GBA 3: Modules 1-3

List 5 main ERISA reporting and disclosure requirements.

1) A written plan document 2) A summary plan description 3) A summary of material modification 4) An annual financial report (form 5500) 5) A summary annual report Qualified pension benefit plans are subject to additional disclosure and reporting requirements.

Explain the differences between a market-driven approach to employee benefit plan communications and the traditional approach to such communications.

1) In the market-driven approach, objectives are specific, not general as they are in the traditional approach. 2) In the traditional approach, the focus is on informing or explaining the benefits; in the market-driven approach, the focus is on affecting or changing attitudes or behaviors. 3) Success is often hard to measure in the traditional approach, while it is directly measurable in the market driven approach. 4) In the traditional approach, messages are sent to a single mass audience, but messages are targeted to specific audiences in the market driven approach 5) The communication tone is neutral in the traditional approach; in the market-driven approach, it is direct.

An employee welfare benefit plan has four basic elements. What are these elements?

1) There must be a plan, fund or program. 2)The plan, fund or program is established and maintained by an employer. 3) The plan, fund or program is for the purpose of providing specifically listed benefits, through the purchase of insurance or otherwise. 4) Benefits are provided to participants and beneficiaries.

What is a less demanding alternative to an RFP for investment committee members?

A request for information (RFI) process may be somewhat less demanding than a full RFP while still providing some the benefits, such a comparing costs and services with other providers.

Guidance provided by the IRS affirms that a legally married same sex spouse must be treated as a spouse for all qualified pension and retirement benefit plan purposes. List some of these purposes.

A same-sex spouse must be treated as a spouse in a qualified retirement plan: a) As a named beneficiary, unless the spouse consents to another beneficiary b) If a retirement plan provides a qualified joint and survivor annuity or a qualified pre-retirement survivor annuity, the same-sex spouse would be entitled to these benefits. c) In regard to minimum distribution and rollover rules d) In regard to alternative payee rights for distributions under a qualified domestic relations order f) In regard to family attribution and other ownership rules applicable to retirement plans.

What is the criteria that a small employer must meet to qualify for a standalone HRA not linked to a HDHP.

A small employer that does not offer its employees group major medical coverage may offer standalone qualified small employer health reimbursement arrangements (GSEHRAs) without running afoul of ACA market reform provisions. An employer's contribution into employees' QSEHRAs, however, is limited to specified amounts for employees depending on their marital status. These amounts are adjusted for inflation. Amounts exceeding those limits and amounts that an employee does not use to purchase an individual policy that offers minimum essential coverage, are taxable to the employee.

Describe a cafeteria plan.

A type of benefit plan permitted by IRS 125 in which the employer offers employees a choice, much like a menu, of benefits that are either in the form of taxable cash compensation or tax-free (qualified) benefits. The plan must include at least one taxable and one qualified benefit. If a plan in which the employees are offered this choice does not meet the requirements of S125, the IRS proposed regulations provide that all the benefits, even those that would be considered nontaxable benefits, are nonqualified and area taxable income to the employees. The employee will be taxed as though he or she chose the taxable benefit with the greatest value, even if the employee chooses only nontaxable benefits. The amount is included in the employee's gross income in the year the employee would have received the taxable benefit.

What new requirements did ACA impose on the Form W-2, Wage and Tax Statement reporting?

ACA imposed the following new requirement for Form W-2, wage and tax statement: All employers that provide group health care coverage that is excludable from employees' gross income must report the aggregate cost of the coverage to employees on their Forms W2 in order to inform them of the cost of the coverage. This requirement is strictly for consumer informational purposes only and does not cause employer provided health care coverage that is not taxable to become taxable. This includes the portion of the cost paid by the employer and the portion paid by the employee. Among the coverage types and arrangements that need not be reported on the Form are: a) long term care coverage b) HIPPA "expected benefits" and dental or vision plan coverage that is not part of a group health plan c) Medical savings account (MSA) and HSA contributions (reporting health reimbursement arrangement (HRA) employer contributions is optional) d) Cost of the employee assistance program (EAP), wellness program and on-site medical clinic, unless the employer charges a COBRA premium for continued coverage. e) Salary reduction election amounts contributed to health flexible spending accounts (FSAs) Employers that file fewer than 250 Forms W-2 for the preceding year do not have to report employee health benefits until IRS issues further notice.

Summarize the information that must be reported to employees and to IRS on the new ACA enacted Form 1095-C.

All large, insured employers (50+ FT & FTE) must report whether they offer group health insurance to full time employees and their nonspouse dependents and whether that insurance provides minimum value and is affordable. Large self insured employers must report whether they offer group health insurance to any employees (including PT). Small self insured employers (less than 50) must complete and file Form 1095 B. There are transmittal forms containing summary information that these respective employers must submit to IRS along with Forms 1095-C and 1095-B.

Describe the written plan document requirement, and state the purpose of this requirement.

All plans subject to ERISA must be established and maintained pursuant to a written plan document that describes the benefits provided under the plan, names the individuals responsible for the operation of the plan and outlines the arrangements for funding and amending the plan. The purpose of the plan document is to set forth the rules and requirements governing the plan. The plan fiduciary is obligated to follow the terms and conditions of the plan, as long as the plan is compliant with the law. ERISA does not specifically define what should be included in a plan document.

List the types of benefits provided by ERISA health and welfare plans and provide examples of such plans.

An ERISA health and welfare plan provides: a) medical, surgical or hospital care or benefits b) Benefits in the event of a sickness, accident, disability, death or unemployment c) Vacation benefits d) Apprenticeship or other training benefits e) Day care centers f) scholarship funds g) Prepaid legal services Examples include: medical insurance, dental, vision, prescription drug plans, drug and alcohol treatment programs, FSAs, EAPs, wellness programs, accidental death and dismemberment, STD, LTD.

What specific liabilities or problems exist for an employer that fails to have a plan document?

