@197 CHAP 5 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� � ERISA COMPLIANCE---EMPLOYEE BENEFIT PLANS � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� If you have employees and provide them with "fringe bene- fits" such as group insurance (other than workers' compen- sation) or other types of employee "welfare plan" benefits, or if you adopt a pension or profit sharing retirement plan, you will almost certainly have to comply with at least some aspects of the Employee Retirement Income Se- curity Act of 1974, popularly (or unpopularly) known as "ERISA." There are CRIMINAL PENALTIES for willful failure to comply with two types of ERISA requirements: . Reporting -- to government agencies (IRS, Dept. of Labor, PBGC); and . Disclosure -- to employees. In addition, there are a number of different types of civil penalties for unintentional failures to comply with ERISA requirements, which are incredibly numerous and complex. In short, compliance with ERISA is a nightmare -- but one that won't go away at dawn. ERISA deals with 2 kinds of employee benefit plans -- pens- ion plans and welfare plans. Pension plans under ERISA are pretty much what you might expect -- tax qualified retire- ment plans, including both pension and profit sharing plans (including Keogh plans), plus other types of benefit prog- rams that defer payments until after employment has termi- nated. The ERISA reporting and disclosure requirements for pension plans are quite extensive, and if your business adopts any such plans, you will almost certainly need pro- fessional assistance in meeting the ERISA requirements that may apply. See summary in paragraph (b) below. "Welfare" plans under ERISA include most other types of em- ployee benefit plans that are not considered pension plans. These include the typical fringe benefit plans adopted by small firms, such as health insurance, long-term disabili- ty, group-term life insurance and accidental death insur- ance plans. ERISA compliance for welfare plans is usually less of a burden than for pension plans, but is required for almost every business that provides any kind of bene- fits for employees of the type mentioned above. Note that a number of so-called fringe benefits that are in the na- ture of payroll practices, such as paid holidays, vacation pay, bonuses, overtime premium pay and most kinds of sev- erance pay arrangements, usually are not considered to be either pension OR welfare plans under ERISA. Thus, these kinds of payroll practices are not subject to ERISA rules at all. Compliance requirements for reporting and disclosure under ERISA are briefly outlined below. (a) WELFARE PLANS. The one ERISA compliance requirement that applies to almost all small businesses is the require- ment that an employer prepare a Summary Plan Description ("SPD") for distribution to all employees covered by any type of welfare plan sponsored by the employer, such as typical health, accident, life, or disability insurance plans. An SPD must contain over 20 specific items of in- formation listed in U.S. Department of Labor regulations, including an "ERISA Rights Statement" which must be copied more or less verbatim from the regulations. An SPD must be prepared for each plan and distributed to covered employees within 120 days after the plan is first adopted. Each new employee must be given a copy of the SPD within 90 days after becoming a participant in the plan. Since an SPD must be prepared for each employee plan subject to ERISA, even a very small business may find that it has to produce three or four of these documents, each of which must meet detailed technical requirements. One important consideration in taking out insurance cover- age for employees should be a firm commitment from the insurance company or brokers that they will prepare the ne- cessary SPDs for the insurance plans they are selling you-- otherwise, you may need to have your attorney or benefit consultant prepare the SPDs, which can result in substan- tial professional fees. Other than the need for an employer to prepare SPDs and dis- tribute them to employees, there are no significant ERISA requirements that apply to insured-type welfare plans, in the case of plans covering fewer than one hundred employees. @IF099xx]Since you have only @EMP employees, you are relatively free @IF099xx]of ERISA reporting and disclosure requirements with regard @IF099xx]to any insured welfare plans of @NAME. However, you must make available the insurance policies and other plan documents for inspection by your employees and you must furnish copies to them upon request. If your business should happen to have 100 or more employees who are covered by a plan, or if you adopt any type of un- insured (and "funded") welfare plan, you will suddenly be- come subject to a whole array of additional ERISA require- ments, including the following: . Filing a copy of the SPD with the Department of Labor; . Filing an Annual Return/Report or Registration (Form 5500 series) with the IRS each year; . Preparing and distributing a Summary Annual Report to covered employees each year; . Preparing a Summary of Material Modifications of the plan (if any) and filing it with the Department of Labor and distributing it to covered employees; and . Filing a terminal report if the plan is terminated. NOTE: In addition to these ERISA requirements, there are similar filing requirements (for Forms 5500, 5500-C, etc.) for employer-provided educational assistance plans, group legal services plans, and so-called "cafeteria plans." (b) PENSION PLANS. The ERISA compliance requirements for a pension or profit sharing plan of even a very small busi- ness are very onerous, complex, and expensive, despite numerous attempts by the IRS and the Department of Labor to simplify the reporting requirements in response to a barrage of criticism from small businesses. Because these compliance requirements are so very complex and are con- stantly changing, no attempt to spell them out in detail is made here. Instead, the basic ERISA compliance require- ments for most pension and profit sharing plans are briefly summarized as follows: 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� � ITEM: PROVIDED TO: � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴� . Summary Plan Department of Labor; partic- Description ipants; beneficiaries . Annual Return/Report IRS (Required even for a (Form 5500, 5500-C simple 1-person Keogh plan, 5500-EZ or 5500-R) if over $100,000 in assets) . Schedule A, Form 5500 IRS series (Insurance info) . Schedule B, Form 5500 IRS series (Actuarial informa- tion prepared and signed by an enrolled actuary-- for defined benefit plans only) . Schedule SSA, Form 5500 IRS series (Registration statement) . Form W-2P (Report of per- IRS; recipient of distribu- iodic plan benefit pay- tion ments made during year) . Form 1099-R (Report of IRS; recipient of distribu- total distribution of tion benefits during the year) . Form W-3 or W-3G (Trans- IRS mittal of Forms W-2P and 1099-R) . Form PBGC-1 (Premium pay- Pension Benefit Guaranty Corp. ments of required plan (a government agency that in- termination insurance -- sures pension plans of em- for "defined benefit" ployers) plans only) . Summary Annual Report Participants; beneficiaries . Individual Deferred Vest- Former participant in plan ed Benefit Statement to Separated Employee . Summary of Material Department of Labor; partici- Modifications (to a plan) pants; beneficiaries . Terminal Report Department of Labor; partici- (when plan is terminated) pants; beneficiaries . Written explanation of Participants Joint & Survivor Annuity . Written explanation of Person claiming entitlement reasons for denying bene- to plan benefits fit claim and description of appeal procedures . Various documents and Department of Labor; partici- information to be pants provided on request . Various formal notices Department of Labor; partici- upon occurrence of pants; IRS; Pension Benefit certain events Guaranty Corporation ___________________________________________________________ In addition to these ERISA reporting disclosure require- ments, all employees who are deemed to handle assets of a pension or welfare plan that is covered by ERISA are re- quired to be covered by fidelity bond of specified amounts. Also, note that withholding is now mandatory on distribu- tions of pension and profit sharing benefits, unless the re- cipient elects IN ADVANCE not to have any tax withheld. (And, effective in 1993, 20% withholding is now required on ALL distributions, unless the recipient arranges for the payout to be made directly to an IRA or another qualified plan.) Penalties can be quite severe for non-compliance with ERISA regulation. For example, there is a $25 per day penalty for late filing of any of the Form 5500 series Annual Reports required of pension plans (and some welfare plans).