Do you ever wonder what it means when a benefit program is referred to as “Qualified”? Can an employee benefit plan be unqualified? What does it take for an employee benefit plan to become qualified? These are all important questions and knowing the answers has become more important since the passage of the Affordable Care Act.
The term “Qualified” plan refers to a determination of whether or not the plan has met the minimum standards required to exempt the plan cost from taxation for the employer and the employees.
How do employers and employees know if a plan is meeting the minimum standards that allow qualification? Congress laid out all of the requirements 40 years ago in a law known as the Employment Retirement Income Security Act or ERISA. While the name leads one to believe that it only applies to pension plans, the law also establishes the minimum requirements and fiduciary responsibilities for all welfare benefit programs.
For simplicity, if an employer offers an insurance program (whether through an insurance company or not) to U.S. employees, it is subject to the requirements of ERISA.
Some of key requirements to maintain the qualified status are:
- A Plan document must exist for each plan. The document is not something provided by the insurance company.
- The Plan terms must be followed and fiduciary standards must be adhered to.
- A Summary Plan Description (SPD) must be furnished automatically to Plan Participants.
- A Summary of Material Modification (SMM) must be furnished automatically to Plan Participants when the Plan is amended.
- IRS Form 5500 must be filed annually for each Plan with more than 100 participants.
In order to maintain a qualified status, an employer must maintain the above requirements and perform several fiduciary responsibilities while managing a plan.
The major misconception among employers is that documents provided by the insurance company somehow absolve them of the fiduciary requirements imposed by ERISA. The documents provided by the insurance company only satisfy their legal requirements usually imposed by state law. Here are just two examples:
- Fined $241,000 for failure to provide SPD to Participant Gorini v. AMP, Inc. (3rd Cir. 2004)
- Fined $8,910 statutory penalties failure to and delay in providing SPD, Culrona v. Nationwide Life Insurance Company (2014)
In one of these cases, the employer provided multiple copies of the insurance company’s Certificate of Coverage. Why would any employer be fined for not providing an SPD if the insurance company’s Certificate of Coverage satisfied the requirement? Clearly the documents are not the same and the Certificate does not satisfy the requirement of ERISA or a qualified status.
The fines imposed are not deductible! If your dealership is offering a benefits plan, contact Visor at (314) 779-0140 to determine if your plan is “Qualified.” Be certain to mention you are a member of the Equipment Dealers Association.
Bill Hill, President of Visor