An ERISA plan may still exist even without a written plan document. A plan administrator's failure or refusal to put a plan in writing is merely a violation of ERISA and does not avoid coverage of the plan by ERISA. Failure to have a plan established in writing can result in the following liabilities or problems for the EMPLOYER: a) Participants and beneficiaries may bring suit to enforce the ERISA written plan document requirement. Legal action may require the preparation of a formal document where none currently exists. b) A plan document must be furnished in response to a participant's written request. The plan administrator may be charged up to $110 per day if the document is not provided within 30 days of a request. c) Criminal penalties may be imposed on any individual or company that willfully violates any requirement of Title I of ERISA, which includes disclosure rules. The penalty per conviction could be $100,000 and/or imprisonment for up to ten years. The fine can be increased to $500,000 if it is against a company. d) It can be difficult to prove plan terms and thus enforce plan provisions. e) Participants and beneficiaries who sue to enforce informal, unwritten plans can base their claims on past practice or other evidence outside the actual terms of a written plan document that is favorable to their position. f) A plan sponsor may not be able to amend or terminate an informal plan until it first adopts a written plan instrument, complete with the required ERISA procedure for amending the plan and for identifying persons having authority to amend the plan. g) ERISA requires a fiduciary to act "in accordance with the documents and instruments governing by the plan". This duty provides yet another incentive for careful plan drafting since, once reduced to writing as part of the plan document, plan language must generally be followed.

Briefly discuss the SAR.

An SAR is considered a plan disclosure requirement under ERISA. An SAR is a summary of certain information contained in a plans Form 5500 Annual Report/Return, along with notification to participants of their rights under ERISA to receive additional information. ERISA requires that an SAR be given to each participant, including former employees who are still covered by a plan (for example, COBRA participants or retirees with plan coverage), in an ERISA welfare benefit plan. It is not necessary to file an SAR with DOL, because the SAR contains information already reported to DOL on the Form 5500. An SAR does not have to be provided if the plan is a totally unfunded welfare plan under which benefits are paid solely from the general assets of the employer or employee organization maintaining the plan.

Unused amounts (carryover vs. grace period) (in relation to health FSA)

An employee who has unused funds in their FSA by the end of the year may be eligible to carry over up to $500 of the unused amount from one plan year to the next. Under a prior IRS rule, amounts remaining in an FSA at the end of a plan year are forfeited by the employee at the end of the plan year (referred to as the use it or lose it rule) or 2.5 months after the end of the FSA plan year if the employer has adopted a grace period. The carryover option provides an alternative to the grace period. A plan may not include both the carryover option and the grace period. The carryover option is not mandatory for employers. In order to adopt the option, the plan document must be amended to provide for the carryover provision and eliminate any grace period if one is provided. The carryover of up to $500 does not count against the statutory maximum contribution for the next plan year.

Beneficiary

Any person designated by a participant (or by the terms of an ERISA plan) who is or may become entitled to a benefit under the plan. This person has the rights provided under the plan in question and the plan fiduciaries owe fiduciary duties to plan beneficiaries as well as plan participants. This person may sue under ERISA for plan benefits and to remedy ERISA violations. This person also has the right to examine and request copies of plan documents.

What is the Windsor effect and what is its impact on plan documents?

As is well known by now, the Supreme Court ruling in US vs. Windsor extended federal tax and benefit rights to couples in a same-sex marriage. The ruling means plan sponsors should review their plan documents to ensure that the plan language is current and compliant.

Explain how often a new SPD is required.

At a minimum, ERISA requires employers to prepare new SPDs and distribute them to participants at least every 10 years. For many plans, however, a five year rule applies. A new SPD must be distributed to plan participants every five years if there has been a material change in the plan during that time. Each time a new SPD is distributed, a new five or ten year clock begins to run.

How often should the investment committee meet?

At a minimum, committees should meet annually, but generally quarterly or twice a year would be considered best practice.

Describe the basic ways in which employee benefit plan communications have changed.

Benefit programs and the information employers are required to communicate to employees are becoming increasingly complex and regulated, such as the relatively new fee disclosure and fiduciary rules from the DOL. Along with increased complexity and regulation, benefit programs are now more costly than ever. In addition, they are arguably more closely tied to an organization's overall business strategies. Benefits can play a major role in an organization's ability to attract and retain the diverse workforce necessary to compete in a changing business marketplace. Of course, benefits also clearly affect the organization's "bottom line." Communication is essential for benefits to support an organization's goals. They must be recognized, appreciated and understood by employees to further these goals.

Explain the purpose of the SBC.

ERISA disclosure requirements have been expanded by the health care reform requirement to provide a four-page SBC to applicants and enrollees before enrollemnt or reenrollment. The summary must accurately describe the "benefits and coverage under the applicable plan or coverage." The SBC requirement applies in addition to the SPD and SMM requirements under ERISA.

Explain the two often-conflicting requirements embodied in SPDs.

ERISA provides that an SPD must be "written in a manner calculated to be understood by the average plan participant and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan". In addition, plan sponsors generally want SPDs and other communication materials to convey positive messages to employees about their benefits.

Describe the problem commonly encountered by auditors in employee benefit plan audits with the allocation of funds to employee accounts.

Employee contributions to plans often are administered by payroll deductions. Auditors sometimes find that while contribution amounts are deducted from payroll according to a sound method, the funds are not always remitted timely to the employee benefit plan. For plans with more than 100 participants, funds must be remitted as soon as they reasonably can be segregated but not more than 15 days into the month following the month in which they are withheld from payroll. The timing on this transaction is critical, but it is not uncommon to find plan administrators are not following a sound process for ensuring it.

Are contributions to 401(k) plans considered wages?

