Although ERISA focuses heavily on retirement benefits, many health and welfare plans also fall under the Act’s purview. It is also important to note that not all ERISA-governed plans cover a single employer. This module will discuss health and welfare plans, employee benefit plans that cover more than one employer and some of the reporting obligations that plan sponsors and administrators have under the Act.
Health and Welfare Plans
As with retirement benefits, to be subject to ERISA, health and welfare benefits must be part of a plan, fund or program that is established or maintained by the employer for the purpose of providing certain specified benefits to participants and beneficiaries.[1]
Welfare plans can cover a variety of fringe benefits, including medical, dental, and vision insurance; life insurance; long-term disability insurance; and accident benefit plans, to name a few.[2] Scholarship funds, prepaid legal services, prescription drug plans and other benefits also may be covered.[3]
Employee perks like adoption assistance, commuting benefits, fitness club memberships, pet insurance and tuition reimbursement are generally not covered by ERISA. Although health reimbursement arrangements and health flexible spending accounts usually fall under ERISA, health savings accounts do not, assuming that participation by employees is voluntary.
Common terms that are used in relation to ERISA health and welfare plans include “funded” and “unfunded,” as well as “fully insured” and “self-insured.” A funded plan may use assets that are held in an account exclusively for the purpose of providing benefits under the plan.[4] For example, the employer might establish a trust for the plan, set up a separate bank account in the plan’s name or indicate in plan documents that separately maintained funds belong to the plan.[5] On the flipside, an unfunded plan is one that is paid out of the employer’s general assets. [6] However, if employees make contributions, the plan is considered funded even if the employer holds the contributions in its general business accounts.[7]
Under a fully-insured plan, benefit claims are paid through an insurance policy, whereas under a self-insured (or self-funded) plan, an employer operates its own health plan and pays benefits either directly from plan assets or the employer’s general assets.[8] Under a self-funded plan, the employer assumes the financial risk of paying claims but has some autonomy over plan features and can avoid certain fees charged by insurance carriers.[9] Plans also can be partially self-funded—so that an employer can limit the risk of expenses related to catastrophic incidents—by purchasing stop-loss insurance to be reimbursed for unusually high claims.[10]
It should be noted that funded plans are subject to certain requirements that aren’t applicable to unfunded plans. For example, under ERISA’s exclusive benefit rule, “the assets of a plan shall never inure to the benefit of an employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan.”[11] This applies to money set aside to fund plans, but of course, does not apply to funds held in the general accounts of the employer.
The way that benefits are managed and paid may affect eligibility for certain exemptions and safe harbors to requirements that welfare plans might otherwise be subject to under ERISA.[12] Under the “payroll practice” exemption, for example, certain health and welfare payments are exempt from ERISA if they are made as part of the employer’s normal payroll practices from the employer’s general assets for current employees.[13] Wages, vacation and holiday pay, and paid sick leave are examples of benefits that may qualify under this exemption.[14]
Additionally, some programs that allow employees to make payments via payroll deductions for voluntary insurance policies may fall outside of ERISA’s purview.[15] Under these voluntary plans, an employer may allow vendors to market their products to workers and may facilitate payments through payroll deductions and pass along the withheld funds to the vendor, but the employee pays for the benefit in its entirety.[16] ERISA-exempt voluntary plans generally include additional insurance options that employees can purchase at a group rate. To be exempt from ERISA, employers cannot pay for any part of the plan, negotiate with insurers, appear to endorse the plan, assist workers with claims, allow deductions on a pre-tax basis or do anything else that may lead employees to believe that the company is sponsoring the plan.[17] Otherwise they may lose the exemption.
