WHAT ADVISORS NEED TO KNOW:

A "TOP FIVE" LIST OF COMPLIANCE CHALLENGES FOR HEALTH AND WELFARE

PLAN SPONSORS

Dan Bond, PrincipalCapstone Benefits Group

dbond@capstonebenefits.com877.328.7880

Challenge #1: Liability

• Myriad of federal laws apply to employer-sponsored welfare benefit plans

– ERISA

• Reporting (Form 5500, Form M-1)

• Disclosure (SPDs, SMMs, new SBC)

– COBRA (general notice, election notice)

– HIPAA (creditable coverage notice, notice of special enrollment rights, privacy notice)

Liability– Internal Revenue Code (Section 125

regulations, nondiscrimination requirements)

– Medicare (MSP compliance, coordination of benefits, Section 111 mandatory reporting, Part D notices/reporting)

– PPACA (eligibility and coverage mandates, internal claims and external review requirements, participant disclosures, W-2 reporting and Summary of Benefits and Coverage begin in 2012)

Liability• General Rule: The plan sponsor (the

employer) is responsible for compliance with these federal laws and regulations

– Plan sponsor is “plan administrator” and “named fiduciary” under ERISA unless another party is appointed for this purpose

– Many fiduciary obligations cannot be delegated

– ERISA will look beyond contractual designations to actual duties in determining fiduciary liability; co-fiduciary liability commonly results

• Over Reliance On:– Third Party Administrators– Insurance Companies– Vendors

• Perception of responsibility does not match actual legal obligations

• Gaps inevitably result

Liability

Liability: Action Steps

• Identify roles and boundaries

1. Employer

2. Service Providers

3. Advisor

Reflect these in written client agreement (define your role in compliance and what liabilities you are willing to assume)

Liability: Action Steps

• Identify gaps and provide solutions

1. Referral to Legal Assistance

2. Administration Services

3. Compliance Tools

Challenge #2: Eligibility Administration

• Eligibility “gaps” are common and can be costly to employers

• Gaps result from inconsistencies between employer policies/administrative practices, insurance contracts, and plan documents– If employer promises coverage to employee

who is not eligible under criteria in insurance contract or self-funded plan document, insurer can deny claims, stop-loss carrier can deny reimbursement

– Employer may be “on the hook” regardless of the availability of insurance coverage or stop-loss reimbursement due to contractual promise to provide benefits

Eligibility Administration• Common mistakes that create gaps

– Failure to clearly define eligible employees

• Example: insurance contract/plan document will have minimum hours requirement for eligible employee, but employer defines multiple job classifications (such as salaried or commissioned employees) as eligible without minimum hours requirement

– Failure to clearly define eligible dependents

• Example: eligible dependents (including spouse, domestic partner, children) are defined in insurance contract/plan document, but employer defines differently (or not at all)

Eligibility Administration

– Failure to address inconsistencies between employer leave of absence policies and plan provisions

• Example: insurance contract/plan document extends eligibility for employees who are not actively working only for FMLA leaves of absence, but employer’s personnel policies permit longer or non-medical LOAs along with continued eligibility

Eligibility Administration

– Failure to monitor and enforce eligibility rules as required by insurance contract/plan document

• Examples:

– Employer does not seek documentation for spouse or domestic partner

– Employer does not require proof of continuing disability

– Employer does not remove terminated employees or dependents who lost eligibility from coverage

Eligibility: Action Steps

• Ask clients the right questions

• How is eligibility defined in HR resources?

–Handbook–Enrollment materials

• What are employer’s LOA policies and practices

Eligibility: Action Steps

• Coordinate employer plans and policies

• Insurance contracts

• Plan documents

• Secure approval from carriers!

Challenge #3: Health Care Reform

• “PPACA” eligibility and coverage mandates apply to all employer-sponsored health plans and health insurance policies

– Many mandates directly impacting plan provisions are already in effect

– How mandates impact a particular health plan still depends on maintaining grandfathered plan status

Health Care Reform

• Grandfathered plans must revisit whether status maintained with each plan design/cost change (remember required disclosure on all written materials

– If grandfathered plan status is lost:

• Include first-dollar preventive care, incorporate “patient protections”

• Incorporate new internal and external claims review process

• Fully-insured plan Section 105(h) compliance (after IRS issues guidance)

Health Care Reform2012

• Health cost reporting on 2012 W-2s

• Comparative Effectiveness Research Fees

• Medical Loss Ratio Rebate

• Summary of Benefits and Coverage

2013

• $2500 health FSA limit

• Elimination of Retiree Drug Subsidy Deduction

• Health Benefit Exchange notices

Health Care Reform:

Action Steps

• Monitor status of Supreme Court decision (expected June/July of 2012)

• Provide consistent communication

• What has taken place

• What is on deck

• What is down the road

• Where does your client stand

Health Care Reform:

Action Steps

• Revisit your clients’ grandfathered plan status upon renewal

• Re-educate clients on practical impact of grandfathered status

Health Care Reform:

Action Steps

• Assist clients in getting resources in place for 2012 and 2013 requirements

• W-2 reporting

• Summary of Benefits and Coverage

Health Care Reform:

Action Steps

• Begin to put future requirements on employers’ radar

2014Exchanges, New Reporting, PCE

Prohibition, Pay/Play Penalty, Annual Limits, Cost Sharing Limits, etc.