Employee elective (i.e. pretax) deferrals to 401k plans and employer matching contributions are not considered wages and are not subject to FIT withholding. Only distributions from the plan are taxable. However, employee elective deferrals are subject to FICA, FUTA taxes, even though employer matching contributions are not. Employee contributions to a 401k plan are subject to an annual, inflation adjusted limitation amount. Employees who will be aged 50 or older by the end of the plan year are allowed to make catch up contributions above the annual contribution limit up to an annual maximum amount. These amounts are adjusted annually for inflation. In addition, the IRC 415 limits the total amount of all elective deferrals, employer matching contributions and employer after tax contributions in a year to an annual amount, which is also adjusted annually for inflation. An annual amount of compensation can also be taken into account when determining the maximum contributions to an employee's defined contribution plan account for each plan year (indexed annually). Pretax elective deferrals to a 401k plan are included in an employee's compensation when determining the maximum contribution limit for the employee.

Are employer contributions made on an employee's behalf to a health insurance plan considered wages?

Employer contributions made on an employee's behalf to a health insurance plan are generally not considered wages and therefore, are not FIT, FICA or FUTA taxable. On the other hand, employee contributions to such plans are included in the employee's taxable income for purposes of all of these taxes unless the contributions are made through a cafeteria plan in accordance with IRC 125. Thus, if the employer does not offer the benefits through a cafeteria plan, and if the employee may choose whether to have the employer pay health insurance premiums in lieu of receiving the same amount in wages, the amounts are fully taxable to the employee whether they are received as wages or as employer paid premiums.

Summarize the taxation requirements of a cafeteria plan.

Employer contributions to a qualified cafeteria plan that relate to tax-free benefits chosen by an employee are not included in the employee's income and are not taxable for FIT, FICA taxes or FUTA taxes. If the employer contributions relate to taxable benefits, they are included in the employee's income and are subject to FIT, FICA taxes and FUTA taxes. Employee salary reduction contributions made on a pretax basis, whether made to purchase taxable or qualified benefits, are not included in the employee's income and are not FIT, FICA or FUTA taxable.

What requirements must be met for employer contributions to be exempted from FICA and FUTA taxation?

Employer contributions toward health insurance must be made under a plan to be free from FICA & FUTA taxation. A plan exists if any one of the following requirements is met: a) The plan is in writing and copies of the plan details are made available to employees either in print or electronically by email. b) The plan is referred to in an employment contract. c) The employer can document that employees contribute to the plan. d) Employer contribution are kept in a separate account from the employer's salary account. e) The employer is required to make the contributions. In addition, the plan must benefit employees and their dependents for the tax exclusion to apply.

How are contributions to HSAs taxed?

Employers and employees can contribute to HSAs up to the annual limits. Contributions made by or for a covered individual up to the maximum annual limit are deductible by the individual. Employer contributions are excluded from the employee's gross income and are not taxable wages for purposes of withholding FIT, FICA taxes and FUTA taxes if, when the contributions are made, the employer reasonably believes it is excludable. Any employer contributions that exceed the annual limit or that are made fora noneligible individual are included in the employee's gross income. In addition, the HSA beneficiaries will pay a 6% excise tax on the excess contributions. HSAs and HDHPs can be offered as part of a cafeteria plan.

Describe the general types of information that must be maintained for an ERISA welfare benefit plan and the record retention requirement for these documents.

Employers are required to keep sufficiently detailed information and data necessary to verify, explan, clarify or check on documents for accuracy and completeness, including vouchers, worksheets, receipts and applicable resolutions. Records must be maintained for 6 years for ERISA purposes but other laws may require record retention for longer periods.

What is a total compensation statement and what is its purpose?

Employers can increase the return on their investment in benefits by making employees aware of the cost of benefits and the effect of the cost on the company. This is often accomplished by a total compensation statement, wherein the cost of the benefits is computed and added with pay to reveal the employee's actual total compensation. Good communication can increase employee appreciation of the value of their benefits and create a positive attitude toward the company.

Taxability of Individual Retirement Account (IRAs)

Employers may offer employees the option to participate in an IRA in addition to a qualified retirement plan. Employer IRA contributions are included in the income of employees but they are not subject to FIT withholding up to the amount the employer reasonably believes employees will be able to deduct on their personal income tax returns. Income earned on contributions is not taxable until distributed to employees. Employer contributions are subject to FICA and FUTA taxes.

How are sick pay benefits for lengthier absences treated for tax purposes?

Employers may provide sick pay under a plan for lengthier absences, either as short term or long term disability pay. These benefits are paid either by the employer or a third party such as an insurance company. Benefits that can be attributed to employee contributions made with after-tax dollars are not taxable income to the employee. Benefits that can be attributed to employee pretax contributions or employer contributions are included in the employee's taxable income and may be taxable for FIT, FICA and FUTA taxes. If both the employer and employee contribute, the benefits are only taxable to the extent of the employer's contribution. The manner in which any required taxes are withheld while benefits are being paid out is dependent on several factors: Is the employer self funding benefits? Are the benefits administered by a third party agent? Is the third part payer an insurer that is not the employer's agent?

Medical Savings Accounts (MSAs) were made obsolete (although existing ones were grandfathered) by Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) with the creation of HSAs. What are some of the unique features of HSAs?

HSAs are tax exempt accounts used by employees to pay for medical expenses for themselves, their spouses and dependents. Employers can offer HSAs to employees who are enrolled in an HDHP. This plan has a higher annual deductibles than a typical health insurance plan for self-only coverage and for family coverage. Annual out of pocket expenses are statutorily limited to certain amounts for both types of coverage. In addition, annual caps apply to the amount of contributions that may be made to an HSA for both types of coverage. All of these statutory amounts are adjusted annually for inflation. Extra catch up contributions can be made to an HSA by individuals aged 55 and older until they are eligible to enroll in Medicare. No contributions of any kind can be made once an individual enrolls in Medicare.

How has IRS helped organizations with their internal control obligations? Explain.

