On the Rise

Health plan audits: how employers can stay in compliance to prevent penalties and lawsuits

By: Melanie Fugate

The federal law that sets minimum standards for employee benefit plans maintained by private-sector employers is known as the Employee Retirement Income Security Act of 1974 (ERISA). It includes requirements for both retirement plans, such as a 401(K) plans and welfare benefit plans, including group health plans. Over the years, ERISA has been amended several times, expanding the protection available to participants and beneficiaries.

The Department of Labor (DOL) enforces most ERISA provisions, and violating them can have some serious and costly consequences for employers who sponsor welfare benefit plans, whether through DOL enforcement actions, penalties or an employee lawsuit.

The DOL enforces through its Employee Benefits Security Administration (EBSA), and it has broad authority to investigate or audit an employee’s benefit plan. Most of these audits focus on violations of ERISA’s fiduciary obligations and reporting and disclosure requirements. Traditionally, audits of employee benefit plans have focused primarily on retirement plans, but recently, the DOL has been using their authority to enforce compliance with the Affordable Care Act (ACA).

In 2014, EBSA closed 3,928 civil investigations and 65 percent resulted in monetary results for employee benefit plans or corrective action. The EBSA filed 107 lawsuits and closed more than 350 criminal investigations that led to the indictment of more than 100 individuals, who included corporate officers, plan officials and service providers. Now that the DOL has started enforcing compliance with the ACA, health plan audits are on the rise.

The most common penalty assessments are Form 5500 violations, a lack of providing participants with plan information and breaches of fiduciary duty. The DOL has the authority to penalize businesses up to $1,100 per day for each day the administrator fails or refuses to file a complete Form 5500. The Form 5500 is due the first day of the policy renewal, and it is required for companies that have 100 or more participants (employees receiving benefits).

Many companies fail to respond to an employee’s request for plan documents, such as the latest summary plan description. Failure to provide information within 30 days will result in a penalty of $110 per day from the date of the failure to provide the information. For fiduciary duty breaches, the DOL will assess a civil penalty against the fiduciary in an amount equal to 20 percent of the applicable recovery amount.

A DOL audit can be triggered for a variety of reasons, and in most cases, the DOL investigator will not disclose to an employer why its health plan was selected for an audit. The most common trigger for the DOL is repeated participant complaints in regards to a particular plan, employer or service provider. Many times, the answers on the plan’s Form 5500 are incomplete or include inconsistent information from year to year.

Minimizing the risk of being audited and preparing for a DOL audit is to remain in compliance and respond to employee requests for benefit information on a timely basis. Establish a recordkeeping system for maintaining all of the important documents relating to your employee benefit plans for up to at least seven years.

During the preparation process, employers will often find a compliance mistake that needs to be corrected. There are a couple of ways to address the mistake before the DOL discovers it and assesses a penalty. There are self-correction programs for certain violations that offer incentives to an employer to file delinquent Forms 5500 and correct fiduciary breaches.

The Delinquent Filer Voluntary Compliance Program (DFVCP) encourages plan administrators to bring their plans into compliance with ERISA’s Form 5500 filing requirements. The DFVCP gives delinquent employers a way to avoid potentially higher civil penalty assessments by voluntarily filing late Forms 5500 and paying reduced penalties.

The Voluntary Fiduciary Correction Program (VFCP) also allows plan officials who have identified certain violations of ERISA to take corrective action to remedy the breaches and voluntarily report the violations to EBSA without becoming the subject of an enforcement action.


For more information on employer compliance solutions and customized employee benefit packages, visit Carlisle Insurance online at www.carlisleins.com or call one of their expert team members at 361-884-2775.


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