Ready or not, they’re coming. If this is your year to be audited, will your documentation and plan operations be compliant? The Department of Labor (DOL) has regulatory and enforcement authority with respect to the Employee Retirement Income Security Act (ERISA) and other federal laws governing employee benefit plans. The DOL’s Employee Benefits Security Administration (EBSA) team has published aggressive goals to audit all employee benefit plans, either by means of document requests or onsite interviews.
The importance of having accurate, up-to-date plan documentation and reporting is critical to avoid substantial penalties. Under ERISA, your failure to provide summary plan descriptions (SPDs) and other materials to plan participants can result in penalties of $110 per person per day. Failure to file a Form 5500 can result in penalties of up to $1,100 per day. Penalties also can be imposed for failure to comply with group health plan mandates, such as the Affordable Care Act (ACA) requirement to extend eligibility to children up to age 26 or the Health Insurance Portability and Accountability Act (HIPAA) requirement to offer a special enrollment opportunity upon loss of other coverage.
Historically, the EBSA has routinely conducted compliance audits on health and welfare plans while focusing the majority of its audit activities on pension and 401(k) plans. Those efforts continue, while the EBSA now also has stepped up the number and scope of audits it conducts on welfare plans, primarily group health plans.
How are plans selected for audit?
An audit may be triggered in several ways:
Participant complaints, e.g., former employee alerts the EBSA that he or she was not offered COBRA.
Form 5500, e.g., welfare plan filing is missing or is inconsistent with other filings or data.
Enforcement projects. The EBSA has numerous enforcement priorities and projects, one of which currently focuses on group health plan requirements under the ACA, HIPAA, Mental Health Parity Act, and other federal laws.
What do the auditors look for?
Most group health plan audits begin when the plan administrator (employer) receives a Health Plan Document Request Letter from the EBSA. (To view sample request letter, click here, then search for “Figure 2.”). As the plan administrator, you must respond by providing an extensive amount of plan documentation; e.g., copies of plan document, summary plan description, group insurance contracts, and various participant notices.
The deadline to respond may be as short as 10 business days or as long as 30 days. You should consider contacting the EBSA immediately to request an extension since even the most prepared employer often finds it is time consuming to gather all the required materials. In responding, include a cover letter listing all enclosures in the same order as shown in the EBSA request.
After providing the requested material, you do not need to provide anything further unless or until contacted again. The EBSA investigator may contact you by telephone or mail with questions about the material or to schedule an onsite interview. Oftentimes, however, no further action is needed. It also may be many months, or even years, before the EBSA has an opportunity to review the material and determine if additional steps are needed.
How should you prepare?
The best time to prepare is before an audit even begins, and the best way to prepare is to conduct a thorough self-audit from time to time. For instance, make sure your organization would be able to produce all the necessary plan documentation if you received an EBSA document request letter. Formal audits usually cover a three-year period or longer, so you should have complete documentation for all years.
EBSA investigators typically start by asking for copies of your plan documents. Make sure they are up-to-date and compliant. They may also ask for proof of the distribution of notices connected with ERISA, COBRA, HIPAA, ACA and other benefits and coverage notices under related statutes. EBSA offers a detailed self-audit tool to assist employers in conducting an in-depth review of their group health plan compliance with those requirements.
Remember that participant complaints can trigger an audit, so take steps to minimize grievances. Implement procedures to ensure that employee requests for information and documents are responded to promptly, that SPDs and other required disclosures and notices are distributed to participants (including COBRA beneficiaries), and that you retain proof of distribution.
Now is the time to be ready for the DOL’s increased audit and enforcement activities on employer-sponsored group health plans. While the DOL’s enforcement activities are on the rise, please note that employee benefit plans may also be regulated by other government agencies, such as the state’s Department of Insurance and the Internal Revenue Service (IRS). Make sure your plan documents, SPDs, and other notices are compliant, and work with experienced vendors, benefit advisors, and legal counsel to ensure your plans meet all current requirements.