Best Practices for Administering Employee Benefit Plans
Most employers offer benefits to their employees; however, they are often unfamiliar with the many responsibilities that come with it. Employee benefits are any nonwages compensation provided to an employee, including health insurance, disability insurance, life insurance, pension plans, and retirement accounts such as 401(k) plans. The primary law that governs businesses and sometimes individual owners of a business is a federal law called The Employee Retirement Income Security Act of 1974 (“ERISA”). ERISA was initially passed to address concerns regarding retirement plans, but includes provisions for other employee benefits. It applies broadly to all businesses except religious institutions, whether a company has a few employees or ten thousand.
An employer must appoint an administrator to oversee the company’s benefit plans. The administrator becomes a fiduciary to the employee, i.e., s/he must act solely in the interest of the employee and their beneficiaries in a competent manner. This role can often come with conflicts especially when communicating plan information to employees. Failing to properly manage benefits in the best interest of plan participants has severe penalties that can result in the business owner being personally liable to the employee, which could affect the business owner’s personal assets owned outside of the company.
Affirmative Duty to Inform
Employers have a duty not to misinform employees regarding their benefit plan, and also to affirmatively disclose information when the lack of such could cause the employee harm. For example, if an employee asks about a benefit s/he might be eligible for, the employer should provide the information, rather than suggest another less expensive benefit for which the employee could apply or hint that it would be better for them not to apply. Failure to inform employees accurately about their eligibility for benefits is a breach of fiduciary duty.
Employers must provide employees and covered dependents with a copy of benefits documentation within thirty days of any written request. Otherwise, the employee can sue for penalties, up to $110 for every day the documentation is not provided. An employer may also be held liable for the attorney’s fees of the employee. An employer should maintain written policies that outline the claims and appeals process for employees and be prepared for potential audits with detailed logs and reports relating to requests.
As a fiduciary, an employer has an obligation to advise an employee on how to apply for benefits, including providing multiple reminders on approaching deadlines, the process of applying, and other information that might be reasonably requested. It is highly advisable to have personnel that are familiar with plans available to explain relevant information to employees. Employers can request the companies selling the plans to provide staff to answer questions directly to their employees. Documentation can be especially important to prove that employees have been properly informed about benefits at all stages.
• Appoint trained human resources personnel to administer plans, or consider outsourcing the function.
• Make sure insurance premiums for benefits are properly deducted from employees paychecks, if necessary, and paid when due.
• Provide any information requested by employees accurately and in a timely manner.
• Give employees a summary of their plan descriptions at least annually.
• Summarize annual changes to plans in an easyto- read manner.
• Answer employees’ questions about benefits accurately or refer them to a plan brochure or representative if information is not known.
• Maintain a written policy that outlines claims and appeals for denied claims.
• Keep detailed reports on requests for information and responses in the event of an audit.
Retirement plans and medical benefits can be a great way to encourage loyalty and productivity in employees. It is important that business owners seek qualified and trained professionals to help them set up and maintain benefit plans.
Business Insights is hosted by the Law Firm of KPPB LAW (www.kppblaw.com).
Sonjui L. Kumar is a founding partner of KPPB LAW, practicing in the area of corporate law and governance. Jesse C. Moore is a law clerk at KPPB Law.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.
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