Regulatory compliance is an increasingly vital consideration for benefit advisers and their employer clients, and a key element of any successful open enrollment, due in no small part to the Affordable Care Act.
For employers, the risk of noncompliance is considerable with the IRS assessing penalties on the order of hundreds of dollars per employee per incident. Since verifying who should and should not be receiving benefits is central to any compliance effort, failing to identify which employees are no longer eligible for coverage can also lead to inflated benefits costs.
“Every adviser needs to have a discussion with their clients about their responsibilities as an employer,” says Jack Kwicien, a managing partner at Daymark Advisors, a Baltimore-based consultancy that works with advisers.
The new Open Enrollment Readiness Benchmark index indicates these discussions are overdue. Employers with first-quarter benefit start dates gave themselves the barrel-scraping score of 22 out of 100 with respect to reviewing compliance and eligibility issues. That compared with a not-quite-as-low aggregate score of 28 for all five open enrollment preparation tasks, and a composite score of 37 for overall enrollment readiness.
For advisers seeking to ensure that their clients remain compliant during their upcoming enrollment periods, “The best place to start is to get accurate employer census data,” Kwicien says, accounting for all full-time employees deemed eligible for benefits.
Part of the process involves ensuring that newly ineligible employees are culled from the census. This group may include employee dependents who — because they have crossed an age threshold or started a new job, for example — no longer qualify for benefits under the ACA’s guidelines. Newly added dependents who do qualify for benefits, such as a newborn, should also be accounted for. The census process often results in savings for an employer because ineligible individuals are uncovered and can be dropped from the rolls 85% to 90% of the time, Kwicien says.
Once the eligibility assessment is completed, advisers need to create an audit trail. “In the event of an audit,” Kwicien says, an adviser “needs to be able to demonstrate to the Labor Department and the IRS that the client conducted an accurate census and that all eligible employees were, in fact, offered minimal essential coverage as defined by the ACA.”
If an employee is offered coverage but declines, he adds, that needs to be documented as well. All records of whom coverage was offered to, whether it was accepted and, if not, the reason why it was declined, need to be retained for at least seven years.
“It’s amazing how many employers — especially those still operating in a manual environment, and particularly those in industries like warehouse distribution, where annual employee turnover can be greater than 18% — cannot readily track this information,” Kwicien says.
Determining how to create and maintain these records is another important part of the process. Since electronic records are generally much easier to update, store and retrieve, Kwicien urges advisers to encourage even their smallest clients to migrate to a digital benefits enrollment platform that will automatically track eligibility and benefits selections, establishing an audit trail in the process.
“It may not be right for every employer,” Kwicien acknowledges. “Some are still paper-based for specific business reasons, such as having to work with paper invoices and other records with their own clients.” But when it comes to demonstrating compliance, “It sure makes life easier when all the records are documented electronically,” he adds. “If and when the IRS shows up for an audit, the employer won’t want to go chasing down old records in some warehouse. He’ll want to have them at his fingertips, a couple of clicks away.”