Brown & Brown of Ohio Breakfast Briefing: April 2011

1. ERISA Compliance: Document & Notification Requirements Brown & Brown of OhioBreakfast Briefing: April 2011

2. Welcome Clients & Guests • Objective • Basic understanding of ERISA • Explain document & notification requirements • Explain risks associated with non-compliance • What prompted this…. • Has not been addressed by legal counsel • PPACA – 60 day notification requirement • Audits & Litigation are on the rise!

3. Risk Management • Risk • You can retain • You can reduce • You can avoid • You can transfer You don’t buy insurance – you sell risk!

4. Costs associated with employees • Payroll Costs • Training Costs • Fringe Benefit Costs • Health & Welfare Benefits • Should you invest dollars to try and improve the risk? • Wellness Initiatives • Compliance Costs

5. Budget for Compliance • The cost for hiring and maintaining an employee is no longer just wages and benefits, it is now more important than ever to factor in the cost of compliance and while it can be a small percentage of your overall payroll expense • If you are found out of compliance and fined or sued, it can end up being a significant percentage of payroll

6. Budget for Compliance • Because compliance requirements have trickled in gradually over the years, most business owners have not fully grasped the significance of what exists and what should be done to protect their assets • Many try to meet the requirements by assigning these duties to staff that do not have the expertise or training necessary

7. Budget for Compliance • There is also the fact that these are legal requirements and therefore, fall under the domain of our attorneys • This, too, is a challenge because most attorneys get involved only after a problem arises • We use them to help put out or contain the fire, rather than help to prevent the fire • Unfortunately, many business owners choose this path due to the high fees that attorneys need to charge for their time

8. Budget for Compliance • To address this need, an entire industry of Third Party Administrators (TPA) has developed to help with compliance requirements • The TPAs typically have legal counsel on staff or on retainer • They have a higher level of expertise because this is what they do day-in and day-out • The are typically diverse and able to handle MANY different situations • In addition, they can typically provide the service and expertise at a fraction of the cost, thus allowing you to use your legal counsel for the fires and/or big picture oversight

9. Compliance FLSA* OSHA Immigration EEO ADA* Medicare* Michelle’s Law* QMCSO* USERRA* PPACA* • ERISA* • COBRA* • HIPAA* • FMLA* • GINA* • CHIPRA* • OBRA* • MHPAEA* • NMHPA* • WHCRA* * Area of the law that directly interacts with your health & welfare plans

10. ERISA • Passed in 1974, ERISA was the first piece of significant legislation that addressed the RULES that an employer-sponsored plan must follow • This all started with Nixon & Ford • Brought back to center stage by Clinton • Delivered by Obama, Pelosi & Reed

11. ERISA Compliance& Health Care Reform

12. ERISA Topics • ERISA Defined • Employers Subject to ERISA • Definition of Welfare Benefit Plans • Benefits Subject to ERISA • Safe Harbor Exemptions • Key ERISA Requirements • Basic ERISA Rules • Summary Plan Descriptions (SPD) • Disclosure to Participants and Beneficiaries • Annual 5500 Reporting

13. ERISA Defined • Employee Retirement Income Security Act (ERISA) • Federal Law Enacted in 1974 • Title 1 is part of the labor laws of the US that governs the structure of (employee benefit plans) • Requires detailed disclosure to covered individuals • Requires detailed reporting to the Government • Imposes strict fiduciary code of conduct on those who sponsor and administer ERISA Plans • Imposes federal mechanism for enforcing rights and duties with respect to ERISA Plans and preempts a large body of state laws

14. ERISA Defined (cont’d) • DOL (Department of Labor) • Enforces ERISA Title 1 mainly through it’s Employee Benefits Security Administration • Failure to comply with ERISA’s requirements can be quite costly • Through DOL enforcement actions • Penalty assessments • Employee lawsuits