IRS has taken note of where it most often sees control problems with employee benefit plans and it provides checklists to help companies keep their plans in compliance. IRS also provides tools on its website that can be helpful to companies reviewing their controls or establishing controls in a more formal way.

Under a cafeteria plan, if an employee elects to receive cash rather than to purchase benefits, how is the cash treated for tax purposes?

If an employee elects to receive cash rather than to purchase benefits, the cash is wages and is FIT, FICA and FUTA taxable. Also, if cafeteria plan discriminates in favor of highly compensated employees or key employees, those individuals are FIT, FICA and FUTA taxable on the combined taxable benefits with the highest total value.

Explain how the purpose of employee benefit plan communications has changed recently.

In the past, benefit communication was very basic. An employer's main communication objectives were keeping benefit booklets updated, making sure claim forms were available and issuing an occasional memo or newsletter summarizing updates and improvements to benefits. No longer is benefit communication merely concerned with providing employees with information about plans over which they have little or no influence. Instead, employers must change their communication objectives to focus on motivating employees to make decisions about how to best utilize their benefits in a way that is economical to both the plan sponsor and the employee's families.

What is a summary plan description (SPD) and when must it be given to participants?

Includes details about eligibility, benefits, plan operations, funding and claims procedures as well as a statement of ERISA rights. The initial SPD must be distributed to participants and beneficiaries within 120 days of the date the plan becomes subject to ERISA disclosure requirements. Subsequent to the initial distribution, an SPD reflecting plan changes must be distributed every 5 years (every 10 years if no changes made to the plan). The SPD must be distributed by the 210th day following the close of the relevant plan year to which the SPD applies, unless there is a material reduction in benefits. New participants must be provided an SPD within 90 days of becoming participants in the plan.

What is a SOC 1 report?

It is difficult to review and assess controls at an outside service organization, which is why third-party administrators should provide plan sponsors with an audit report of their own. Under professional standards, it is known more formally as a Report on Controls at a Service Organization Relevant to User Entities' Internal Control Over Financial Reporting. It is prepared by an auditor engaged by the third party administrator to review and assess controls at that service organization and the service organization provides the report to any entity relying on its controls. This is a more efficient means of showing controls are in place and operating effectively than having the service organization consent to audit requests from each of its individual clients.

Comment on the composition of an investment committee.

It should include a rep of a senior management (CFO or COO) as well as anyone who serves as a fiduciary to the plan. The organization's legal counsel should either be on the committee or simply attend committee meetings in an advisory capacity. Although, they are not usually voting members, committee meetings should be attended by reps from plan providers such as the trustee, investment consultant and record keeper. It is important that the committee represents the participants, since it will be making decisions for the participation population. For this reason, committees may want to include members from different disciplines and different areas of the organization, such as HR or finance. A diverse mixture including more than just managers will help to create a more representative group. Committee membership should be voluntary. Most committees elect at least a chairperson and a secretary; other elected positions depend on the needs of the committee. Establishing a term service for committee members can help to keep the committee fresh. Bringing in new members periodically can add the benefit of new perspectives to the team and keep it flexible. On the other hand, the experience and knowledge of long-term committee members can be of great value. Finding a balance may mean rotating some committee positions while retaining others for longer time periods.

Explain the meaning of the term "no employer endorsement"

Means an employer can publicize, collect premiums, remit premiums, provide employee information to an insurance company and maintain a file on the voluntary plan. However, an employer cannot express positive normative judgement and cannot urge/encourage employee participation. The participation of the employer or employee organization should be limited to the duties specified in the regulation, none of which involve the exercise of discretionary duties, An employer hoping to rely on this exemption should also be careful not to create the impression that the benefit is part of its benefit package by, for example, including it in enrollment materials or encouraging employees to enroll. DOL warns in the final FMLA regulations that if a plan is intended to be exempt from ERISA under this provision, the employer should not pay an employee's premium while the employee is on FMLA leave.

Describe the procedures required to establish an ERISA employee welfare benefit plan.

No particular formalities are required to create an ERISA plan and no single action in and of itself necessarily constitutes establishment of an ERISA employee welfare benefit plan. Thus, ERISA plans have been deemed to be "established or maintained" by a practice that would cause a reasonable employee to perceive an ongoing commitment by the employer to provide employee benefits. This would include any contributions by the employer toward a payment of benefits or by the employer simply administering the benefit. It is easy to have a plan, fund or program - generally any ongoing administrative scheme will satisfy this condition. Showing that an employer maintains a plan is also easy - any contribution by the employer toward a payment of benefits or administration of the plan is enough (including a contribution toward insurance coverage).

Are health and accident insurance plan payment benefits received by an employee taxable?

No, health and accident insurance plan payment benefits received by an employee, the employee's spouse and eligible covered dependents are not taxable income to the employee so long as the employee so long as the employee's expenses are for medical care. The IRS defines what constitutes medical care.

Explain the taxation of permanent disability benefits.

Payments made to employees who are permanently disabled and not returning to work are subject to FIT withholding to the extent that the premiums were paid by the employer or the employee on a pretax basis. Payments made under a plan after the employment relationship ends because of disability, retirement or death are not subject to FICA taxes or FUTA taxes unless the payments would have been made even if the employment had not ended for one of those reasons. In addition, special rules apply to permanent disability payments made uner a plan to an employee who is receiving Social Security disability insurance benefits.

What special rules apply to 401(k) plans and group-term life insurance offered under a qualified cafeteria plan?

Pretax 401(k) plan employer contributions under a qualified cafeteria plan are subject to FICA and FUTA taxes and must be report on an employee's Form W-2 along with amounts withheld. Elective deferrals (contributions made on a pretax basis) are also reported on the form W-2. In addition, cafeteria plans may offer employees more than $50,000 of group-term life insurance to an employee as a qualified benefit. Contributions to a qualified cafeteria plan made with posttax dollars are included in the employee's income and are FIT, FICA and FUTA taxable, but the benefits purchased are not taxable.

