Dealing with DOL Audits

Department of Labor Audits
By
Larry Grudzien
Attorney at Law
2

Agenda
• Health Reform Audits,
• Ongoing DOL Audits,
• Voluntary Compliance Checklist , and
• Possible Fines and Penalties for Violations.
3

Health Reform Audits
4

• The Department of Labor has begun requesting, through recent audit
requests on health and welfare plans, that employers prove their plans
currently comply with the Affordable Care Act (the “Act”).
• The DOL audit requests relating to the ACA can be divided into three
types:
 requests as to plans claiming grandfathered status.
 requests as to plans not claiming grandfathered status.
 requests as to all health plans regardless of grandfathered status.
5

• Requests applicable to grandfathered plans
 Some of the DOL's attention is focused on whether a plan is properly accorded
grandfathered status.
 DOL inquiries can include:
▪ disclosure statements regarding grandfathered status included in material distributed to
participants and beneficiaries describing the benefits provided under the plan.
▪ records documenting the terms of the plan on March 23, 2010, the Act’s enactment date,
along with any ancillary documents required to verify the status of the grandfathered
plan.
6

• Requests applicable to grandfathered plans
 The DOL audit questions appear to be aimed at substantiating that the plan in
question complies with two requirements under the final interim regulations on
grandfathered health plans under the Act issued by the departments of Labor,
Health and Human Services, and Treasury.
 Plans must: provide a specific notice, in any materials that describe the plan’s
benefits to participants or beneficiaries, that the plan believes it is a
grandfathered health plan; and maintain, and make available upon a
government agency's request, records documenting the terms of the plan or
health insurance coverage in effect on March 23, 2010, as necessary to verify,
explain, or clarify the plan's grandfathered status.
7

• Requests Applicable to Nongrandfathered Plans:
 the plan's choice provider disclosure notice, along with a list of participants
who received that notice;
 documents relating to the plan's emergencies services benefits;
 documents relating to the preventative services for each plan year on or after
Sept. 23, 2010;
 the plan's internal claims and appeals procedures;
 notices relating to adverse benefit determinations, the plan's final internal
adverse determination notice, and the plan's final external review
determination notice; and
 contracts or agreements with independent review organizations or third-party
administrators providing external review.
8

• Requests Applicable to Nongrandfathered Plans:
 The DOL audit requests appear to be aimed at substantiating that the plan in
question complies with certain coverage mandates that apply only to
nongrandfathered health plans, including to cover certain preventive care
services without cost-sharing, as well as that any emergency hospital
services must be provided without requiring prior authorization or higher
cost-sharing amounts, even for out-of-network services.
 In addition to these mandates, nongrandfathered health plans must adopt
new internal and external claims procedures pursuant to guidance issued
under the Act.
 This guidance provides a safe harbor for compliance with the Act's
requirement to offer a binding external review process under the plan,
pursuant to which nongrandfathered health plans can contract with three
independent review organizations to handle external claims appeals.
9

• Requests applicable to all plans
 for plans with dependent care coverage, a sample of the notice describing
enrollment opportunities relating to coverage of children up to age 26.
 a list of any participants who had coverage rescinded and the reason for such
rescission.
 if the plan imposes or has imposed a lifetime limit since Sept. 23, 2010,
documents relating to that limit for each plan year.
 if the plan has imposed an annual limit since Sept. 23, 2010, documents relating
to that limit.
10

 These requests appear to be aimed at eliciting information necessary for
the DOL to determine a group health plan's compliance with several
primary mandates applicable to all group health plans, regardless of the
plan's grandfathered status.
 First, the Act requires that group health plans and insurance issuers that
provide dependent child coverage make that coverage available for children
until they attain age 26.
11

 The Act does not permit the rescission of coverage absent fraud or material
misrepresentation on behalf of the individual claiming coverage under the
group health plan.
 For this purpose, a rescission is simply the retroactive termination of
coverage for any reason other than nonpayment of premiums.
 The Act does not permit group health plans to impose lifetime dollar limits
on benefits deemed to be "essential," a term that needs further definition by
the oversight agencies, nor does the Act permit annual dollar limits to be
placed on these benefits.
12