15. ERISA Titles • “Title 1” applies to H&W benefits • 7 parts- 5 parts apply to H&W benefits • Part1- Reporting & Disclosure • Part 4- Fiduciary responsibility • Part 5- Administration & Enforcement • Part 6- COBRA and additional standards for group health plans • Part 7- HIPAA, FMLA, Newborn & Mothers Health Protection, Mental Health Parity Act, Womens Health and Cancer Rights Act (WHCRA)

16. Definition of Welfare Benefit Plan • A Welfare Benefit Plan must be: • A Plan, fund or program • Established or maintained by an employer • Established to provide welfare benefits to Participants and beneficiaries

17. Benefits Subject to ERISA • Health, Dental and/or Vision Insurance or Plans • Health Flexible Spending Accounts (separate Plans) • Health Reimbursement Arrangements (separate Plans) • Accidental Death & Dismemberment Insurance • Group Term Life Insurance • Short Term and Long Term Disability • Severance Insurance Policy • Wellness and Employee Assistance Programs • Voluntary Benefits offered as pre-tax benefits under any 125 plan

18. Safe Harbors of Statutory and Regulatory Exemptions • Voluntary Plan Exemption • “Voluntary employee-pay-all” • Employer allows insurance company to sell policies • Employees pay full cost of coverage • Employer may not make any contribution toward coverage • Insurer may not pay employer for being allowed into workplace • Employer may not “endorse” program • Involvement by employer beyond payroll deductions may “take arrangement outside exemption” • Court cases • Assisting employees with claim forms • Negotiating with insurers • Record keeping • Pre-tax deductions under 125 Plan

19. Employers Subject to ERISA • Private-Sector Employers • Corporations • Partnerships • Sole Proprietorships • Non-Profit Organizations • Unless Exempt under 501a

20. Safe Harbors of Statutory and Regulatory Exemptions • Government, Church, and Other • Governmental and church plans are exempt from ERISA • Programs maintained solely to comply with state-law requirements for • Workers compensation • Unemployment compensation • Disability insurance • Plans maintained outside the US for non-aliens

21. Safe Harbors of Statutory and Regulatory Exemptions • Payroll Practice Exemptions • Certain payments exempt if made as normal (payroll practice) • Wages, overtime pay, shift premiums • Holiday or weekend premiums • Sick pay or income replacement benefits • Vacation, holiday, jury duty, and similar pay • Amounts must be paid out of general assets • Pre-funding (VEBA) or use of insurance (Insured STD) can take arrangement outside of the exemption

22. Key ERISA Requirements • Plan document must exist for each Plan • Plan terms must be followed and strict fiduciary standards adhered to • Fidelity bond must be purchased to cover every person who handles Plan funds • Summary Plan Description (SPD) must be furnished automatically to Plan Participants • Summary of Material Modification (SMM) must be furnished automatically to Plan Participants when a Plan is amended

23. Key ERISA Requirements • Copies of certain Plan documents must be furnished to Participants and beneficiaries on written request and be made available for inspection • Form 5500 must be filed annually for each Plan (subject to important exemptions, especially for small Plans) • Summary Annual Report (summarizing Form 5500 information) must be furnished automatically to Plan Participants for a Plan that files a Form 5500 (except totally unfunded welfare Plans)

24. 10 Minute Break

25. Basic ERISA Rules • Plan Document • ERISA benefits must be provided through written document • Employer-Sponsor free to design Plan of benefits • ERISA Plan can exist without document • Will be out of compliance without written document requirement • Document Type Influenced by nature of Plan benefits • Insured Plan document different from self-insured

26. Basic ERISA Rules • Insured Benefits Require “Wrap Document” • Insurers may not have all provisions required of a Plan document • Supplement contracts using “Wrap Document” • Contains missing terms and wraps itself around insurance contract • Designation of Plan administrator • Designation of fiduciary • Plan Name, Plan Year and Plan Number • Eligibility Criteria • Designation of how many Plans, Plan sponsor maintains