Explain the nondiscrimination requirements of the Patient Protection and Affordable Care Act (ACA) enacted for health insurance plans and its current enforcement status.

Prior to ACA, employers could structure health insurance plans offered through a third party insurance company to favor highly compensated employees (HCEs) without jeopardizing the tax exclusion for employer contributions and reimbursements. ACA changed the rules to require such plans to meet the same nondiscrimination requirements that self insured plans must meet the same nondiscrimination requirements that self-insured plans must meet in order to retain tax-favored status. However, IRS has said that it will not require employers to comply with the new nondiscrimination provisions or enforce the penalties until it issues regulations or administrative guidance on the new requirements.

Taxability of Roth IRAs

Roth IRAs differ from standard IRAs in that contributions are deductible from employee income and distributions are excluded from gross income if certain qualifications are met. Employees can contribute the maximum deductible amount fora standard IRA to a Roth IRA, excluding amounts contributed by the employee to other IRAs in the same year. In addition, the amount that can be contributed to a Roth IRA is phased out once the employee's adjusted gross income exceeds certain annual limits. Employees also can transfer amounts from their 401k, 403b or 457b retirement accounts to designed Roth account, provided the retirement plan has a qualified Roth contribution program. The amounts transferred are taxable at the time transferred and are treated as a qualified rollover contribution to the Roth account.

Discuss the acceptable methods of distributing required ERISA disclosure documents.

SPDs and SMMs must be furnished in a manner "reasonably calculated to ensure actual receipt of the material". Acceptable methods include: a) in-hand delivery to employees b) first class mail c) Second or third class mail, but only if return or forwarding postage is guaranteed and address correction is requested. d) Inclusion in a union or company publication, but only if certain requirements are met. e) disclosure to participants (employees and nonemployees) may be made electronically (by email an intranet or the internet) This options is not without limit, however. DOL issued a safe harbor rule, meaning that plans are not required to comply wiht its conditions; however compliance ensures that DOL will find a plan's electronic delivery method accpetable. As outlined in the rule, all ERISA Title I plan documents and notices, including SPDs, SMMs and SARs may be furnished electronically. Compliance with the safe harbor rules for electronic distribution depends on whether the plan participant has work-related computer access or non work related computer access.

Describe the basic rules for presenting the SBC to entitled parties.

That statute requires that the SBC must be presented in a uniform format, utilize terminology understandable by the average plan participant, not exceed four pages in length and not include print smaller than 12-point font. While the health care reform law called for a four-page summary, the proposed regulations interpret the four-page limitation as four double-sided pages. This will give employers additional flexibility in providing the required information. The SBC must be provided as a standalone document. It must be presented in a culturally and linguistically appropriate manner. In general, the rules provide that, in specified counties of the US plans and insurers must provide interpretive services.

Discuss the regulations issued in 2016 by the IRS that codified a nationally uniform rule regarding the tax treatment of benefits provided to individuals in a same sex marriage.

The 2016 IRS final regulations define the terms spouse, husband and wife in a gender neutral way, for all federal tax purposes, to mean an individual lawfully married to another individual; the phrase husband and wife means two individuals lawfully married to each other. According to these regulations, if a couple is married in a state, territory or possession that recognizes same sex marriage, the marriage is legal for all federal tax purposes regardless of where the couple lives. Marriages performed in a foreign country are recognized as valid in the US for all federal tax purposes if at least one state, territory or possession recognizes the marriage as valid. This requirement is easily met because of the 2015 Supreme Court decision mandating that all states have to recognize same-sex marriage.

To which federal taxes are benefits such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans subject?

The different types of benefits listed are funded by employers and in part by employee contributions through salary reductions. Whether employer and employee contributions and benefit payments received by employees are subject to withholding for federal income taxes (FIT), Social Security and Medicare (Federal Insurance Contributions Act (FICA) taxes or Federal Unemployment Tax Act (FUTA) taxes varies among benefit types.

Discuss the obligation that the plan administrator for an ERISA welfare benefit plan has when electronic recordkeeping has been delegated to another party.

The duty to maintain records as required by ERISA cannot be avoided by contract, delegation or otherwise. Thus, the use of a third party to provide an electronic recordkeeping system does not relieve the person responsible for maintaining and retaining records under ERISA of those duties. For example, the preamble states that when a plan administrator contracts with a service provider for the preparation, maintenance and retention of the plan's records, it nonetheless remains the plan administrator's obligation to ensure that the records are properly maintained and retained under ERISA. d In addition, in the event of a DOL investigation, the plan administrator would be required to provide the necessary equipment and resources (including software, hardware and personnel) for inspecting, examining and converting electronic records into legible and readable paper copies.

List the benefits that an employer may provide to an employee's same-sex spouse tax-free under federal law.

The following benefits may be provided by an employer to an employee's same sex spouse on a tax free basis under federal law: a) health benefits b) Qualified tuition reduction c) Meals and lodging provided as a condition of employment d) dependent care benefits e) No additional cost services f) Qualified employee discounts g) working condition fringe benefits h) Qualified transportation fringe benefits i) De Minimis fringe benefits j) Qualified moving expenses k) Qualified retirement planning services l) access to on premises gyms and other athletic facilities.

Discuss whether plans that involve payroll practices are treated as ERISA health and welfare plans.

The payment of an employee's normal compensation in full or in part out of the employer's general assets for periods when the employee is physically or mentally unable to work - that is, an unfunded short term disability plan - is generally not a welfare benefit plan subject to ERISA. However, if a disability program provides more than an employee's normal compensation or is funded in any way - for example it is provided through insurance - the program will be a welfare benefit plan subject to ERISA. Furthermore, the DOL regulations list additional types of payroll practices as not be ERISA plans. These would include plans where compensation is paid to the employee: a) while absent on a holiday or vacation b) while absent on active military duty c) while absent for the purpose of serving as a juror or as a witness in an official proceeding d)on accounts of periods of time during which the employee performs little or no productive work while engaged in training or e) Who is relieved of duties while on a sabbatical leave or while pursuing further education.

