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Minor details can lead to major issues when offering employee benefits

By Matt Reese

At first it can seem like a very minor (yet complicated and costly) detail that may be better off ignored by employers. And, in many cases it can be inconsequential, until it is not.

The potential for problems with this detail start, very simply, when an employer hires an employee and offers benefits, such as health insurance. When employees receive benefits, the employer is legally required to provide a Summary Plan Description (SPD) through the Employee Retirement Income Security Act (ERISA).

On Oct. 1 of 2013 a notice went out through the Affordable Care Act to every employee in the U.S. informing them of the new options available. To be better informed, the notice instructed employees to consult their legally required SPD of workplace benefits. Guess what most employers did not have or had never even heard of before?

In short, if an employee requests an SPD or the business is audited and the employer does not have it, this minor detail gets very consequential very quickly.

“Every employer has to have a SPD for each employee for any health or welfare benefit that they provide. If you don’t have a SPD and it is requested in writing, all that employee has to do is turn you into the U.S. Department of Labor and, after 30 days, you have to pay a fine up to $114 per day until you provide the document,” said John Mayer with the Association Benefit Planners in Dublin. “The DOL starts an investigation and you get a letter from DOL about a full audit. If you don’t have the documents to produce, you have to figure out how to provide them. Most employers do not even know they need this. Then they don’t know who to call, so they call their lawyer. Then that gets expensive.”

The specifics of the necessary SPD documents depend upon part-time or full time status, the particulars of the benefits offered and other factors.

“This becomes an issue as soon as you have a full-time employee with benefits. The small employers are the hardest hit because they don’t know who to talk to about it. Where do you go as a small employer to find out about this?” Mayer said. “From our side, it can be a difficult discussion to get an employer to understand what they need. They don’t know what they don’t know. They tell us, ‘We’ll take our chances.’ But you as an employer are responsible for making sure this information gets to employees. A normal employer is not going to have any idea how to handle these things.”

This is where folks like Clint Carter come in. Carter is retired and lives out of state, but for many years lived in Columbus and worked with businesses (including small Ohio agribusinesses) of all sizes to get them in compliance with federal acronyms aplenty, including ERISA. Carter admits that his services were not cheap or always pleasant to procure, but they very clearly beat the alternative.

“If you can’t provide the SPD — a required document —now you have the Department of Labor involved with an audit, you have the IRS involved, and you have Health and Human Services involved,” Carter said. “They can all look for this Summary Plan Description.”

To make matters even more confusing, many employers do have a Summary Benefits of Coverage document given to them by the benefits provider and think they have the situation covered, but they don’t.

“In some cases, employers gave out the Summary Benefits of Coverage, which is not the Summary Plan Description. If they give out the SBC instead of the SPD and when that clock of 30 days is up, they literally could owe $114 a day until they are in compliance. Both the plan document and the Summary Plan Description must be furnished to the employees by the employer. The common mistake is that the employer thinks they are getting the documents from the carrier, which they are not. Carriers do not supply the federal ERISA documents. The employer can get them from third party administration firms or they can go to an ERISA attorney. One way or the other they need to obtain the documents,” Carter said. “If I hired you to work for me, and I offer health insurance, dental insurance, vision insurance, long-term disability, short-term disability, and life insurance, each and every one of those has to have a document that is wrapped around it that has the ERISA language. Brokers go in and tell a small business owner that it would be great for them to put in benefits, which it is. But then they fail to help them realize that they have to be in compliance with the Department of Labor at the same time.”

One way for employers to avoid this issue is to not offer any employee benefits, but that is not often a realistic or reasonable option.

“At first, when employers hear about this they get upset and say they shouldn’t offer benefits, but in reality you should be offering benefits as an employer. Most employees today go to work not only for the salary but also for the benefits that are offered,” Carter said. “If you are not offering benefits, even if you only have 10 employees, all you are doing is training someone else’s employees because they will go work somewhere else that offers benefits. It is more expensive to train employees than it is to get these documents.”

Of course, many employers who have employees with benefits never have an issue with ERISA compliance because they are never audited or no employee ever requests the documents. But Carter wants employers to understand the risks of non-compliance.

“It is risk management. The increased scrutiny of the Affordable Care Act has increased the number of audits — I would say 60% of businesses get audited. Ohio is a huge state for audits, partly because it is a union state and partly because the Cincinnati region of the DOL looks at things more closely. I have had a three-person dental group get audited. I have worked with small employers in Ohio who have been audited multiple times by the DOL for their ERISA documents. One had 14 employees. That was 10 years ago and we have kept them in compliance since then,” Carter said. “Most brokers or CPAs will say that you are too small and you don’t have to worry about this, but this is an employer-plus-one law. Do you think the DOL would rather cut their teeth on small employers or large employers when they are training their own employees about ERISA?

“My advice is that it is always cheaper to get in compliance than it is to pay the penalty. Whether you get in a wreck or not, you buy auto insurance every year. You also have homeowners insurance even in years where your house doesn’t burn down. Why would you not do risk management and make sure you have all of your documents? Most employers think this is inconsequential, but it can turn into something pretty major pretty fast.”

For questions, contact Association Benefit Planners in Dublin at 614-527-6760.

This is the fifth of a series of five stories in cooperation with the Ohio AgriBusiness Association highlighting human resource management solutions in Ohio agribusinesses.

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