If Considering a Voluntary Benefit Program, Watch out for ERISA
This morning, I ran across an article that reports a recent rise in the number of employers offering voluntary benefit programs to their employees. Generally, voluntary benefit programs are “hands-off” insurance benefits requiring minimal administrative work, and usually include disability, life, accident, or cancer or critical illness coverage. While a valuable employee retention tool and morale booster, what many employers may not realize is that they are considered welfare benefit plans under ERISA unless they meet a voluntary group insurance safe harbor.
Oftentimes, ERISA coverage may be a good thing, but it can cause some serious problems when employers don’t realize that they are sponsoring an ERISA-covered plan. In addition to facing ERISA’s fiduciary responsibilities, the plan likely will not have a plan document or a summary plan description, will not be sending out the summary annual report each year, and will not be filing the Form 5500 (for plans with more than 100 participants). The penalties for noncompliance can be hefty. If an employee requests a summary plan description or summary annual report you do not have, you may be on the hook to the employee for up to $110 for each day past the 30-day deadline to provide them. The penalty for a late Form 5500 is far worse at $1,100 per day, unless you apply for relief under the DOL’s delinquent filer program.
So, with that in mind, it sounds easy…accept that your plan is covered by ERISA or meet the voluntary group insurance safe harbor. Unfortunately, employers that choose to rely on the safe harbor to avoid ERISA may still run into problems, usually with two respects. First, the safe harbor requires that the program be entirely employee-paid. The employer cannot contribute. Second, the employer’s involvement must be limited to collecting and paying premiums and allowing the insurer to promote the program without “endorsing” the coverage. The DOL has taken a VERY expansive view regarding endorsement, which may include something as simple as helping an employee file a claim form or representing that the program is part of the employer’s benefit package. The safe harbor will not apply if there is any endorsement, in which case the employer may accidentally end up sponsoring an ERISA-covered welfare plan.
If you sponsor or are considering sponsoring a voluntary benefit program, talk with your legal counsel and make sure you go in (or keep going) with your eyes open regarding the ERISA status of your program.