Explain how a plan, fund or program for an employee benefit plan is defined.

The phrase plan fund or program is not defined in ERISA but rather has been laid out in several court cases. The courts have held that a plan, fund or program under ERISA is established if, from the surrounding circumstances, a reasonable person can ascertain the intended benefits, the class of beneficiaries, the source of financing and the procedure to receive benefits.

Upon what factors does the tax treatment of qualified pension and profit-sharing plans depend?

The tax treatment of contributions to qualified pension and profit sharing plans depends on who makes the contributions. Employee after tax contributions are included in employee income and are FIT, FICA and FUTA taxable. This applies even if the employees are required to participate in the plan and get a refund of contributions if they leave employment before retirement or death. Voluntary employee contributions are always taxable. Employer contributions to qualified plans are not included in employees' taxable wages and are not FIT, FICA or FUTA taxable. Employees are taxed on pension plan payments when they are recieved to the extent that they are based on employer contributions, pretax deferrals or investment gains. They are only subject to FIT, however and not to FICA or FUTA taxes. Payment amounts based on employee after tax contributions are not taxable. If the plan is qualified annuity plan, employer contributions are not considered wages and not subject to FIT, FICA taxes or FUTA taxes.

List the types of employee welfare benefit plans not covered under ERISA and specifically excluded under the statute.

The types of benefit plans not subject to ERISA requirements are: a) Governmental plans. These include plans that are established by the US government, the government of any state or political subdivision and any agency of any of the foregoing or a plan to which the Railroad Retirement Act applies, as well as certain plans associated with Native American Tribal governments. b)Church plans. A plan established and maintained for its employees by a church or by a convention or association of churches is exempt from tax under Internal Revenue Code Section 501. c)A plan maintained to comply with state laws on workers compensation, unemployment or mandated disability insurance. d) A plan maintained outside of the US primarily for nonresident aliens. e) Plans that cover only self employed individuals ad that cover no "common law" employees are generally not subject to ERISA. f) Plans that cover only married shareholders of a corporation are not treated as ERISA plans. These are the statutory exemptions specific to ERISA. An employer should be aware that it may be required to comply with other federal laws that affect employee benefit plans.

Explain the tax treatment of health benefits offered by employers to employees' same sex spouses and their eligible dependents.

The value of health insurance benefits offered by employers to employees' same sex spouses and their eligible dependents is not subject to federal income or FICA tax withholding and in addition, employers are permitted to offer this benefit on a pretax basis. Legally married same sex couples must be treated as spouses, regardless of their state of residence or state of celebration (the state where the marriage was performed).

Contribution limits (in relation to health FSAs)

There is no maximum amount, annually adjusted for inflation, that employees may contribute to a health FSA ($2,600 in 2017). The statutory limit does not apply to employer flex credits. Pretax contributions that erroneously exceed the plan year maximum must be treated as taxable wages.

Taxability of employee stock ownership plans (ESOP)

These plans are defined contribution plans that give employees the chance to own shares of the employer's stock. Employer contributions to a qualified ESOP are not taxable wages and not FIT, FICA or FUTA taxable, provided they do not exceed 100% of the employee's annual compensation or the annual inflation-adjusted limit, whichever is less.

What do DOL and IRS expect to do regarding internal controls?

They make it clear to auditors that they expect auditors to take a close look at internal controls as part of their routine audit procedures. It is an aspect of employee benefit audits that seems "widely misunderstood, or even widely unknown" says DOL on its website. "Auditors do not merely reconcile financial statements. In addition, to their many other audit tasks, auditors review internal controls to determine whether they provide adequate safeguards for plan participants."

Plan Document

This describes the plan's terms and conditions related to the operation and administration of a plan. An insurance company's master contract, certificate of coverage or summary of benefits is usually not sufficient to service as a legal plan document and rarely fully protects the plan sponsor. Every plan participant has the right to examine the plan document.

Briefly describe the SPD for a retirement plan.

This document outlines the key features of the retirement plan. This document fulfills the legal requirements and provides participants with an understanding of basic plan provisions. A plan SPD outlines the rules by which the plan is governed and covers such topics as employer contribution and vesting information, eligibility, plan loans and withdrawals, distributions and contact information for questions. The SPD should be written in language participants can easily understand.

Describe the investment committee charter.

This is an important component of plan governance. It does not need to be elaborate but should outline some fundamentals, providing committee members with the scope and range of authority to empower them to manage the plan and fulfill their fiduciary responsibilities. The committee charter should: a) specify activities for which the committee is responsible, such as coordinating vendor analysis and recommending plan design features b) Define the governing bodies with whom the committee must consult and to whom they need to provide recommendations c) Define how committee members are selected or appointed d) Establish how often regular committee meetings are selected or appointed e) Define the roles of any outside consultants

Taxability of Simplified employee Pension (SEP) Plans

This is an option for employers that do not have the financial resources to administer more complicated deferred compensation plans such as 401k plans. Employer contributions to this type of plan, up to the annual limit, are not FIT, FICA and FUTA taxable, and any contributions over the limit are wages to employees. Employee elective deferral contributions are excluded from wages up to the deferral limit but are FICA and FUTA taxable.

Describe the IPS.

This is the foundation for how the retirement plan investment program is expected to operate. It should provide guidelines for selecting, monitoring, measuring and making decisions for the plan's investments. It should: a) define the plan and its purpose b) Describe responsibilities for those involved with the investment program c) Establish the investment menu structure d) Assign investment performance benchmarks and develop performance measurement standards and processes e) Determine criteria for selecting and terminating investment managers f) Document the investment decision making process.

