As an ever-changing healthcare market continues to drive up demand for voluntary benefits, employers face a strategic compliance choice on which brokers and advisers can help them decide.
In a nutshell, they need to determine whether to sponsor those plans and be subject to ERISA or seek an exemption, according to Roberta Watson, an ERISA attorney with the Wagner Law Group. If they choose the latter, she says “they should get careful advice regarding the conditions of the exemption and stay within the exemption.”
Where many employers can run afoul of the ERISA exemption is when voluntary benefits are offered to ease the sting of health plan cutbacks or tied to core coverage gaps, Watson explains. The Department of Labor will view those scenarios, which have become increasingly common since passage of the Affordable Care Act, as plan sponsorship and therefore subject to ERISA.
Some voluntary benefits aren’t governed by ERISA because they’re not deemed part of an employee pension, health or welfare plan, Watson says. They include dependent care plans and pet insurance. All other voluntary plans must comply with ERISA unless they qualify for an exemption.
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A recent analysis from ComplianceBug LLC found that more than 80% of voluntary benefit offerings in an industry whose annual sales exceed $7 billion are subject to ERISA. But observers say many employers and their advisers falsely assume the products aren’t governed by ERISA’s reporting requirements.
While employers can allow carriers to enroll plan participants at work, they’re not supposed to endorse any service providers or promote the benefits as employer-sponsored to comply with the exemption. Another condition for exemption is that they make available two or more providers.
In terms of enforcement, Watson says the DOL hasn’t made the policing of voluntary benefits a priority because complaints haven’t been made. But to ignore the link between ERISA and these employee-pay-all plans would be too risky for employers who don’t qualify for the exemption.
Lack of understanding
The trouble with many licensed brokers and agents who are selling voluntary products is that they’re not trained to understand how federal requirements work and affect those benefit offerings, observes Pete Lewenson, founder and president of ComplianceBug.
“There is more or less a disconnect in how they’re sold, and they don’t really know what goes into managing them,” he says. “It’s always been the HR department’s responsibility to maintain their benefit offerings, which ultimately it is.”
Brokers and advisers at least need to be aware of the compliance pitfalls pertaining to ERISA’s governance of voluntary benefits, Lewenson says, but they shouldn’t profess expertise “unless they have very specific training or their organization wants to make a very specific service with trained professionals that are advising clients of this stuff.”
What’s ideal is to partner with a third party such as a compliance organization or ERISA attorney that has some domain expertise in these areas, according to Lewenson.
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“Voluntary benefits are a huge thing now because of high deductibles and out-of-pocket limits,” observes Christine Roberts, an attorney focused on ERISA and ACA compliance issues with Mullen & Henzell. And with these plans increasingly being used to fill gaps created by the ACA, they could invite closer government scrutiny down the road. The tri-agencies that administer the Affordable Care Act have been very assiduous and thorough in trying to shut down work-arounds to the ACA,” she explains.
Lewenson says the enforcement action for health and welfare plans has been very lax from a historical perspective. “But over the last few years,” he notes, “we’ve seen that there was a pretty significant push by the DOL to begin to audit firms and investigate these things, and then it retracted a little bit.” Two such indications are new Form 5500 filing provisions and reporting provisions under the ACA.
“Just because the DOL isn’t looking for it with the same enthusiasm that they do delayed 401(k) contributions doesn’t mean that the employers can rest assured that nothing bad will ever happen,” Watson cautions.
In light of a recent tri-agency proposal on voluntary supplemental medical products, producers have been advised to confirm with their employer clients that the policies do not coordinate with group medical coverage.
Follow the rules
Under a plan from the DOL, Department of Health and Human Services and Department of the Treasury, Roberts says a number of current hospital and fixed-indemnity and disease-specific coverage arrangements would not be considered to be excepted benefits for ACA purposes, which would in turn trigger excise taxes on the employers sponsoring them. “One requirement is that coverage be a fixed amount per time period (e.g., day, week, month) and not per service or procedure,” she explains.
Even with ERISA compliance requirements for voluntary benefits, Lewenson says it’s a “minimal amount of work” to ensure the law is being followed and doesn’t see it as a deterrent to plan sponsorship. “The smart organizations are just going to fold these benefits into a wrap plan document or a wrap plan SPD, and so it just becomes an additional line item,” he predicts.
“There’s really nothing wrong with being subject to ERISA as long as you know you’re subject to ERISA and you follow the rules” around filing a Form 5500 or having a summary plan description, Watson notes. “Where employers get into trouble is that they aren’t aware of the conditions for ERISA exemption, and they don’t really try to stay within them.”
Roberts suggests that employers and their broker partners take the necessary steps primarily in benefits communication to reduce the likelihood that a voluntary benefit would retroactively be characterized as an ERISA plan. “It remains to be seen how practical fully embracing exemption would be for the industry and clients,” she says, adding her gut feeling is that “it would be a while before any enforcement in this area was pursued.”