• Best practices to prepare for DOL Act-related audits
 Generally, plan sponsors and administrators should be prepared to
demonstrate that their plans comply with every aspect of the Act, which
generally requires documentary evidence from plans, recordkeepers and/or
service providers.
 Based on the substance of the recent DOL audit requests, plans will likely
be expected to prove they comply with multiple Act-related requirements
13

 These requirements include:
▪ grandfathered status,
▪ notice to participants of grandfathered status,
▪ coverage for dependents to age 26 since Sept. 23, 2010, and notice of special
enrollment periods for the same,
▪ elimination of lifetime and annual limits on essential health benefits,
▪ participation and rescission of coverage,
▪ internal and external claims procedures, and
▪ other coverage mandates, such as those concerning preventive care services and
emergency hospital services.
14

• Best practices to prepare for DOL ACA-related audits
 Inadequate responses to these requests could lead to additional inquiries from
the DOL, such as requests for additional documents, interviews, information,
site visits, investigations and even DOL enforcement actions, and lawsuits by
individual participants and beneficiaries.
 Various penalties could be imposed by the DOL and/or the IRS for failure to
implement certain Act-related coverage mandates.
 For example, the Act levies a penalty of up to $100 a day per affected
individual for the failure to provide coverage to adult children who are under
the age of 26.
15

• Best practices to prepare for DOL ACA-related audits
 DOL and individual participants could file lawsuits, at least under ERISA, to
ensure proper implementation of the Act.
 For example, they could contend that the Act's coverage mandates were not
implemented or were not implemented correctly, or could complain that
they were not properly notified.
16

 Possible future litigation related to compliance with the ACA includes, but is
not limited to, the following:
▪ claims to mandated coverages that were or are not being provided;
▪ breach of fiduciary duty for failure to provide proper notice of the availability of a
mandated coverage;
▪ claims for interference with rights to benefits growing from the implementation of a
workforce realignment and/or a retiree medical exit strategy; and
▪ whistleblower actions brought pursuant to the Act.
17

 Given these risks, plan sponsors should prepare now to be able to prove their
plans' compliance with the Act.
 In particular, there are several specific steps that plan sponsors,
administrators, fiduciaries, and service providers can take to ensure that
compliance can be proven and that such audits go as smoothly as possible:
▪ document steps taken to comply with the Act's requirements
▪ retain all records of plan design, administration, and maintenance, including contracts
with third-party service providers such as HMOs
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 have agreements with entities such as service providers or record keepers to
obtain records that are needed to prove compliance
 have any plan amendments or written policies that were adopted to
implement the Act mandates ready to produce
 upon receiving such an audit request, contact counsel immediately, as the
issues are complex, and swift action is often necessary to protect the various
rights and interests of the numerous entities involved in administering health
and welfare plans.
19

• Other areas of concern in the future
 Distribution of Summary of Benefits and Coverage,
 Distribution of Medical Loss Ratio Rebate, and
 Form W-2 Reporting,
 Notice of the exchange, and
 Notice of filing to IRS.
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Ongoing DOL Audits
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• An audit can be triggered by any number of things, from a participant
complaint to certain red flags, and DOL has a duty to investigate them.
• There are even random audits of auditors.
• The results of an audit, from DOL's perspective, can range from a finding
that everything is as it should be to discovery of serious improprieties
and the need for legal action.
• But even in a best-case scenario where you come away with a clean slate
an audit will place demands on your time, energy and organizational
resources.
22
Introduction

• Fortunately, there are steps you can take now to make it easier to survive
an audit.
• You need to make sure, first of all, that your plan is run properly and that
you have complied with all regulatory requirements and documentation.
• Be sure to educate yourself and keep up to date on DOL requirements,
and work with your legal counsel and independent auditors to stay in
compliance.
• DOL has a new Fiduciary Educational Campaign, started in June 2004,
which offers free educational materials and a series of seminars for plan
professionals, which you can find out about at www.dol.gov/ebsa.
23
What Can You Do?

• You need to have access to your essential documents and to have a
plan in place for dealing with the demands an audit will put on you
and your organization.
• The time to prepare is now, and it's not difficult.
24
What Can You Do?

