HR Blog

Back to Basics: What Every HR Person Should Know About ERISA

11/02/2021 | PCI HR Consulting Practice

If you don't know or you're not sure what ERISA is or why it's important you're not alone.  ERISA is a massive piece of legislation. Think of it as kind of the Godfather of employee benefit plan regulation.

HOLD ON….WAIT JUST A MINUTE, you say. I work for a small employer so I don't need to worry about all this ERISA stuff right? This is only for big companies, right?  

Sorry but no. ERISA covers all private sector plans with few exceptions; those exceptions include governmental plans and church plans.

So essentially if your plan is neither a governmental plan nor a church plan, it's a safe bet that ERISA applies to you.

A little background: The Employee Retirement Income Security Act of 1974 (what we fondly call ERISA) is a federal law that sets minimum standards for retirement and health benefit plans in private industry. ERISA does not require any employer to establish a plan (and before you get too excited, no this doesn't get large employers out of the ACA rules of offering health coverage). It only requires that those employers who establish plans must meet certain minimum standards. 

The Breadth of ERISA.  There are four titles in ERISA: Title I Protection of Employee Benefit Rights covers rules about reporting and disclosure, vesting, participation, funding, fiduciary conduct, and civil enforcement; Title II Internal Revenue Code Provisions amended the IRS code to align with the rules in Title I; Title III Jurisdiction, Administration, and Enforcement covers jurisdictional matters and coordination of enforcement; and Title IV Pension Benefit Guaranty Corporation and Plan Termination covers the insurance of defined benefit pension plans.  (I told you it was massive. If you're up for a little light reading, you can read about the history of ERISA.)

Our focus today is going to be on Title I: Protection of Employee Benefit Rights – this where you'll find most of the provisions that you deal with in health insurance like disclosures and notices. ERISA dictates what is to be disclosed, when it is to be disclosed, to whom it is to be disclosed, and in what manner the disclosure can be done.

A major requirement of ERISA is that your plan must be in writing. The big-deal-document here is the Summary Plan Description or SPD.

The "Certificate of Coverage" aka booklet that you receive from the carrier does not satisfy the SPD requirement under ERISA. 

The SPD incorporates the carrier documents but it needs other pieces to be compliant.  You might have heard the term Wrap SPD; this is a document that contains what is missing in the carrier's booklet; it "wraps around" the carrier booklet and together they become the SPD.

It's important that you don't confuse the SPD with the SBC – the Summary of Benefits and Coverage. The SBC is a separate document requirement that came about with the ACA.

The SPD must be written in plain language that the average participant can understand. Participants must automatically receive a copy within 90 days of being covered under the plan. If you've just become subject to ERISA then you have 120 days to comply (so for instance, if this is the first time you've ever offered a plan). An updated SPD must be furnished to participants every 5 years if are any changes and every 10 years if there are not.  If you make changes every year you can either issue updates (Summary of Material Modifications) in between years 1 and 5 or you can reissue the entire SPD each year. It's really up to you.  You also are required to furnish it upon request. Each of the plan participants should receive their own copy of the SPD.  You can elect to distribute the document electronically subject to certain rules which we'll talk about in a minute.

There are also many different notices/disclosures required by ERISA. Some commonly known ones include:

  • HIPAA Notice of Special Enrollment Rights
  • CHIPRA Notice
  • Women's Health & Cancer Rights (WHCRA) Act
  • Grandfathered Plan Disclosure/Notice
  • Summary of Benefits and Coverage (SBC)
  • SBC Notice of Modification
  • Notice Regarding Designation of a PCP
  • Employer Notice to Employees of Coverage Options (aka Marketplace Notice)

Lesser known disclosures:

  • Medical Child Support Order (MCSO)
  • National Medical Support Notice (NMS)
  • Wellness Program Disclosure
  • Newborns' Act Description of Rights
  • Michelle's Law Enrollment Notices
  • Mental Health Parity and Addiction Equity Act (MHPAEA) Criteria for Medically Necessary Determination
  • MHPAEA Claims Denial Notice
  • MHPAEA Increased Cost Exemption

Important notes:

  • Some of these notices may not apply to your plan; it's important to know which ones do.  
  • These don't all have to be given out together; some disclosures you can include with the annual open enrollment materials; others are included in the carrier's certificate of coverage (just be sure you keep copies of all the notices together in the overall SPD document)
  • Some of these notices have multiple versions depending on the circumstances and timing (COBRA, for instance).
  • These lists don't include notices required under other regulations such as FMLA and Medicare

So how do you distribute all this stuff? Well you have a few options. ERISA requires that you use "measures reasonably calculated to ensure actual receipt of the material." So can you furnish them via email to employees? Sure, provided that participants have email as an integral part of their duties. Setting up a kiosk where employees can access their email (as opposed to them having a workstation where they always have access) does not satisfy ERISA.  Another electronic method involves "affirmative consent."  You would need the participant's consent to provide the documents in an electronic form prior to distribution. Some employers have a signoff sheet and then provide the SPD to an employee's home email, or via a CD, or a thumb drive. You can also opt for paper distribution or even use a combination of methods. The important part is that you can demonstrate "actual receipt" by each participant.

Remember:  if an employee really wants a paper copy of the SPD you have to provide that way.

There are other disclosure rules and forms such as Form 5500 and its assorted schedules, the Summary Annual Report (SAR), and many different disclosures related to retirement plans.  Check out the Department of Labor's Reporting and Disclosure Guide for Employee Benefit Plans for a good overview of these requirements.

ERISA reporting and disclosure compliance can seem like a daunting task but it's a very important one and one worth being sure you understand.