By Carrie Cherveny
How often do your compliance advisors encourage you to consider more government regulation instead of less?
But when it comes to your organization’s worksite or voluntary benefits, it may be the best advice on compliance you’ll get all year. It may also make a difference in how effectively you’re able to get word out about these benefits which give employees more options and relieves some of the financial stress that affects their lives today.
Most group health and welfare benefits offered by private employers are subject to ERISA requirements, which provide minimum standards for retirement plans and group health and other welfare benefit plans like life insurance and disability.
One of the litmus tests for ERISA compliance is whether or not the employer helps shoulder the benefits costs. Because worksite benefits are characterized as “voluntary,” organizations that don’t cover part, or all, of the premium assume they’ve avoided ERISA’s regulatory burden through the Voluntary Plans ERISA Safe Harbor.
They may have figured wrong, though, because it’s not that simple. In fact, one analysis actually suggested that 80 percent of the voluntary plans that employers believe are protected from ERISA regulations under Safe Harbor rules are actually not. And that can create a lot of exposure. A $149 per day penalty can be assessed for failing to provide ERISA a plan document and summary plan description. Failure to prepare and file a Form 5500 can result in a $2,063 per day fine.
Here’s what employers need to know about the ERISA Safe Harbor and what should shape their decision on whether or not to choose safe harbor or bite the regulatory bullet. It starts with understanding each of the four required Safe Harbor rule provisions:
- No employer contributions.
- Employee participation is completely voluntary.
- The employer cannot endorse, educate and/or market the plan to employees. It can, however, allow the insurer to do so. And it can collect premiums through payroll deductions and remit them to the carrier.
- The employer can receive no compensation or profit for the program; it may, however, be reasonably compensated for administrative services related to collecting and remitting payments.
On the surface, the four Safe Harbor rule requirements do not appear to be onerous. However, these Safe Harbor provisions are liberally construed and may encompass more than you expect.
The biggest pitfall is generally Rule No. 3.
It sounds straightforward until you think about it. If your organization takes the Safe Harbor, each document or explanation of voluntary benefits should be removed from your employee communications materials about other benefits. That means two packets for each employee, one from the employer and one from the voluntary/worksite carrier.. Employer-provided plan explanations (such are HR benefits orientations and plan education) or enrollment materials, among other things, may constitute an endorsement – and that disallows Safe Harbor protection.
Many companies are reluctant to trade off the value of having one unified conversation around their benefit offers for a break on regulatory compliance – especially when it’s so easy to run afoul of the Safe Harbor rules.
But there is no rule of thumb guideline. The decision to stick with ERISA or take a Safe Harbor ultimately comes down to your culture and the environment you’ve created; the resources you have available and want to put against your voluntary benefits program; and the kind of credit you want to get and take for putting the benefits in place to begin with.
HUB’s team is ready to walk you through the compliance choices you need to know about for all your benefits programs. Call, and we’re ready to assist.