohibits discrimination against employees and dependents based on health status.
- Allows a special opportunity to enroll in a new plan in certain circumstances.
For individual policies, HIPAA:
- Guarantees access to individual policies for people who qualify.
- Guarantees renewability of individual policies.
Note: Group health plans must conform to applicable mandates like HIPAA and COBRA. ERISA was amended in 1985 with COBRA mandates.
WHCRA
The Women's Health and Cancer Rights Act, signed into law on October 21, 1998, includes protections for individuals who elect breast reconstruction in connection with a mastectomy. WHCRA amended ERISA and the Public Health Service Act, and is administered by the Departments of Labor and Health and Human Services.
Frequently asked questions
What is ERISA and how does it affect employee benefit plans?
ERISA is the Employee Retirement Income Security Act of 1974, a federal law that sets minimum standards for private-sector retirement and health plans. It requires plans to provide key information, imposes fiduciary duties on plan managers, and ensures participants can access benefits and appeal decisions; it does not require an employer to offer a plan, but it regulates the plans that are offered.
Which employers and plans are exempt from ERISA?
ERISA does not cover plans established or maintained by government entities or by churches for their employees, or plans maintained solely to comply with workers' compensation, unemployment or disability laws. It also does not cover plans maintained outside the United States primarily for the benefit of nonresident aliens, or unfunded excess benefit plans.
When is Form 5500 due?
Form 5500 must be reported to the Department of Labor by the last day of the seventh month following the end of the plan year, so a plan year ending December 31 makes the form due July 31 of the following year. A two-and-a-half-month automatic filing extension is available by filing Form 5558.
What are the penalties for ERISA noncompliance?
Failure to file Form 5500 can cost up to $2,586 per day, failure to furnish information requested by the DOL up to $184 per day (not to exceed $1,846 per request), and failure to furnish ERISA documents such as the plan document, SPD or SAR on a participant's request $110 per day. A willful violation may result in a criminal penalty of $100,000 or imprisonment for 10 years, or both.
When must the Summary Plan Description be given to participants?
The SPD must be delivered to participants, and to pension plan beneficiaries receiving benefits, within 90 days after they become covered, whether or not it was requested; administrators of a new plan must deliver it within 120 days of the plan becoming subject to ERISA. An updated SPD must be distributed every five years if the plan has changed or been amended, and otherwise redistributed at 10 years.