COBRA Coverage
When workers’ eligibility to participate in group health care coverage comes to an end, they may have a right to COBRA’s temporary continuation coverage.[18] COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act (of 1985), applies to a private-sector employer’s group health plan if the employer had 20 or more employees on more than 50 percent of business days in the previous calendar year.[19] COBRA requires such plans to offer continuation coverage to employees, former employees, spouses, former spouses and dependent children when coverage is terminated for certain reasons, such as the death of the participant, termination or reduction in work hours due to reasons other than gross misconduct, divorce, or the loss of a child’s dependent status.[20] Employers can require that individuals pay for their COBRA coverage up to the full cost of the coverage, plus a 2-percent administrative fee.[21] COBRA sets out the ways that workers and their families can elect continuation coverage and requires employers to provide certain notices to participants and beneficiaries.[22]
Multiemployer Plans
Not all benefit plans are established by a single employer. Multiemployer plans are created through collective bargaining agreements with labor unions and cover workers at more than one business. These plans are defined under the Labor Management Relations Act of 1947 (which is commonly referred to as the Taft-Hartley Act) and are governed by ERISA.[23] Participating employees are usually members of the same craft or trade and may work in industries comprised of many small employers or in industries where seasonal, mobile or irregular work is common.[24]
A multiemployer plan can be a retirement or a welfare plan.[25] However, multiemployer retirement plans tend to be in the spotlight more often, particularly because of problems with underfunding.[26] For example, a 2017 study projected that as many as 114 plans covering 1.3 million workers could fail within 20 years. Furthermore, the Pension Benefit Guaranty Corporation—the agency that protects workers’ accrued benefits by guarantying certain minimum pension payments if a plan fails—projected that its insurance program will run out of funds by 2025.[27]
To strengthen work protections under multiemployer retirement plans, the Multiemployer Pension Plan Amendments Act of 1980 did the following:
- It established more stringent funding requirements for multiemployer plans;
- It set new funding and benefit adjustment rules for financially weak plans;
- It provided incentives for employers to continue funding multiemployer plans; and
- It established financial penalties for employers that withdraw from such plans. This is referred to as “withdrawal liability.”[28]
Additionally, the Multiemployer Pension Reform Act of 2014 allows plan trustees to propose temporary or permanent pension benefit reductions if a plan is projected to run out of money before paying out all benefits.[29] This allowance is designed to help keep plans and the Pension Benefit Guaranty Corporation’s multiemployer insurance program solvent.[30] Under the Act, pension plans must notify regulators annually if their financial condition is declining and if they expect the plan to fail within 20 years.[31]
Multiple Employer Plans
Not to be confused with multiemployer plans, multiple employer pension plans are arrangements through which multiple employers pool resources to share the costs and administrative burden of providing employee retirement plans. Unlike multiemployer plans, however, these plans do not necessarily involve unions or collective bargaining agreements.[32] A single plan document may control the plan and participating employers may agree on uniform rules for eligibility, vesting and plan management.[33]
The employers in a multiple employer pension plan are unrelated for income tax purposes, meaning that they are not members of a controlled group, but they have a common nexus or organizational relationship.[34] For example, the employers may have common owners, but not enough to be considered “related employers” under the Internal Revenue Code. Multiple employer pension plans also may be sponsored by an industry or trade association or adopted by the group’s members. These plans may be particularly beneficial to small businesses with limited resources.[35]
Recently, there has been a push for legislation to make it easier for small employers in unrelated businesses to share in multiple employer plans.[36] These so-called open multiple employer plans allow unaffiliated employers to pool resources and offer ERISA-covered retirement plans.[37] Advocates for open plans say that such plans would provide retirement savings options to more workers, including those in the “gig economy” and the self-employed.[38]
Reporting and Disclosure
One of ERISA’s most important goals is to provide transparency and accountability for employee benefit plans.[39] Therefore, a key element of compliance for plan sponsors and administrators is to follow detailed notice and disclosure requirements. ERISA requires plan administrators for both retirement plans and health and welfare plans to provide participants with important details about the plan’s features and benefits in writing.[40] For example, participants must have access to information about their plans and any associated fees or changes in benefits. The information that must be provided includes plan rules, financial information and documents about the operation and management of the plan.[41] Each plan also must have a formal, written plan document that serves as a master description of the benefits and all of the terms governing the plan.[42]
Some information about the plan must be provided to participants systematically on a regular basis, whereas other information must merely be made available to participants when requested and must be provided free of charge or made available for the cost of making copies.