Participant

This term has been interpreted broadly to include employees in or reasonably expected to be in, currently covered employment. This would include employees who are eligible for a plan but are not enrolled. However, employees in a class not eligible to participate in a plan not participants under the ERISA definition. In addition, because of the definition is not limited to current employees, it can include COBRA participants, qualified beneficiaries, covered retirees and other former employees who may remain eligible under a plan.

Wrapper Plan Document

Typical way of supplementing an insurance company's certificate of coverage or insurance contract with the missing ERISA provisions. This should make clear to the participants that its contents and the carrier documents together constitute the paln document for the plan. If more than one benefit program is included under a single ERISA plan number (e.g. health, vision, dental & EAP benefits) then a wrapper plan document should be prepared to evidence the bundled approach. The result will be a single plan document that lists all of the welfare benefit options under that ERISA plan number. When multiple contracts or benefit arrangements are bundled under a single wrapper plan document, differences among the parts are inevitable. These differences should be identified and addressed at the outset as a matter of wrapper plan design.

Integration into group health plans (in relation to a health FSA)

Under ACA, group plans must meet certain market reforms, including providing preventive services at no cost to an employee and his or her dependents. The market reforms, however, do not apply to a group health plan that offers excepted benefits. Health FSAs are group plans that must meet the market reform provisions, but they will be considered to provide only excepted benefits if the employer also makes available group coverage that is not limited to excepted benefits and if the health FSA is structured so that the maximum benefit payable to any participant does not exceed two times the participant's salary reduction election for the health FSA for the year (or if greater, cannot exceed $500 plus the amount of the participant's salary reduction election). If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements.

Under federal law, how is the value of all benefits provided to an employee's sex civil union partner or domestic partner treated?

Under federal law, the value of all benefits provided to an employee's same sex domestic partner or a same sex civil union partner under applicable state law (or provided to the partner's children) is not exempt from FIT unless the person is a "dependent" as defined in the IRC. (That is , if benefits are provided to a nondependent partner in a same sex civil union or domestic partnership, FIT are withheld and they are based on the fair market value (FMV) of the benefits. In taxation terms FMV is referred to as imputed income).

Describe the characteristics of an HRA.

Used to reimburse current and former employees for medical expenses of the employees and their spouses, dependents and eligible adult children. HRAs are fully funded by the employer and cannot be offered to employees through a cafeteria plan or salary reduction. Employees are reimbursed on a pretax basis up to a set maximum amount for each period of coverage. Any amount not used by an employee by the end of the period is not lost and can be carried away over to the next period at the employer's discretion. All of the following 3 conditions must be met for HRA coverage and reimbursements not to be included in an employee's gross income: a) HRA only reimburses medical care expenses defined by IRC b) every request for reimbursement is substantiated c) the HRA coverage does not reimburse medical expenses for a prior tax year, expenses incurred before the HRA plan became effective or expenses incurred before the employee enrolled in the plan. In addition, while employer contributions to an employees HRA are tax-free to the employee, ACA requires that HRAs be integrated into a primary group's major medical plan and that the employee actually enroll in that primary group plan.

Comment on the number of committee members that should comprise an investment committee.

Very large committees begin to lose their effectiveness and ability to make decisions efficiently; large groups can end up paralyzed and unable to reach consensus. A small group that has enough diversity to engender meaningful discussion and healthy debate is optimal. There is no perfect number, but five to seven members seems to meet objectives, while more than ten is typically too unwieldy. Lastly, having an odd number of committee members can prevent votes from being tied up.

Outline the general rules to which workers' compensation benefits are subject.

When the employees suffer a work-related injury or illnesss, they may receive workers' compensation benefits. As a general rule, workers' compensation benefits are not subject to FIT or FICA taxes on amounts that do not exceed the amount of benefits provided under federal, state or local law. However, under an arrangement where the employer pays part or all of an employee's salary while receiving benefits in return for all of the benefit payments received by the employee, FIT, FICA or FUTA taxes must be withheld on any amounts the employer pays to the employee that exceed the amount of benefits received by the employee. The excess amounts are considered taxable wages.

How often should a record keeper request for proposal (RFP) be issued?

While not mandated according to any regulations, we generally recommend that plan sponsors consider issuing recordkeeper RFPs at least every three to five years.

Plan administrator/sponsor

a person with statutory responsibility for ensuring that all of the required filings with the federal government are timely made and is the person upon whom the statute imposes authority to make important disclosures to participants about plan benefits. Generally, the plan administrator is designated in the plan document. However, if the plan administrator is not so designated, then the responsibility defaults to the plan sponsor, which is usually the employer. In a single employer situation, the employer is the plan sponsor. Therefore the employer is ultimately responsibile for all reporting and disclosure requirements and should implement a process to make certain those responsibilities are being followed.

What types of plans may be offered under a cafeteria plan?

a) 401k plan b) Health and accident insurance plan coverage c) HSA contributions d) Long term and short term disability coverage e) COBRA continuation coverage premiums

List the penalties or problems a plan sponsor might incur if they do not provide SPDs or SMMs as required.

a) A plan sponsor may be charged a penalty per day if it does not provide a plan participant with an SPD or SMM within 30 days of an individual's request. b) Many courts look to the SPD and other plan descriptive material as important evidence of the benefits employees have been promised by the employer. For this reason, a clearly worded SPD is an important line of defense for employers in benefit disputes c) The plan may be forced to provide benefits described in any other written documents describing the plan. d) Participants and beneficiaries may bring a civil action in federal district court to enforce any provision of ERISA. e) criminal penalties may be imposed against any individual or company that willfully violates any ERISA reporting and disclosure requirements. f) Failure to distribute SPDs or SMMs could be used against the plan sponsor, in actions brought by the government or plan participants and beneficiaries, to argue that the sponsor has engaged in a pattern of noncompliance with or violations of ERISA. (A patter of noncompliance usually would cause DOL or the court to be less sympathetic to any arguments the plan sponsor may use.) In certain situations it might give the government impetus to initiate an audit of the sponsor's benefit programs in order to look for other ERISA violations.