Challenge #4: Plan Documentation

• ERISA § 402 requires a “written instrument” in order to “establish” a employee welfare benefit plan – this written instrument is commonly called the plan document

• Certain details must be included in the plan document in order to comply with ERISA

• Applies to employer-provided welfare benefit plans regardless of size or funding mechanism unless exempt from ERISA (e.g.. government or church plans)

Plan Documentation

• Plan document must include:– Funding policy and method

– Procedure of allocation of responsibility for plan operation and administration

– Amendment procedure/authority

– Basis for plan payments (triggering events for receipt of benefits)

– One or more named fiduciaries for plan operation and administration (defaults to plan sponsor, not claims administrator or insurer)

Plan Documentation

• ERISA § 101 requires the ERISA plan administrator to furnish a summary plan description (“SPD”) to plan participants

• Per DOL, SPD is “primary vehicle” for informing participants of plan rights and benefits

• ERISA and DOL regulations specify content of SPD – not state insurance regulations

• Insurer-prepared certificates meet insurer’s obligations under state law and are not modifiable due to state regulatory filing/approval requirements

Plan Documentation• Named “Plan Administrator”

under ERISA is legally responsible for preparing and distributing SPDs

– This will almost always be the employer/plan sponsor

– The Plan Administrator is not the TPA or insurer unless formally designated in plan document and service agreement (uncommon)

Plan Documentation• Compliance gaps develop because

employers and advisers rely on insurance policy and certificates to serve as written plan document and SPD

– Insurers prepare policies and certificates in accordance with state insurance law, but often ignore group policyholder’s ERISA obligations

– Policies and certificates often do not contain all DOL requirements, and do not reserve right to amend/terminate plan or otherwise protect employer from liability for payment of benefits

Plan Documentation• DOL relies on existing plan

documentation to determine number of welfare plans an employer maintains

– If employer sponsors several insured welfare benefits under separate insurance policies, DOL considers each separately-documented benefit as a “plan”

– Separate Form 5500s should be filed unless documentation combining all benefits into single plan is maintained; filing single Form 5500 without documentation risks nonfiling penalties

Plan Documentation• IRC §125 requires an employer to

adopt a written plan if pre-tax salary reductions (premium, health or dependent care FSAs, HSA contributions permitted)– Welfare benefit documents (plan documents,

insurance policies, and SPDs) are not Section 125 plan documents

– A separate written plan in compliance with Prop. Treas. Reg. § 1.125-1 is required or plan loses tax qualified status and all pre-tax payments become taxable

Documentation:

Action Steps

• Add value to the process by providing access to resources to fill the documentation gaps

• Summary Plan Descriptions (SPD)

• “Wrap” Document

Documentation:

Action Steps

• Add value to the process by providing access to resources covering health care reform changes

• Summary of Benefits and Coverage

• Material Modifications

Challenge #5: Reporting and Disclosure

• ERISA and DOL regulations contain specific reporting and disclosure obligations

– Annual Form 5500 obligation required for all welfare plans with 100+ employee participants on the first day of the plan year or if “funded” (through trust or segregated account containing plan assets)

Reporting and Disclosure• Summary Annual Report (“SAR”)

must be distributed to participants 2 months after Form 5500 deadline

• Plan documents and SPDs need not be filed or otherwise reported to DOL or IRS unless specifically requested, but must be provided to participants within 30 days of a request or statutory penalties could result ($110 per day under ERISA § 502)

Reporting and Disclosure• Participant disclosures required

for group health plans– General COBRA notice

– USERRA rights disclosure

– HIPAA portability (special enrollment and PCEs) disclosures

– NMHPA and WHCRA disclosures

– QMCSO disclosure

– Michelle’s Law disclosure

– Grandfathered plan and “patient protections” disclosure

Reporting & Disclosure:

Action Steps

Failure to provide many required group health plan disclosures creates $100 per day excise tax penalty for each affected participant!

Failure to properly file a Form 5500 can lead to a penalty assessment by DOL of $1,100 per plan, per day!

Reporting & Disclosure:

Action Steps

• Understand definitions and identify ERISA Plans

• Medical

• Dental

• Vision

• Life

• Disability

• Health FSA

• Severance Benefits

Reporting & Disclosure:

Action Steps

• As noted earlier, identify roles and boundaries to ensure all notices and disclosures are covered

1. Employer

2. Service Providers

3. Advisor

Reporting & Disclosure:

Action Steps

• Add value to the process by providing access to resources that trigger notices and disclosures, and serve to avoid potentially expensive penalties

Thank you!

Dan Bond, Principal

Capstone Benefits Group

dbond@capstonebenefits.com

877.328.7880