The summary plan description is one of the most important documents that plan administrators must provide automatically to participants when they begin participating in the plan.[43] It provides detailed information about the plan’s features and must describe plan participants’ benefits, rights and obligations in plain language that is easily understood.[44] Plan administrators should note that they cannot charge any fees for distributing this information.[45] The summary plan description must include information about:
- When an employee is eligible to participate in the plan;
- How service credits and benefits are calculated;
- How long it will take for benefits to vest;
- How and when benefits are paid out;
- What COBRA rights participants and beneficiaries have; and
- How to file a claim for benefits and what the process is for approving or denying a claim.[46]
Plan administrators must inform participants of any changes to the plan by distributing a revised summary plan description or providing a separate document, which is called a summary of material modifications.[47] Furthermore, certain events and dates trigger a plan sponsor’s obligation to provide participants with a copy of the summary plan description.[48] For example, copies of the most recent summary plan description must be provided within the following timelines:
- No later than 120 days after the plan becomes subject to ERISA;
- Within 90 days of enrollment for new participants;
- Within 90 days of the first benefits payment for beneficiaries;
- Every five years if changes were made; and
- Every 10 years regardless of whether changes were made.[49]
Form 5500 and Wrap-Plan Documents
In addition to providing plan documents to participants and beneficiaries, some information must be filed with the federal government annually. Unless an exemption applies, all qualified retirement plans and health and welfare plans covering at least 100 participants must file a Form 5500.[50] Welfare plans that cover fewer than 100 participants as of the beginning of the plan year and are either unfunded, fully insured or a combination of insured and unfunded, are not required to file.[51]
The Form 5500 is a public document that participants can review to learn about the plan’s compliance and performance and that government agencies can use to collect and study data to make policy and enforcement decisions.[52] The form was developed through a joint effort by the Department of Labor, the Internal Revenue Service and the Pension Benefit Guaranty Corporation, and it satisfies the annual filing requirements for ERISA and the Internal Revenue Code.[53] An audit must accompany the Form 5500 filing if there are more than 100 participants in a plan.[54]
Covered employers must decide whether to file a separate Form 5500 for each applicable benefit plan or a single filing under a “wrap plan.” A wrap-plan document consolidates all applicable benefits into a single plan document.
Plan administrators must file Form 5500 by the last day of the seventh month following the end of the plan year.[55] That means, for example, that if a plan year ended on Dec. 31, 2018, the form and all its accompanying documents have to be filed by July 31, 2019.[56] The plan administrator is required to keep a copy of the completed and signed Form 5500 and all related documents on file with the plan’s records.[57]
Note that plan participants must be sent a summary annual report each year, which includes the financial information that employers are required to report on the Form 5500.[58] Employers cannot charge a fee for its distribution.[59] The summary annual report must be sent to participants no later than nine months after the plan year ends, or two months after the summary annual report is due, if the IRS has granted an extension.[60] Participants who want to read more details about the plan’s assets and financial condition may request a copy of the full annual report from the plan administrator.[61]
In additional to receiving general information about the plan, participants must be given information about their own claims for benefits. ERISA states that “every employee benefit plan shall establish and maintain reasonable procedures governing the filing of benefit claims, notification of benefit determinations and appeal of adverse benefit determinations.”[62]
For instance, if a claim has been denied, the participant must be sent a notification of benefit determination that states the reasons for the denial and provides information about the appeals procedure.[63] Plans must establish and maintain reasonable procedures for participants to appeal an adverse benefit determination, and participants must receive a “full and fair review” of the claim and the determination.[64]
These are just some of ERISA’s reporting and disclosure requirements. Plan fiduciaries must carefully follow all of their ERISA obligations, particularly because participants and beneficiaries have the right to bring lawsuits under the act and fiduciaries can be held personally liable for violations.[65] These issues will be discussed in more detail in Module Four.
[1] 29 U.S.C. § 1002(1); Peter Wand, “That’s a Wrap,” Society for Human Resource Management, (Jan. 1, 2013), https://www.shrm.org/hr-today/news/hr-magazine/pages/0113-wrap-documents.aspx.
[2] Id.
[3] Id.
[4] “Instructions for Form 5500-SF – Introductory Material,” Internal Revenue Service, https://www.irs.gov/instructions/i5500sf,
[5] Id.
[6] Id.
[7] Id.
[8] “Self-Insured Plan,” HealthCare.gov, https://www.healthcare.gov/glossary/self-insured-plan/
[9] Donald T. Bogan, “The Silliness of ERISA: The Plan is Not the Only Proper Party Defendant in an ERISA Benefits Claim,” 16 Marq. Bene. & Soc. Welfare L. Rev. 393, 399 (2015).
[10] Id.
[11] 29 U.S.C. §1103(c)(1).
[12] 29 C.F.R. § 2510.3-1(b).
[13] Id.
[14] Id.
[15] 29 C.F.R. § 2510.3-1(j).
[16] Id.
[17] Id.
[18] 26 C.F.R. § 54.4980B-1.
[19] “An Employer’s Guide to Group Health Continuation Under COBRA,” Employee Benefits Security Administration, U.S. Dep’t Labor, https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/publications/an-employers-guide-to-group-health-continuation-coverage-under-cobra.pdf
[20] Id.
[21] Id.
[22] “Health Plans & Benefits: Continuation of Health Coverage – COBRA,” U.S. Dep’t of Labor, https://www.dol.gov/general/topic/health-plans/cobra
[23] Advisory Opinion, Employee Benefits Security Administration, U.S. Dep’t of Labor, (Dec. 16, 2011), https://www.dol.gov/sites/default/files/ebsa/employers-and-advisers/guidance/advisory-opinions/2011-10a.pdf.
