You're working away on some reports when your HR director knocks on your door: "Mind if I interrupt?" he says. "I've just been talking with a buddy who works for an insurance organization, and he told me about this great new supplemental short-term disability policy it is offering. I think it would be perfect for our employees." Assuming your organization doesn't have "wrap plan" document in place, how would you respond?
1. "Good deal. Let's invite your buddy to make a presentation. We'll tell everyone what a great idea we think it is. But let's be sure we're giving our folks a break by negotiating for a lower premium."
2. "Afraid we'll have to say no. If we let him offer the insurance to our employees, we'll have to set up a ERISA plan and do tons of reporting and filling out forms. There's no way."
Both 1 and 2 are wrong. Let's take a quick look at why this is, courtesy of ADP's report, "Workplace Compensation Spotlight: Health and Welfare Plan Checkup." So the right answer to your HR manager would have been this:
3. "Your buddy is free to contact our employees, but since we don't have a wrap plan in place yet, we don't have the bandwidth to take on the extra administrative work of complying with ERISA's reporting and notice requirements, so we need to make sure this benefit fits under the Voluntary Plan Safe Harbor."
Why Employers Might Want to Avoid Having its Voluntary Benefits Become Subject to ERISA
You can allow your employees to purchase certain group insurance products, such as supplemental short-term disability policies, without worrying about triggering ERISA's reporting and notice requirements by following these rules:
- Make sure there are no employer contributions
- Do not allow employees to pay for any voluntary benefits through your cafeteria plan pre-tax
- Participation in the program must be voluntary for all employees
- Limit your involvement with the voluntary plan to the following: allowing the insurer to publicize the program to employees, collecting premiums through payroll deductions and passing on the collected premiums to the insurer.
- Make sure the only compensation you receive is reasonable and only for the administrative services described above.
- Steer clear from "endorsing" the voluntary plan in any way.
These are elements in what is known as a "voluntary plan safe harbor." That is, the employer is in a safe harbor, exempt from the reporting and notice requirements associated with ERISA compliance, by adhering to them. Anything that suggests the employer is endorsing the plan moves the employer out of the safe harbor. The employer can't select an insurer, endorse a plan, negotiate the terms, or promote the plan in any way. Just including the plan in a list of benefits in Summary Plan Description (SPD) can be considered "endorsement."
The administrative burdens imposed by ERISA plans include filling out a Form 5500 each year, informing employees of mechanics of the plan in a Summary Plan Description and instituting an ERISA compliant claims procedure. If you already have a "wrap plan" that allows you to file one Form 5500, it may not be much additional work to include another plan. However, for employers who have not put a wrap plan in place, be careful that a seemingly innocent addition to your benefit line-up doesn't end up causing you unnecessary headaches (including fines and penalties for non-compliance) associated with ERISA's compliance obligations by ensuring your voluntary benefit offers fall under the voluntary plan safe harbor described above.
To learn more about staying on the right side of ERISA regulations, as well as other health and welfare plans, watch ADP's webcast on the topic. You can register and watch it here.
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