by Brandon Long
It’s rumored that President Ronald Reagan once referred to the Employee Retirement Income Security Act of 1974 (ERISA) as “Every Ridiculous Idea Since Adam.” ERISA serves important purposes in our society, but it also presents tremendous challenges and potential liabilities for good-intentioned employers that merely want to provide nice benefits to their employees. 
In the last few years, it seems like the employee benefits “gotcha” list—things employers can do to accidentally violate ERISA (and other laws)—has grown exponentially. Employers have a basic understanding that ERISA requires a plan document, a summary plan description, and sometimes a trust. But it actually requires much more.
Form 5500s
In regard to welfare benefits in general (e.g., health, dental, and vision), many employers are still unaware of the ERISA requirement to annually file a Form 5500 for welfare benefit plans covering 100 or more participants. Employers often recognize the need to file a 5500 for their health plan, but many fail to file the forms for all of their other welfare benefits, such as their dental benefits, vision benefits, life insurance, disability coverage, and flexible spending plan. The good news is that this mistake can be fixed fairly easily and cheaply—provided employers catch it and fix it before the U.S. Department of Labor (DOL) discovers it.
Summary plan description
Also, employers often fail to distribute summary plan descriptions for their welfare benefits as required by ERISA. When the DOL comes knocking on your door, the government will want to know how your employees could possibly know and understand the benefits they are being provided—such as dental, vision, and life— if you have never distributed a plan document or a summary plan description. You should give the same care and attention to providing summary plan descriptions for welfare benefits as you give to providing them for your 401(k) plan or pension plan.
And keep in mind that the benefits booklets you receive from your vendors (such as the third-party administrator for your self-funded medical plan or the insurance booklet for your employer-provided life insurance benefit) often don’t contain everything that’s required to be in a summary plan description. So you likely need to work with your consultant and attorney to make sure you add to your benefit booklets to make them a valid and complete summary plan description.
ACA and ERISA connection
On the health plan front in particular, many provisions of the Affordable Care Act (ACA) have been incorporated into ERISA, so a violation of any of those ACA requirements is technically also a violation of ERISA. For example, the ACA requirement for a nongrandfathered health plan to provide external review as part of its claims and appeals process is also now an ERISA requirement.
It’s absolutely critical for you to work with experienced consultants and attorneys who know what the ACA requires because the consequence of an ACA violation can be very expensive (potentially $100 per day per person) and difficult to fix.
Retirement plan traps
On the retirement plan side, employers seem to be more educated about the basic requirements. Most employers have a plan document, a summary plan description, and a trust. Most employers annually file a Form 5500 for their retirement plan. And most employers even have a good handle on the new fee disclosure requirements.
What we often see on the retirement plan side is that employers still misunderstand the rules related to when they must deposit 401(k) deferrals into the plan’s trust. While smaller employers with fewer than 100 participants in their plan (at the beginning of a plan year) have seven business days to deposit 401(k) deferrals, employers with 100 or more employees really need to deposit 401(k) deferrals into their plan’s trust immediately.
If a large employer can’t deposit 401(k) deferrals into its plan’s trust on the same day as payroll, it needs to have a very good reason, and the reason needs to be documented. The DOL’s position on this has been fairly aggressive the past few years. If you are a large employer and you have been depositing 401(k) deferrals (and/or loan repayments) more than one or two days after the date of payroll, you likely need to self-correct this error, which also can be fixed easily and cheaply—provided you discover and fix it before the DOL does.
Also on the retirement side, employers often still fail to take basic steps to minimize their fiduciary liability under ERISA. Too often, retirement plan documents still state that the “company” is the plan fiduciary, but then—practically—one person in HR is administering the company’s retirement plan and picking the plan’s investment options. In such instances, because the “company” is the board of directors, directors have significant personal exposure for the way the plan is being operated. Unless the company’s board of directors is going to oversee the company’s retirement plan, the best practice is for the board to delegate its fiduciary authority—via a formal charter—to a company-formed retirement plan committee.
While not required, it’s also advisable to seriously consider an investment advisor for your retirement plan. Although not necessarily a problem, a yellow flag we often see is that the company doesn’t have an independent investment advisor and its record keeper has a number of its own proprietary funds in the plan’s investment lineup, including target date funds, which often serve as the default investment for employees. Often, these record keepers come in once a year and review the plan’s performance, including the performance of their own investments, and committees operate under the impression that everything is A-OK from a fiduciary compliance standpoint.
Unfortunately, many committees fail to have the expertise to truly understand their plan’s investments, performance, and expense ratios. Just as critical, committees often fail to truly appreciate where all of their plan’s dead bodies are buried—that is, how and where their plan’s investments generate money and who keeps the money. A good investment advisor can help a committee:
- Develop and follow a good investment policy statement;
- Understand how the plan’s investments are performing relative to appropriate benchmarks;
- Understand all of the ways the plan’s investments generate money and who is receiving it;
- Develop a sound policy for allocating record keeping and other plan-related costs;
- Meet regularly;
- Keep minutes for its committee meetings; and
- Educate employees.
Bottom line
There are a hodgepodge of additional ERISA requirements and compliance issues that present challenges for employers—far too many to mention in this short article.
Now more than ever, it’s absolutely critical that you have the right consultants, the right advisors, the right auditors, and even the right attorneys—because the ERISA gotcha list keeps growing.
Brandon Long is the leader of the McAfee & Taft‘s Employee Benefits and Executive Compensation Group, practicing in the firm’s Oklahoma City, Oklahoma, office. He may be contacted at brandon.long@mcafeetaft.com.