[24] “Multiemployer Plans,”
[25] Id.
[26] “Unfunded Liabilities of the 114 Failing Multiemployer Pension Plans,” Cheiron, https://cheiron.us/cheironHome/criticalPlans.do
[27] Ted Knutson, “PBGC: Over 90% Chance Union Pension Insurance Program Will Run Out of Money by 2025,” Forbes, (May 31, 2018), https://www.forbes.com/sites/tedknutson/2018/05/31/pbgc-over-90-chance-union-pension-guarantee-program-will-run-out-of-money-by-2025/#4c3399b1525f.
[28] https://www.pbgc.gov/prac/multiemployer/introduction-to-multiemployer-plans
[29] Stephen Miller, “114 Multiemployer Pension Plans Projected to Fail Within 20 Years,” Society for Human Resource Management, (Aug. 29, 2017),https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/multiemployer-pension-fail.aspx.
[30] Id.
[31] Id.
[32] “Private Pensions: Multiemployer Plans Face Short and Long-Term Challenges,” GAO Report GAO-04-423, (Mar. 26, 2004), https://www.gao.gov/assets/250/241865.html.
[33] Id.
[34] David E. Morse & Angela M. Antonelli, “Multiple Employer Plans (MEPs) An Overview of Legal, Regulatory and Plan Design Considerations for States,” Center for Retirement Initiatives, McCourt School of Public Policy, Georgetown University, (Aug. 2017), https://cri.georgetown.edu/wp-content/uploads/2017/08/CRI_MEP_PolicyReport17-2.pdf.
[35] Id.
[36] Stephen Miller, “House Passes Family Savings Act to Ease Retirement Plan Rules,” Society for Human Resource Management, (Oct. 1, 2018), https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/family-savings-act-would-ease-plan-rules.aspx.
[37] Id.
[38] Madison Alder, “Employers Wait for Legislative Action toOpen Portable Benefits,”
[39] “Fact Sheet: What is ERISA,” Employee Benefits Security Administration, https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/what-is-erisa
[40] “Health Plans & Benefits,” U.S. Dep’t of Labor, https://www.dol.gov/general/topic/health-plans
[41] “Health Plans & Benefits: Plan Information,” U.S. Dep’t of Labor, https://www.dol.gov/general/topic/health-plans/planinformation
[42] “Plan Information,” U.S. Dep’t of Labor, https://www.dol.gov/general/topic/retirement/planinformation
[43] “Health Plans & Benefits: Plan Information,” U.S. Dep’t of Labor, https://www.dol.gov/general/topic/health-plans/planinformation
[44] “Plan Information,” U.S. Dep’t of Labor, https://www.dol.gov/general/topic/retirement/planinformation
[45] Health Plans & Benefits: Plan Information,” U.S. Dep’t of Labor, https://www.dol.gov/general/topic/health-plans/planinformation
[46] Id.
[47] Id.
[49] Id.
[50] “Instructions for Form 5500-SF – Introductory Material,” Internal Revenue Service, https://www.irs.gov/instructions/i5500sf,
[51] Id.
[52] “Form 5500 Series,” Employee Benefits Security Administration, https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500
[53] Id.
[54] Instructions for Form 5500-SF
[55] “Form 5500 Corner,” Internal Revenue Service, https://www.irs.gov/retirement-plans/form-5500-corner
[56] Id.
[57] “Form 5500 Filing Tips – Who, When, What, How,” Employee Benefits Corporation, (April 27, 2018), http://www.ebcflex.com/Education/ComplianceBuzz/tabid/1140/ArticleID/603/Form-5500-Filing-Tips-Who-When-What-How.aspx.
[58] “Retirement Plan Participant Notices – When the End of the Plan Year Has Passed,” Internal Revenue Service, https://www.irs.gov/retirement-plans/retirement-plan-participant-notices-when-the-end-of-the-plan-year-has-passed
[59] https://www.dol.gov/general/topic/health-plans/planinformation
[60] “Retirement Plan Participant Notices – When the End of the Plan Year Has Passed,” Internal Revenue Service, https://www.irs.gov/retirement-plans/retirement-plan-participant-notices-when-the-end-of-the-plan-year-has-passed
[61] “Health Plans & Benefits: Plan Information,” U.S. Dep’t of Labor, https://www.dol.gov/general/topic/health-plans/planinformation
[62] 29 C.F.R. § 2560.503-1(b).
[63] Id.
[64] 29 C.F.R. §2560.503-1(h)(2).
[65] 29 U.S.C. § 1109.