27. Basic ERISA Rules • Number of Plan Documents Depends on how Many Plans • ERISA Plan document requirements apply to each Plan an employer maintains • No hard-and-fast rules for determining how many Plans • Plan sponsor is free to determine number of Plans for ERISA compliance • (However, pension and 401(k) Plans must be maintained separately) • Failure to address this issue can create confusion

28. Basic ERISA Rules • Bundling Benefits in One or More ERISA Plan • Employers may choose to establish a single “bundled” Plan with all Welfare benefits, including Non-ERISA fringes such as Cafeteria and DCAP • Bundling ERISA and Non-ERISA benefits together does not make Non-ERISA benefits subject to ERISA • Employer can bundle different groups of benefits in different configuration • “Health, Dental, and Health FSA under one Plan; STD and LTD under another Plan” • Or, treat each benefit as separate Plan

29. Summary Plan Description (SPD) • Who Must be Provided an SPD? • SPDs are not required for employer-provided day care centers and Plans benefiting select group of HCEs • No small Plan exception • Whether covers one individual or 2000 • Must be furnished to Participants covered under ERISA Welfare Plan, not required to furnish beneficiaries • Must be furnished to COBRA qualified beneficiaries, parent or guardian under a QMCSO, and to spouse or dependent of deceased retiree who remains entitled to benefits

30. Summary Plan Description (SPD) • When and How to Furnish SPDs • Should generally be furnished within 90 days after Participant first becomes covered • NEW Plans – within 120 days after Plan becomes subject to ERISA • Updated SPDs must be furnished to all covered Participants every 5 years (every 10 years for a Plan that had no changes) • Must be furnished in a way “reasonably calculated to ensure actual receipt of the material,” using method “likely to result in full distribution”

31. What Kind of Document Satisfies SPD Requirement (cont’d) • Updating the SPD (Summary of Plan Description) • Any modification in the terms of the plan that is “material” and any change in information required in the SPD must be reported to Plan Participants • ERISA allows Plan administrators to report such changes through a Summary of Material Modification (SMM) • SMM provided in same manner to same individuals as SPD • Must be furnished within 210 days after the end of the Plan Year in which the modification changed • However, an SMM relating to a material reduction in covered services or benefits under a group health Plan must be furnished no later than 60 days after the date of the adoption of the reduction

32. Health Care Reform & the ERISA SPD • The PPACA adds a new twist to the ERISA SPD requirements by requiring insurers of insured health plans and plan administrators of self-insured health plans to provide applicants and enrollees a "summary of benefits and coverage" before enrollment or re-enrollment.

33. Health Care Reform & the ERISA SPD • Must be no longer than four pages and meet specific requirements for appearance • no print smaller than 12-point font • language understandable by the average plan enrollee • content uniform definitions, co-payments and other cost-sharing provisions, etc • Summaries must be provided within 24 months (2012 plan years) of the enactment date of PPACA • Penalties • $1,000 may apply for each willful failure to provide a summary • Notice of any material modification (SMM) to the plan or coverage not reflected in the most recently provided summary must be furnished no later than 60 days before the date the modification becomes effective.

34. Other Disclosures to Participants and Beneficiaries • Providing Copies of Documents on Written Request • Upon written request by a participant or beneficiary, the ERISA Plan administrator must furnish: • Copy of latest SPD and SMM, • Latest annual report, • Any terminated report, • Bargaining agreement, • Trust agreement, • Any contract, • Any other “instrument under which the Plan is established or operated”

35. Other Disclosures to Participants and Beneficiaries • Providing Copies of Documents on Written Request • Upon written request by a participant or beneficiary, the ERISA Plan administrator must furnish: • Must be provided within 30 days of request • Penalties of $110.00 per day may be assessed for each day after the deadline that a Plan administrator does not respond • May charge reasonable amount for furnishing documents, not to exceed .25 per page

