The Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (“Code”) regulate employer-sponsored retirement, executive compensation, welfare and fringe benefit plans. Both ERISA and the Code require certain plan features. In addition, ERISA mandates detailed reporting requirements to the Department of Labor (“DOL”) and other government agencies and also to employees and covered dependents. Failure to comply with all of these rules can be expensive.
Plan sponsors and fiduciaries have a responsibility to ensure that ERISA-covered plans are administered in compliance with applicable law. Conducting a gap analysis helps to ensure that plans are being administered in accordance with ERISA and the Code. A gap analysis can also ensure that the plan operates more efficiently, and, as a result, can help to minimize plan costs. When a compliance problem is discovered during a gap analysis, the problem can often be “corrected” using one of the compliance programs sponsored by the DOL or Internal Revenue Service (“IRS”). The cost of utilizing a government sponsored compliance programs is significantly less than correcting a compliance issue discovered by a government agency on audit.
The DOL’s Employee Benefits Services Administration (“EBSA”) and the IRS routinely conduct audits of ERISA-covered group plans to investigate or audit a plan’s compliance. Audits are anticipated to increase significantly, given increased audit budgets and concerns over ERISA and health care reform violations. Plan sponsors should, therefore, consider conducting a gap analysis of their benefit programs to ensure that their plans are in good order if they are selected for a government audit.
Plan sponsors and fiduciaries should be aware of the warning signs that indicate when a gap analysis is appropriate. For example, problems often arise when there is a change in personnel, plan procedures, payroll systems or service providers (e.g., accountants, attorneys, actuaries or third party administrators). Please refer to the below red flags checklist for additional warning signs.
A gap analysis, generally, involves a review of all plan documents, communications and administrative procedures to ensure compliance with applicable law, determine that eligibility and benefit criteria suit your needs, and to assure efficient and accurate administrative procedures.
The Wagner Law Group has significant experience and expertise performing gap analyses with respect to retirement plans, executive compensation plans and welfare and fringe benefit plans. Because our lawyers draw upon a broad background of experience at law firms, insurance companies and accounting and consulting firms, we are able to approach each gap analysis from several perspectives.
As a result, our reports not only identify compliance issues but also provide practical advice. We assist our clients in maintaining their plans in compliance with all applicable federal, state and local laws, and in developing policies and procedures to: (i) minimize the risk of liability, (ii) minimize compliance issues, and (iii) control costs.
When we conduct a gap analysis, we:
- Review all plan documentation (including plan documents, summary plan descriptions, summaries of material modification and, if applicable, summaries of benefit coverage) to ensure compliance with the law and to determine that the plans provide the intended coverage to the intended employee groups. All ERISA-covered plans must, by law, be administered in accordance with a written plan document. ERISA, HIPAA, the Affordable Care Act, the Code, and other federal laws require the plan document to contain certain specified provisions.
- Review all current third party agreements and insurance contracts to determine eligibility, covered benefits and other matters relating to the benefit plans. Often plan documentation and administrative procedures do not correspond with the third party agreements or insurance contracts. For example, this can be especially critical if a stop loss insurer refuses to cover a disabled employee because the plan, either through plan documentation or administrative errors, does not apply the same eligibility criteria as specified in the stop loss contract.
- Examine plans to determine compliance with federal non-discrimination laws, and fiduciary best practices (e.g., Investment Policy Statement, Fee Policy Statement, benchmarking, etc.).
- Review Form 5500 Annual Report filings and, if necessary, make required corrections. If an employer fails to file a Form 5500 in a timely manner, the employer may submit the late filings using the Department of Labor’s (“DOL’s”) Delinquent Filer Voluntary Compliance (” DFVC”) program. This program limits the penalties that may apply. The penalty is capped at $4,000 for each plan if the plan files two or more late filings. Without DFVC program, the DOL may impose penalties of up to $1,100 per day.
- Review plan administrative procedures for all required notices and forms, including: the distribution of SPDs, SBCs and summaries of material modifications; open enrollment materials; and legally required employee notifications (e.g., summary annual reports, the Women’s Health and Cancer Rights Act notice, the Medicare Part D notice and the most recent notices required under the Affordable Care Act).
- Review the group health plan’s administrative procedures for compliance with the HIPAA Privacy, Security and Breach Notification Rules. HIPAA’s Privacy and Security Rules require group health plans to protect the health information of covered individuals. These rules also apply to health flexible spending account plans. Plans must take steps to protect health information such as: (i) distributing a privacy notice, (ii) executing business associate agreements, and (iii) developing written policies and procedures to protect health information. Adequate training is also required for HIPAA compliance.
- For group health plans, examine COBRA notifications and administrative procedures to determine compliance. Compliance with COBRA is essential for all group health plans since employers can be subject to employee lawsuits and government sanctions for failure to do so. However, compliance is especially important for self funded group health plans, as stop loss carriers will often seek to avoid liability if proper COBRA procedures are not followed.
- Review procedures for Qualified Domestic Relations Orders and Qualified Medical Child Support Orders. ERISA requires a plan to have written procedures to determine an order’s qualified status, to administer benefits under a qualified order, to provide prompt notification of the procedures to each person named in the order, and to name a representative to receive copies of any notices.
Upon the completion of our review, we present a written report detailing our findings and providing recommendations. Our recommendations focus on bringing plans into compliance and implementing best practices to improve plan administration.
Red Flags Checklist
If any one or more of the following factors exists with respect to a benefit plan, then the plan sponsor should consider a gap analysis:
- The plan received letter of noncompliance from IRS, DOL, or PBGC.
- The plan sponsor experiences difficulty locating plan documents (e.g., plan and trust agreements) and/or amendments.
- The plan sponsor cannot provide copies of summary annual reports, summary plan descriptions, summaries of material modification, or Form 5500 filings upon request.
- The plan sponsor has difficulty completing the Form 5500 filing.
- The plan’s independent auditor has issued a qualified opinion for a qualified retirement plan or a funded welfare plan or the independent auditor’s statement contains a statement regarding a compliance issue.
- The plan sponsor is planning a divestiture or plant closing.
- The plan sponsor is planning a merger or acquisition.
- Benefits are not paid on a timely basis.
- The plan sponsor has concerns that procedures to determine plan participation may not be administered properly.
- The plan sponsor has received a number of complaints from plan participants and beneficiaries about the plan.
- The plan sponsor/administrator spends too much time solving problems.
- Plan procedures are not documented.
- There is a pending law suit or legal inquiry.
- Employee contributions are not transmitted timely.
- A self-audit has not been conducted within the past 5 years.
- Administrative costs seem excessive.
- There has been a change in the plan’s personnel, payroll vendor or service provider (e.g., accountant, attorney, actuary or third party administrator).