Preparation for a Department of Labor Audit

By: Robert Pusateri (Capstone Brokerage Benefits Consultant) May 21, 2015

The Employee Benefits Security Administration (EBSA) is the arm of the DOL specifically responsible for enforcement of ERISA.

Employee complaints have historically been the largest percentage and most common reason for a DOL audit on an employer, however, employers need to be aware that the DOL can audit at any time, and of any size employer, as ERISA governs all private sector employers that offer a group health & welfare plan. The DOL Audit can be completely random. Many employers are out of compliance with ERISA and don’t even know it. The DOL has substantially increased its auditing efforts. In fact, the DOL announced last year that their goal is to audit all businesses in the U.S. within the next 3-4 years.

The most common misconception among employers is that the documents provided by the insurer will satisfy the ERISA Summary Plan Description (SPD) requirements. In most cases, the insurer benefit summaries or certificates do not contain the ERISA language necessary to satisfy the SPD requirement. In this case, where an employer may offer multiple health & welfare plans through various insurers, a “Wrap Document” is usually recommended to satisfy the SPD requirement. This is a document that contains the ERISA terms (designation of plan administrator and fiduciary, plan number and year, plan name, etc.), and “wraps” itself around the insurance contracts from the insurer. These documents can vary in price based on group size and number of choice options for employees.

Understanding the moving parts and background of the Employee Retirement Income Security Act (ERISA) is very important. ERISA establishes standards that govern the operation of employee benefits plans (ex: 401k plans, group medical plans). Title I of ERISA applies to health and welfare benefits, and contains 7 parts, 5 of which pertain to health & welfare. These 5 parts are:

– Part 1: Reporting & Disclosure

– Part 4: Fiduciary Responsibility

– Part 5: Administration & Enforcement

– Part 6: COBRA and Additional Standards for Group Health Plans

– Part 7: HIPAA, Newborn & Mothers Health Protection, Mental Health Parity Act, Womens’ Health & Cancer Rights Act (WHCRA)

The SPD must be furnished to plan participants within 90 days after their initial coverage date, or for new plans, within 120 days after the plan becomes subject to ERISA. Updated SPDs must be furnished every 5 years (or every 10 years if a plan has no changes). Also, for any change to the plan, ERISA allows plan administrators to report these through a Summary of Material Modification (SMM) document, which must be furnished within 210 days after the end of the plan year, or no later than 60 days after the plan change if the change results in a material reduction of covered services or benefits. Participants or beneficiaries can also request copies of these documents throughout the year and the employer must provide them within 30 days of the request.

The Wrap Document is the best approach and can also help minimize the number of 5500 filings an employer is required to file. The 5500 filing is another part of the ERISA requirements. This filing is an annual requirement for each plan with over 100 covered participants. When plans are combined into a Wrap Document, one 5500 filing can be submitted for all plans together.

There are consequences for non-compliance. Failure to respond to a participants request for the SPD or SMM could result in penalties of $110.00 per day after the 30 day deadline. Failure to submit the form 5500 could result in penalties of up to $1,100 per day, each day the 5500 is missing or incomplete and criminal penalties for willful failure to file can be enforced. Most of us are familiar with COBRA rules, but risks of non-compliance of COBRA regulations can result in a nondeductible excise tax of up to $100 per day of violation for each qualified beneficiary.

ERISA requirements for health and welfare plans can be complex and are often misunderstood in today’s new challenges with the Affordable Care Act laws and IRS rules. Employers should ask themselves if they have ever had a SPD or Wrap Document created, and start there. Now, more so than ever before, is the time to get your organization in compliance with ERISA. Capstone has partnerships with ERISA Attorney’s and Third Party Administrators who specialize in these areas of creating these documents for your company.

We will be hosting a seminar this fall to share additional details pertaining to this subject matter. If you are interested in attending contact me at