• GOVERNMENT REGULATIONS
• IMPORTANT FORMS

• LIFE EVENT PLANNER

With the exception of Worker's Compensation Insurance, and in some states, short term disability insurance, employers are not obligated to offer employee benefits. If however, benefit plans are voluntarily established, numerous government regulations apply. This section provides an overview of key laws and regulations effecting benefit plans.

• Employee Retirement Income Security Act (ERISA)
• ERISA Reporting Requirements
• COBRA
• Family Medical Leave Act (FMLA)
• Nondiscrimination Guidelines
• Internal Revenue Code Section 79
• Internal Revenue Code Section 104
• Internal Revenue Code Section 105
• Internal Revenue Code Section 125 (Cafeteria Plan)
• Age Discrimination And Employment Act (ADEA)
• Americans With Disabilities Of 1990 (ADA)
• Health Insurance Portability and Accountability Act of 1996 (HIPAA)
• COBRA, FMLA Forms & HIPAA Forms

Employee Retirement Income Security Act (ERISA)
ERISA was enacted in 1974 to provide protection for participants of employee welfare benefit plans and retirement plans. It imposes a variety of reporting and disclosure requirements on plan sponsors and administrators. These requirements mandate certain nondiscrimination provisions and require information be reported to the Internal Revenue Service (IRS), Department of Labor (DOL), Pension Benefit Guaranty Corporation (PBGC), and be disclosed to plan participants.

ERISA also mandates standards of conduct, responsibility, and obligation for fiduciaries and provides appropriate remedies, sanctions, and access to the federal courts when responsibilities have been breached.

ERISA covers all employers except government employers and church programs.

A welfare plan covered by ERISA must meet the following legal requirements:

1. The plan must be in writing and contain specified information;
2. The assets must be held in trust unless certain exemptions are satisfied;
3. The plan must detail the procedures for presenting claims, claim denial, and procedures for reporting claims; and
4. The plan must contain benefit provisions as required by ERISA.

ERISA Reporting Requirements
Many ERISA reporting requirements represent common sense communication with plan participants relative to their benefit plans.

Plan Document
A plan document is required for all plans governed by ERISA. The plan document must include, at a minimum, the name or titles of plan fiduciaries, procedures for establishing and implementing funding policies, the procedures for allocating responsibilities for plan operation and administration, procedures for amending the plan, the basis for contributions to the plan, and a statement of benefits for which the plan makes payments.

Generally, the insurance or administrative contract does not suffice as a plan document because it does not include all required ERISA information. Employers can use insurance contracts as the basis of a plan document if a simplified "wrap-around" plan document is drafted that includes information not included in the insurance or administrative contract.

While the plan document must be made available to plan participants, it does not need to be distributed to them.

Summary Plan Description (SPD)
The SPD is a summary of the plan document and must be distributed to plan participants. The SPD must contain technical information regarding the plan, such as name and address of the plan sponsor, plan number, and a statement of ERISA rights. Benefit information should include eligibility to participate, a summary of the benefits, and circumstances under which coverage is lost. In many cases the evidence of insurance carrier coverage certificate or booklet will suffice as an SPD.

The SPD must be furnished no later than 90 days after the individual becomes a plan participant or begins receiving benefits. New plans must furnish the SPD to participants 120 days after the plan is established. The SPD must also be filed with the DOL within 120 days.

Summary of Material Modifications (SMM)
When material changes to the plan have been made, participants must be given an SMM within 210 days after the close of the plan year in which the change becomes effective. However, the SMM is normally distributed sooner. The SMM must also be filed with the DOL within 210 days after the close of the plan year. Updated SPDs satisfy SMM notification requirements.

Annual Report (From 5500 Series)
The Form 5500, with the necessary schedules, must be filed with the IRS no later than the last day of the seventh month after the close of the plan year. Employers with fewer than 100 participants at the beginning of the plan year are exempt from filing the Form 5500, unless a cafeteria plan (Section 125) is provided. The penalties for filing late or failing to file are $1,000 per day.

An independent qualified public accountant's opinion must be attached to the Form 5500 unless the plan is un-funded, fully insured, or a combination of both.

Summary Annual Report (SAR)
Plans required to file a Form 5500 also must distribute an SAR to plan participants. The SAR is a brief summary of the Form 5500 filed with the IRS. This summary must be distributed annually to participants on or before the last day of the ninth month after the close of the plan year.

COBRA
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires employers of 20 or more employees to offer to continue health care (medical/dental/vision/EAP) coverage for plan participants whose coverage would otherwise end.