• As part of its responsibility to protect plan participants, DOL relies on
the Employee Benefits Security Administration (EBSA) to administer
and enforce ERISA's fiduciary, EBSA is the agency responsible for
conducting audits and investigations of plans.
• The audits and investigations can result from a variety of triggers.
• These can include bankruptcy, participant or vendor complaint, and
problems with the Form 5500.
25
Background

• To focus its resources where they will have the greatest impact, EBSA
has identified national enforcement projects in which field offices are
to place particular investigative emphasis.
• EBSA also allows its regional offices to formulate and act on their
own projects. provisions.
26
Background

• The national enforcement projects include:
 Multiple Employer Welfare Arrangements (MEWAs)
 Employee Contributions Project
 Rapid ERISA Action Team (REACT)
 Orphan Plans Project
 Health Disclosure and Claims
 On Site Reviews of Audit Work Papers
27
National Enforcement Projects

• A MEWA is a welfare benefit plan or other arrangement that is created to
benefit employees of two or more employers.
• EBSA is particularly on the lookout for instances where a small employer
that cannot find or cannot afford health care coverage turns to a MEWA
that cannot fulfill its obligations, either for lack of funds or for
malfeasance.
• Audits under this program can be triggered by complaints from
participants, management whistle blowers or other government
agencies.
28
Multiple Employer Welfare
Arrangements (MEWA)

• EBSA has aggressively pursued employers that delay remitting employee
contributions to the 401(k) and health care plans for their own benefit.
• DOL regulations require that contributions for a benefit plan become plan
assets as soon as they can reasonably be segregated from the
employer's general assets, which must occur within 15 business days
after the end of the month the contributions are withheld from employees'
pay.
• 90 days for welfare plans
29
Employee Contributions
Project

• For multiemployer 401(k) plans, an additional issue to the plan
administrator is how to monitor the timeliness of the contributions of
various employers participating in the plan.
• In performing payroll audits for multiemployer plans, timeliness of 401(k)
plan contributions should be addressed.
• Audits under this program have the same triggers as MEWAs.
30
Employee Contributions
Project

• Because participants and beneficiaries are at special risk in the case of
bankruptcy, EBSA has a special team called REACT to protect their
benefits.
• REACT makes sure all available legal actions have been taken to
preserve pension plan assets. Investigators will take particular care to
look for commingled assets and to determine whether there are plan
contributions that have not been paid.
• They also keep an eye out for assets that should be paid to the plan but
which employers may still beholding.
• REACT investigations are triggered when DOL learns of an impending
bankruptcy from whatever sources.
31
Rapid ERISA Action Team
(REACT)

• If a plan has been abandoned by its sponsors and fiduciaries, or
fiduciaries are not available for reasons of "death, neglect, bankruptcy, or
incarceration" (as DOL puts it), EBSA searches for an available fiduciary
or one who can be appointed to protect the assets of the plan.
• The focus of the Orphan Plans Project is not the investigation of a plan's
documents and procedures, but maintenance of responsible supervision
so participants and beneficiaries can receive their earned benefits.
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Orphan Plans Project

• EBSA has dedicated substantial resources to identifying fiduciary and
criminal violations relating to health benefit plans.
• Recent statutes, including the Health Insurance Portability and
Accountability Act of 1996, the Mental Health Parity Act of 1996, the
Newborns' and Mothers' Health Protection Act of 1996 and the Woman's
Health and Cancer Rights Act of 1998 have expanded EBSA's role in this
area.
• EBSA investigations primarily focus on ensuring that the plans are
financially sound and are run prudently and in the participants' interest.
33
Health Disclosure and Claims

• EBSA's Office of the Chief Accountant performs random audits that do
not directly involve you or your fiduciary duties.
• These are audits of the auditors; their purpose is to make sure the
auditors' work is up to standards.
• If this happens to your plan, you may receive a notice from DOL that such
an audit is underway.
• This does not indicate any shortcoming in your auditors, since they have
been selected at random. In most cases, work will be performed in the
auditors' office, where DOL will review audit work papers.
• You may wish to ask your auditor and DOL for a copy of the final report,
just for your own peace of mind.
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On Site Reviews of Audit Work
Papers

• When you are notified of an audit, your first step should be to find out
what's being investigated.
• Chances are, your audit will fall into one of the categories discussed
above.
• Knowing what the investigators want will help you gather the information
you need and alert the necessary personnel to be available.
35
Steps To Take