36. Annual Form 5500 Reporting • Filing Form 5500 with DOL • Unless exempted, Plan administrator of an ERISA Plan must report specified information each Plan Year using Form 5500 • Reporting obligation applies to each ERISA Plan an employer sponsors

37. Annual Form 5500 Reporting • Penalties for 5500 Form Failures • Plan administrator subject to penalties up to $1,100.00 for every day form 5500 is missing or incomplete and can be subject to possible criminal penalties for willful failure to file • Penalties are cumulative; • Assessed separately for each missing or incomplete Form • No statute of limitations • DOL offers program for voluntary correction of Form 5500 filings

38. Form 5500 Exemptions • Small unfunded or insured plans completely exempt • To be considered a small Plan, you must have fewer than 100 covered Participants at the beginning of the Plan Year • Only Participants actually covered under Plan are counted • Includes COBRA qualified beneficiaries and retirees covered in the Plan, but does not include covered spouses and dependents • Form 5500 exemption is available to: • Small unfunded Plans (benefits paid from the employer’s general assets); • Small insured Plans (paid through insurance policies other than stop-loss coverage); • Small combination Plans (combination of general assets and insurance)

39. Health Care Reform’s Impact on Your Benefit Plans

40. Sources of Law • H.R. 3590, the Patient Protection and Affordable Care Act, (PPACA), which was signed into law on March 23, 2010. • H.R. 4872, the Health Care and Education Reconciliation Act of 2010, (HCERA), which was signed into law on March 30, 2010. • Interim Final Rules Relating to Dependent Coverage of Children to Age 26 Under PPACA, (May 13, 2010) and IRS Notice 2010-38 (Apr. 27, 2010) Age 27 non-taxable benefits. • Interim Final Rules Relating to Status as a Grandfathered Health Plan Under PPACA, (June 17, 2010). • Patient Protection and Affordable Care Act: Preexisting Conditions Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections, (June 28, 2010).

41. Sources of Law (cont’) • Interim final regulations implementing PHS Act section 2719 on July 23, 2010 • These laws made amendments to the Internal Revenue Code (Code), ERISA, the Social Security Act (SSA), the Public Health Service Act (PHSA), and the Fair Labor Standards Act (FLSA).

42. Sources of Law (cont’) • Many of the coverage changes affecting group health plans are amendments to the PHSA, which applies directly to insurers and governmental plans. • PPACA makes these provisions applicable to employer-sponsored health plans (including self-insured plans) through new ERISA § 715 (which adds the new PHSA provisions to ERISA) and new Code § 9815 (which adds the new PHSA provisions to the Code).

43. Fiduciary Liability Insurance • It is designed to transfer the liability related to claims • Associated with the unintended breach of fiduciary duties to the plan • Associated with an error in the administration of the plan • These contracts differ from ERISA Bonds, bonds simply protect the money, not the people or employers administering the plans

44. Fiduciary Liability Insurance • Costs are minimal, compared to most other liability insurance.  • Average ERISA policy- $300 annually • Could be higher depending on the plan, assets and other factors. It goes without saying that every insurance contract has its own particular terms, conditions, limitations, and definitions. Each risk is unique and policy terms vary, so care should be taken to review the specific contract against the specific risks.

45. Information overload!! • DON’T PANIC • YET!! • We are here to help!

46. My Local Team • Operations Manager: Angela Bush • Account Executives • Employee Benefits 20 to 99: Deanna Capucini • Commercial Risks: Brian Pilarski & Jim Libs • Account Manager: Samantha Keen Angela Bush* • Eligibility / Client Services: Amy Duden

47. Special Thanks to our Cleints Thank you for your trust and your business!

48. To Contact Us BENJAMIN a. gOFF • Great Lakes Risk Management, a Division of Brown & Brown of Ohio • 419.872.4144 • 800.423.4576 • bgoff@glrm.com