For coverage ceasing from a termination of employment or a reduction in employment hours, the duration of such COBRA coverage is 18 months; for all other qualifying events, the maximum coverage period is 36 months. Plan participants who have a Social Security determination of disability on the date of their COBRA qualifying event, or within the first 60 days of COBRA coverage, may continue coverage for up to 29 months.

Employers subject to COBRA are required to offer COBRA coverage to covered employees and qualified beneficiaries if coverage is lost due to any of the following qualifying events:

• the employee's death;
• voluntary or involuntary termination of employment (other than for gross misconduct) or reduction in hours;
• divorce or legal separation;
• the employee's entitlement to Medicare benefits;
• a dependent child ceasing to be a dependent under applicable plan provisions; or
• the employer's filing for a Chapter 11 bankruptcy petition and coincidental termination of retiree coverage.

COBRA coverage must be the same as that provided to other similarly situated employees covered under the plan for whom a qualifying event has not taken place, and may not be conditioned on evidence of insurability. COBRA continues must be offered the same open enrollment options as active employees.

Family Medical Leave Act (FMLA)
FMLA applies to all employers employing at least 50 workers within a 75-mile radius of the workplace. Such qualified employers are required to provide eligible employees, regardless of the employee's gender, up to 12 weeks unpaid leave during any 12-month period for any of the following situations:

• the birth or adoption of the employee's child, or placement in the employee's care of a foster child (there is no age limit on an adopted or foster child);
• the serious illness of the employee's spouse, child, or parent; and
• the employee's own disabling serious illness.

An employee must have at least one year of service to be eligible. Employees are generally able to continue to participate in employer sponsored benefit plans during an FMLA leave.

Nondiscrimination Guidelines
In general, to retain tax-favored treatment for plan sponsor's and participants, employee benefit plans are subject to "nondiscrimination" rules that are set forth in applicable sections of the Internal Revenue Service Code. For example, a self-funded health plan, including health care reimbursement accounts, may not explicitly discriminate in favor of highly compensated or key individuals. Nondiscrimination requirements pertain to eligibility to participate in the plan as well as to the benefits provided under the plan. Similar nondiscrimination rules apply to cafeteria plans and to dependent care spending account plans.

Pension, profit sharing, and stock bonus plans must also satisfy Internal Revenue Code nondiscrimination requirements.

Discrimination in eligibility and benefits provided is permissible when health and welfare benefits are provided under an insured arrangement. Employers with an objective to provide certain benefits only to highly compensated and key employees or provide a higher benefit level to this group may accomplish this goal through an insured funding arrangement.

Discrimination in eligibility is permissible if supported by bona-fide business reasons. Discriminatory plans should be established with the assistance of legal counsel.

Internal Revenue Code Section 79
IRC Section 79 allows employers to deduct the premium cost of group term life insurance provided to employees. It also allows employees to exclude from gross income the cost of group term life coverage, up to $50,000. To qualify, the plan must not discriminate in favor of "Key" employees. A key employee is defined in Section 416(i) as an employee owning 5% or more, an employee owning 1% or more and earning in excess of $150,000 per year, an employee who is one of the top ten owners of the largest interest in the employer, and an officer whose annual earnings exceed 150% of the IRC Sec. 415(b)(1) defined benefit plan limit of $90,000, indexed for the current dollar amount.

The premium paid by employers to fund group life insurance in excess of $50,000 is taxable to employees. Imputed income must be reported on the employee's Form W-2.

Internal Revenue Code Section 104
IRC Section 104 excludes from an employee's gross income the value of benefits received by an employee under an accident or health plan attributable to employee post-tax contributions. These plans include medical and long term disability plans.

Internal Revenue Code Section 105
IRC Section 105 excludes employer contributions for health and accident plans and the benefits provided under the plans from an employee's gross income. (A disability plan is not classified as a health or accident plan.)

If the health care plan is insured, the plan must comply with state laws, which currently allow discrimination in favor of highly compensated employees. If the plan is not insured, it must comply with nondiscrimination eligibility and benefit requirements of Section 105(h). The nondiscrimination rules test both eligibility and benefits. If these requirements are not met, highly compensated employees are taxed on excess benefits.

Internal Revenue Code Section 125 (Cafeteria Plan)
IRC Section 125 provides a statutory exception to the doctrine of constructive receipt on income. It permits the employer to make benefit choices available to employees as an alternative to cash without subjecting them to automatic taxation of cash or currently taxable benefits.

A Section 125 Plan must offer participants the choice between cash and one or more employer provided benefits. Cash includes actual cash or taxable benefits.