List the topics that should be covered in investment committee meetings.

a) Followup on discussion from previous committee meetings b) review of investment performance and investment options c) review of legislative and regulatory updates: Has anything in the regulatory or legislative environment changed that would affect the plan? d) review of vendor services and fees e) review of the IPS: Is it still in line with the need of the overall investment program? f) Discussion of any potential plan improvements

For a voluntary benefit arrangement to be exempt from ERISA based on the DOL safe harbor, it must meet certain requirements. What are these requirements?

a) No employer or employee organization contributions b) participation is completely voluntary c) No employer consideration except for reasonable compensation and administration d) no employer endorsement

Describe the basic steps involved in moving to a market driven approach employee benefit plan communication system.

a) Research the audience to find out who they are, how they currently feel, what they want to hear, what will motivate them or change their attitudes and how and when to reach them. b) Set goals based on the anticipated results of a communication. Consider the knowledge needed or actions taken by employees as a result of the communication. Goals should be measurable, such as a stated percentage of employee participation in a managed care medical plan. c) Plan the messages and media so that they are targeted to the appropriate market segments in the audience. This century, things have changed quickly that it is imperative to meet the target audience where it sits (somewhere on smartphone) d) Implement the communication campaign, which should be developed based on the results of the research step. In addition, the employer can test-market the communication along the way to make sure the messages are reaching the targeted audience. This can be done by soliciting feedback from a sample of employees prior to widescale distribution of the communication e) Test and measure the results of the communication

Identify the plan documents that, according to the best practices guidelines, should be in plan, at a minimum, for the management of plan investments.

a) SPD b) Investment committee charter c) Investment policy statement (IPS)

List the elements that would be prudent to include in a plan document.

a) The name(s) of the plan fiduciary(ies) b) Policies and procedures relating to plan administration c) funding requirements d) a description of how benefit payments will be made e) claims and appeals procedures f) plan amendment and termination authority and procedures g) method for distribution of plan assets upon plan termination h) A statement that plan assets can be used to pay reasonable costs of plan administration.

What are the main disclosure requirements under ERISA?

a) a plan document must exist for each plan b) a summary plan description must be furnished automatically to participants. c) a summary of material modifications must be furnished automatically to participants when a plan is amended. d) A four page summer of benefits and coverage must be provided to applicants and beneficiaries upon written request e) copies of certain plan documents must be furnished to participants and beneficiaries upon written request f) claim procedures must be established and followed when processing benefits claims and when reviewing appeals of denied claims.

Name the areas that have been identified as especially in need of internal controls.

a) distribution and loans b) hardship withdrawals c) nondiscrimination testing d) contributions e) Compensation and personal data

How does the DOL define a material reduction in covered services or benefits in a health plan that requires SMMs be distributed within 60 days after the modification or change?

a) eliminates benefits payable under the plan b) reduces benefits payable under the plan (for example, from a change in formulas, methodologies or schedules that serve as the basis for benefit determinations) c) Increases deductibles, copayments or other amounts paid by a participant or beneficiary d) reduces the service area covered by a HMO e) establishes new requirements ( for example, preauthorization requirements) to obtain services or benefits

IRS has stated the reasons for urging plan sponsors to establish a strong internal control environment. What are these reasons?

a) good internal controls can eliminate or reduce errors in the operation of the plan. b) They can help a plan sponsor quickly identify errors and initiate their own corrections without relying on regulators to catch mistakes, which reduces the cost of corrections. c) Good controls can help keep an audit of the plan focused, reducing the time dedicated to conducting an examination. d) They can shorten the turnaround time on any requests for additional information. e) They generally promote clear communication between examiners and representatives of the plan.

List the factors that influence the shape and scope of an organization's benefit communications.

a) highlight the value of employee benefits b) create involvement and ownership with employees c) encourage better utilization of benefits d) support and facilitate benefits administration e) satisfy legal requirements

What are the main requirements that pertain to ERISA plan assets?

a) plan assets including participant contributions, may be used only to pay plan benefits and reasonable administration costs. b) For some plans, plan assets to be held in trust c) A fidelity bond must be purchased to cover every person who handles plan funds.

Who is responsible for establishing and maintaining an effective system of internal controls over employee benefit plans? Controls generally fall into which specific areas?

a) plan documentation and any amendments b) plan testing and administration as well as contributions, participant data, compensation, distributions, loans and plan expenses. c) controls at any third party administrator d) controls might also be necessary to address multiple plans, multiple subsidiaries or business units, or merging plans in the event of a business combination. e) Defined benefit pension plans also have additional controls to address actuarial assumptions and the proper distribution of funds.

List the benefits that are nonqualified, are taxable income to employees and may not be offered as part of a cafeteria plan.

a) scholarships and fellowships b) nontaxable fringe benefits S132 c) educational assistance benefits d) Meals and lodging provided for the employer's benefit e) MSA contributions made by the employer f) certain HSAs g) certain long term care insurance benefits h) certain group term life insurance benefits i) tax sheltered annuity plan elective deferrals under S403(b)

List the components that should be included in a well constructed IPS.

a) statement of purpose b) statement of roles and responsibilities c) asset allocation d) investment goals and objectives e) investment guidelines f) Investment performance review and evaluation

Educating committee members is critical to the long term success of the committee as a governing body. Committee education can be broken down into three important segments. What are these segments?

a) understanding fiduciary responsibility. b) Education about functioning as a committee. c) Investment education.

How is pay for sick days associated with brief minor illnesses treated for tax purposes?

usually provided by employers so that employees do not lose wages when they are absent from work because of brief minor illnesses, such as a cold or the flu. This type of sick pay is subject to FIT, FICA taxes and FUTA taxes when paid.