• Generally, DOL will give you a list of documents they would like you to
have available during their visit.
• If there is something on the list that is unclear to you, call and ask for
clarification.
• Make that call early in the process to give yourself ample time to obtain
any documentation required.
36
Steps To Take

• In addition to what is requested, the following is a list of documents you generally should
have on hand during the DOL visit:
 Plan document.
 Trust agreement.
 Master trust agreement, if any.
 Latest IRS determination letter.
 Form 5500, together with supporting schedules and documentations, including the audit
report with the accountant's opinion and financial statements with notes for the period being
audited.
 Board of trustees meeting minutes.
 Bank and investment custodian statements.
 Investment guidelines.
 Independent investment appraisals, if any.
 Expense allocation methodology documentation (including allocation studies and expense
allocation agreements with related plans, if any).
 Summary plan description.
 Agreements with service providers.
 Insurance policies.
37
Steps To Take

• Looking at the audit as a process you must participate in, one of your next
steps should be to appoint a point person.
• Make it clear what the extent of this person's authority and responsibility
is.
• Because of an audit's potential impact on the plan and its administrators,
this individual should be the plan administrator, attorney or outside
accountant.
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Steps To Take

• He or she should have broad powers indeed, and requests for information
should receive the highest priority.
• The point person's duties will include coordinating with DOL on the timing
of the audit, assembling and reviewing the requested documentation,
coordinating meetings with appropriate personnel, reporting to the board
of trustees and devising recommendations for future audits.
39
Steps To Take

• You should also make the plan's legal counsel and independent auditors
aware of the audit from the very beginning.
• They can provide you with invaluable assistance in responding to DOL
inquiries, finding information and interpreting government regulations.
• You may also want to request their presence during interviews, where
they can protect your interests and respond to technical questions
quickly and authoritatively.
• It may be advisable to have the plan's legal counsel and independent
auditors review the documents DOL is interested in before meeting with
DOL or handing over the documents.
40
Steps To Take

• Once these steps have been taken, let other plan personnel know what's
going on.
• At the very least, they should have the name of the point person in charge
of responding to the audit, plus directions about what to do if information
is requested by DOL investigators.
• Depending on the size of the plan's staff, you may not need to inform
everyone, but anyone who might be approached by DOL should be aware
of the protocols.
41
Steps To Take

• In your communications with DOL investigators, do not give them
information they do not request.
• Resist the temptation to try to bury them in unrelated paperwork.
• The last thing you want is for them to identify a new area into which they
should inquire.
• You will do better to cooperate with DOL and provide documents in a
timely manner than to drag your feet and delay, which can raise
suspicions of problems.
• Remember, DOL and you have a common goal to protect the assets of the
plan and provide participants with the benefits they are entitled to.
42
Steps To Take

• If the investigation finds problems, you'll have to fix them.
• Voluntary compliance will generally satisfy DOL and avert any civil
lawsuit.
• You may have to pay amounts to restore losses, disgorge profits or pay
penalty amounts, depending on the violation that has been determined.
• If you don't, DOL will refer the case to its attorneys.
• In that case, you may be able to settle without going to court, but you're in
an unhappy position.
43
Steps To Take

• If you find problems before or apart from a DOL audit, you should
know about the Voluntary Fiduciary Correction Program (VFCP).
• This program allows plan officials to make corrections on prohibited
transactions such as purchase of assets from party in interest, sale of
assets to party in interest, payment of excessive compensation and
12 other specified prohibited transactions.
• If you document an acceptable correction, DOL will issue a no action
letter.
• A no action letter reports EBSA's decision to take no civil action
against you and not to impose certain penalties on the amount you
have repaid to the plan.
44
Problems Apart From the
Audit

• If your plan is late in filing its Form 5500, DOL also has a Delinquent
Filer Voluntary Compliance (DFVC) program.
• This program allows plans to file their late Form 5500 before a DOL
late-filing notice with far lower penalties than if DOL found their failure
to file and requested the missing forms.
• The maximum penalty per late filing is $750 for a small plan and
$2,000 for a large plan.
• There is also a new per plan cap of $1,500 for small plans and $4,000
for large plans.
• The per plan cap is designed for plans with multiple late filing years.
45
Problems Apart From the
Audit