Through Section 125, employees are able to reduce their W-2 compensation, which could result in savings of federal income, Social Security (FICA), and federal unemployment (FUTA) taxes. In most jurisdictions, state and local taxes are also reduced. The employer also experiences a tax reduction through the FICA and FUTA savings, and in some states, a saving on Workers' Compensation premiums.

A Section 125 Plan requires a Plan Document, Summary Plan Descriptions and must file a Form 5500 as a fringe benefit plan.

Age Discrimination And Employment Act (ADEA)
ADEA prohibits discrimination by an employer against employees aged 40 or older in hiring and firing, in compensation, and in terms, conditions, and privileges of employment. Generally, employers with 20 or more employees are subject to ADEA requirements.

Employers violate ADEA unless older employees are provided with the same benefits as younger employees or older employees are provided with benefits that are reduced only to the extent that the cost of the benefits for older employees is as least equal to the cost of benefits for younger employees. The most common application of this provision is age rated life insurance coverage.

Americans With Disabilities Of 1990 (ADA)
The ADA prohibits covered employers from discriminating against a disabled individual with regard to hiring and firing, compensation, and in most terms, conditions, and privileges of employment.

Employers having 15 or more employees for each working day in each of 20 or more weeks in the current or preceding calendar year are subject to ADA requirements. In order to comply, benefit plans may not exclude benefits for disabilities covered under ADA.

Health Insurance Portability and Accountability Act of 1996 made numerous changes to the health care related provisions of ERISA, the Public Health Services Act, and the Internal Revenue Service Code.

The four key portability provisions of HIPAA are effective for plan years beginning after June 30, 1997 and are as follows:

1. Pre-existing condition restrictions in group medical plans are limited to a maximum of 12 months (18 months for late enrollees) for a physical or mental condition that advice, treatment, diagnosis, or care was received within six months prior to enrollment. If the individual had group or individual coverage and did not experience a break in coverage of more than 63 days, credit for prior coverage must be granted. A waiting period may not be treated as a break in coverage. Pre-existing conditions cannot apply to pregnancy. Starting June 1, 1997, HIPPA will require group health plans to provide certification of coverage to employees when they are no longer covered under the group health plan and when the employee's COBRA coverage ceases. Prior to June 1, 1997, employers are required to provide documentation of coverage if requested by the employee.

HIPPA Certification of Coverage Form.

• Late enrollees must be permitted to enroll in a group health plan if:

• the employee or dependent was already covered under an alternative plan when the plan was previously offered; and
• the employee stated in writing that the reason for declining coverage was an alternative source of coverage, and
• the person applying for late enrollment has exhausted COBRA coverage or lost eligibility from the alternative coverage, and
• requests coverage within 30 days of the loss of the alternative coverage.

2. Individuals may not be excluded from group health coverage based on health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability.

   Groups with not less than two employees and not more than 50 employees must be accepted for coverage and guaranteed renewability by all insurance carriers in the small group market.
    

3. The Act also provides for Medical Savings Accounts (MSA's). Contributions made to MSA's are tax deductible if made by an eligible individual and are excludable from income if made by the employer. An eligible individual is an employee of a small employer (50 or less employees) covered under a employer-sponsored high deductible plan. MSA provisions are effective for plan years after December 31, 1996 and there is a limit on the number of plans that can be created.
   
4. The provisions of the Act made two modifications to COBRA, effective January 1, 1997.

• The 29 months of COBRA coverage will also be available to a qualified beneficiary if the disability is determined to exist any time during the first 60 days of COBRA coverage. This is in addition to the disability existing at the time of the qualifying event.
• The definition of qualified beneficiary has been amended to include a child born or placed for adoption with a covered employee during the employee’s COBRA coverage.

Email us to request sample forms

• Complete and distribute to all employees upon implementation of COBRA
• Distribute to all new hires if information is not contained in SPD

• Complete and distribute with Notification of COBRA Continuation Coverage and make available to employees

• Complete and send to employees (and/or dependents) within 44 days of qualifying event.

• Complete and send to COBRA participant ineligible to continue COBRA coverage.

• Complete and distribute to all employees upon implementation of FMLA. Complete and distribute to all new hires if information is not contained in SPD.

• Complete and give to employee in response to request for FMLA leave.

• Give to employee to have completed by physician if requiring physician certification for leave.

• Give to employee to have completed by physician if employer is requiring for leave.

• Complete and give to employees with COBRA Continuation Notification and COBRA Continuation Ends.