Employers may be aware that some employee benefit arrangements are covered by the Employee Retirement Income Security Act of 1974 (ERISA). These typically include group benefit plans or retirement plans that you may currently be providing your employees. However, ERISA rules can also apply to certain employer-sponsored arrangements for employees to purchase insurance. You’ll need to determine if the insurance you’re considering will be an employee benefit plan subject to ERISA.
We’ve provided the following Frequently Asked Questions to help you determine if the MassMutual insurance you’re considering for your employees will be subject to ERISA regulations. This is a very general overview of complex law. Neither MassMutual nor any of its employees or representatives is authorized to provide legal advice. If you have additional questions regarding employee welfare benefit plans, whether or not your plan is subject to ERISA, or your obligations under ERISA, please consult your own legal or Human Resource/ benefits advisor.
The Employee Retirement Income Security Act of 1974 is a federal law that sets minimum standards for most employee pension and welfare benefit plans established by an employer in private industry to provide protection for participants and beneficiaries in these plans.
In part, ERISA requires plans to provide participants with plan information including important information about plan features and funding; imposes fiduciary responsibilities on those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; and gives participants the right to sue for benefits and breaches of fiduciary duty.1
An employee welfare benefit plan is a plan, fund, or program that is established or maintained by an employer or an employee organization representing employees for the purpose of providing welfare benefits to plan participants or beneficiaries.
Benefit arrangements that provide disability income insurance, life insurance, or long-term care insurance for employees are examples of employee benefit arrangements that might be a welfare benefit plan subject to ERISA.
While employee welfare benefit plans are broadly defined, there are exemptions. The following plans are exempt from ERISA:
1. Government or church plans.
2. Plans maintained solely to comply with state laws (e.g. workers’ compensation, unemployment compensation, or disability benefits laws).
3. Plans maintained outside of the U.S. that cover only non-U.S. citizens.
Note that a plan covering only self-employed individuals or partners would not constitute an ERISA welfare benefit plan. Because self-employed individuals or partners are not considered employees, if a plan covers only these individuals and no employees, it would not be subject to ERISA.
A voluntary insurance plan involves insurance that is offered to employees who apply for and pay premiums for the coverage on a voluntary basis. Involuntary insurance plans, even though the plan is not mandatory for employees to participate, the employer still will have some involvement in the process. For example, the employer might permit insurance agents to contact employees at work, to explain the insurance offering, and to help interested employees apply for the coverage. Or, the insurer and employer might have an arrangement where the employer collects premiums from the employees through payroll deductions and remits the premiums to the insurer. This is often referred to as “list billing” by the insurer and is a means to make the billing process easier for the employees, the employer, and the insurance company.
Voluntary insurance plans may be subject to ERISA. However, a Safe Harbor exemption exists for group or group-like plans that meet all of the following requirements:
1. No contributions are made by an employer or employee organization.
2. Employee participation is completely voluntary.
3. Without endorsing the program, the employer’s sole involvement is to permit the insurer to publicize the program to employees, collect premiums through payroll deduction, and remit collected premiums directly to the insurer.
4. The employer receives no consideration in connection with the plan (other than reasonable compensation for administrative services for payroll deduction or dues checkoffs).
Even if a plan is voluntary and employees pay the entire cost, it may be subject to ERISA if the employer is determined to have
“endorsed” the plan. Any number of employer actions may be indicative of employer endorsement of the plan that could subject the plan to the ERISA requirements.
Determining whether an employer has endorsed a voluntary insurance plan is based on the facts involved — a change in facts and different combinations of factors can produce different results. Some of the activities listed below2 may constitute employer endorsement in and of themselves; other activities may result in employer endorsement when additional factors are also present.
a. Selecting insurers
b. Negotiating terms or design of the voluntary plan
c. Linking plan coverage to employee status
d. Using the employer’s name, including stationery, logo, or signature, or associating the plan with other employer benefits
e. Recommending the plan to employees
f. Saying ERISA applies
g. Doing more than permitted payroll deductions
h. Permitting employees to pay premiums through employer’s cafeteria plan
i. Assisting employees with claims and disputes
Employees’ perceptions regarding employer involvement are important. The greater the degree of employer involvement and the more likely that employees might view the employer as having endorsed the plan, the greater
the likelihood that the plan will be subject to ERISA. Whether or not an employer’s actions will cause a voluntary insurance plan to be subject to ERISA is a fact and circumstance test.
No. Although failing to satisfy the voluntary insurance plan safe harbor often results in a determination that the insurance arrangement is subject to ERISA, it is not always the case.
For example, although an employer’s actions might constitute endorsement under the safe harbor regulations and offer evidence that a plan existed — at least one court has found that such evidence must be considered along with surrounding circumstances in determining whether the employer “maintained” the plan as required by ERISA’s definition of an employee welfare benefit plan.
2 Source: “ERISA Compliance for Health & Welfare Plans,” Employee Benefits Institute of America, Inc.
Employers that provide ERISA employee welfare benefits are generally subject to three primary obligations:
1. Disclosure — A written plan document is required. Plan administrators must provide all plan participants with copies of a Summary Plan Description,
Summary of Material Modifications, and for plans with 100 or more participants not eligible for exemption, a Summary Annual Report.
2. Reporting — Subject to certain exemptions, plan administrators are required to file an annual report on Form 5500 with the Department of Labor.
3. Accountability — Plan administrators are accountable as a fiduciary for administering the plan and managing the plan assets (which may include premiums paid by employees). A plan fiduciary must act prudently, in accord with the document establishing the plan, and in the best interest of the plan participants and beneficiaries.
Insurance companies that provide insurance products in connection with employee welfare benefit programs also have certain obligations under ERISA. Insurers may be required to provide insurance information each year to the Plan Administrator to enable them to complete Schedule A of Form 5500. Insurance companies must also adjudicate claims in accordance with ERISA requirements.
Should you decide to offer MassMutual insurance products to your employees, please be prepared to disclose to us whether the insurance will be part of an ERISA plan and if you will require a Schedule A Information Report. Providing this information at the time of sale will enable MassMutual to provide you, as the Plan Administrator, with the necessary information in a timely manner.