Voluntary Compliance
Checklist
46

• Plan Document
 What: written document(s) describing plan terms and conditions, including
some general ERISA-required provisions
 When: distributed upon request (within 30 days after written request, to avoid
penalties)
• Summary Plan Description (“SPD”)
 What: written document(s) summarizing plan; often drafted as a “wrap” for
insured benefits; must contain specific information and language as required
by ERISA
 When: distributed upon plan enrollment and at least every 5/10 years thereafter,
and upon request; generally within 90 days after enrollment
 Who: participants, beneficiaries entitled to benefits
47
ERISA

• Summary of Material Modification
 What: written document summarizing changes to SPD
 When: distributed (unless updated SPD is distributed) when modification is
adopted and upon request; generally within 210 days after plan year end
• Summary of Material Reduction in Covered Services/Benefits (for
health plan)
 What: written document summarizing reductions
 When: distributed after adopting reduction; generally within
 60 days
48
ERISA

• Annual Report
 What: IRS Form 5500 series; reporting requirements depend on size of plan and
type of plan and funding method (e.g., insured, self-insured, trust or general
assets); exception for certain small plans (generally less than 100 participants)
 When: filed annually; distributed upon request to participants
 Who: filed with DOL
• Summary Annual Report (“SAR”)
 What: written document summarizing Annual Report
 When: distributed automatically and upon request; within 60 days after Annual
Report is filed
49
ERISA

• Claims Notices/Explanation of Benefits
 What: written document describing claim determinations; requirements
vary depending on type of plan/claim
 When: distributed upon claim determination; specific time periods apply
depending upon type of plan/claim and whether initial claim or appeal of
denial
 Who: participant/beneficiary claimants
 Note: Patient Protection and Affordable Care Act (PPACA) changes to
internal and external claims and appeal procedures are effective first day of
plan year beginning on or after September 23, 2010 or July 1, 2011 (for
those provisions which were “delayed”).
50
ERISA

• Initial COBRA Notice
 What: advises new participants/beneficiaries regarding COBRA rights
 When: distributed upon commencement of plan coverage
 Who: covered employees and spouses/dependent children
• COBRA Election Notice
 What: advises participants/beneficiaries regarding right to elect COBRA
coverage
 When: distributed upon “qualifying event”; generally within 14 or 44 days
 Who: covered employees and spouses/dependent children
51
COBRA

• Notice of Unavailability of COBRA
 What: advises participants/beneficiaries that COBRA is unavailable
 When: distributed upon “qualifying event”; generally within 14 or 44 days
 Who: employees, spouses or dependent children who are ineligible for COBRA
coverage
• Notice of COBRA Early Termination
 What: advises participants/beneficiaries of early COBRA termination
 When: distributed prior to termination of coverage; as soon as practicable
 Who: employees, spouses or dependent children for whom COBRA
coverage will terminate early
52
COBRA

• Certificate of Creditable Coverage
 What: documents creditable coverage under previous group health plan
 When: distributed upon loss of coverage (including loss of COBRA)
 Who: participants and beneficiaries who lose coverage
• General Notice of Preexisting Condition Exclusion
 What: describes group health plan preexisting condition exclusion
 When: distributed with enrollment materials
 Who: participants
53
HIPAA

• Individual Notice of Preexisting Condition Exclusion
 What: notifies individual regarding specific preexisting condition exclusion
and determination of creditable coverage
 When: distributed after determination of creditable coverage
 Who: participants and beneficiaries who are subject to preexisting
condition exclusion
• Notice of Special Enrollment Rights
 What: notice describes special enrollment rules (e.g., birth, adoption, loss
of other coverage)
 When: distributed prior to or during enrollment
 Who: covered employees
54
HIPAA

• Womens’ Health and Cancer Rights Act Notices.
 Note: WHCRA also applies to “non-electing” church plans and governmental
plans, under laws other than ERISA.
 What: describes required benefits for mastectomy and reconstructive surgery
 When: distributed with initial enrollment materials and annually
 Who: initial notice to covered employees; annual notice to participants
• Newborns’ and Mothers’ Health Protection Act Notice.
 Note: NMHPA also applies to “non-electing” church plans and governmental
plans, under laws other than ERISA.
 What: describes rights regarding minimum length of hospital stay during
childbirth
 When: distributed with enrollment materials
 Who: covered employees
55
Miscellaneous ERISA and
Related Requirements

