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.
Responsibilities
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.
Document, Document!
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.
Information 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.
Best Practices
• 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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