• Medical Child Support Order (“MCSO”) Notices.
 Note: Although not subject to the ERISA MCSO requirements, “non-electing”
church plans and governmental plans are subject to medical child support
orders.
 What: notices acknowledging receipt of MCSO, describing MCSO qualification
procedures, and acknowledging qualification of MCSO
 When: distributed upon receipt of MCSO and upon
 qualification of MCSO
 Who: participant subject to MCSO
• USERRA Notice.
 Note: USERRA also applies to “nonelecting” church plans and governmental plans.
 What: describes continuation of health plan coverage during
 military service
 When: notice generally posted at workplace; need not be
 distributed to individual participants if posted
56

57
• FMLA Notice and Written Guidance.
 FMLA also applies to “non-electing” church plans and governmental plans.
Exception for private employers with (generally) less than 50 employees.
 What: describes continuation of health plan coverage during FMLA leave
 When: notice generally posted at workplace; notice need not be distributed to
individual participants if posted; written guidance must be distributed to
individual participants if notification of need for FMLA leave
• CHIPRA Notice
 What: notification of potential opportunity for premium assistance subsidy (if
covered under Medicaid or CHIP) for employer-sponsored plan coverage
 When: distributed annually
 Who: employees

• HIPAA Wellness Program.
 Note: HIPAA also applies to governmental plans.
 What: disclose the availability of an alternative standard, if
reward based on outcome
 When: in all materials describing the wellness program
 Who: employees
• Michelle’s Law Notice
 What: describes the terms of the continuation of coverage during
medically necessary leaves of absence from student status
 When: at same time that plan requires a certification of student
status
 Who: participants with student status coverage
58

• HIPAA Privacy and Security
 What: (i) notice of privacy practices; (ii) notice of breach of
 unsecured PHI
 When: (i) at enrollment and every 3 years; (ii) within 60 days
 following discovery of breach
 Who: (i) participants; (ii) affected individuals, HHS and, in
 certain cases, the media
• PPACA Grandfather Notice
 What: notification that plan is being treated as grandfathered from certain PPACA
requirements
 When: whenever plan information is provided
59

• Form W-2 Reporting of Health Insurance
 What: report “aggregate cost” of employer-sponsored health
 coverage on annual Form W-2
 When: beginning January 2013 for coverage in effect in 2012
 Who: employees
• Summary of Coverage and Advance Notice of Mid-Year Changes
 What: use 8 page chart provided by insurer or created by employer
 When: beginning at first annual enrollment after September 23, 2012. For all
other enrollments for first Plan beginning after September 23, 2012. January 1,
2013 for all other enrollments. Must be provided an annual enrollment, initial
enrollment , special enrollment and upon request. Must also provide 60 days
before any change made during plan or policy yeear
 Who: all enrollees
60

• A new “safe harbor” rule amends the participant contribution rules to
create a safe harbor period under which participant contributions to a
small pension or welfare plan will be deemed to comply with the law if
those amounts are deposited with the plan within seven business
days of receipt or withholding.
• The “safe harbor” applies to only pension and welfare plans with
fewer than 100 participants.
61
Participant Contribution

Possible Fines and
Penalties for Violations
62

• ERISA fiduciaries that violate their duties are personally liable for any
damages caused to the plan or for any profit realized by the fiduciary
through its breach.
• A breaching fiduciary may also be liable for special fiduciary penalties
assessed by the DOL (equal to 20% of the amount recovered by the DOL
under a settlement agreement or through an adverse court decision).
• Such fiduciaries may also be removed from their fiduciary positions and
may even be subject to criminal penalties.
63
ERISA

• On written request by a participant or beneficiary, the ERISA plan
administrator must furnish a copy of the latest SPD and SMMs, the
latest annual report, any terminal report, any bargaining agreement,
any trust agreement, any contract, and any other “instrument under
which the plan is established or operated.”
• Penalties of $110 per day may be assessed for each day after the
deadline that the plan administrator does not respond.
• The penalty period begins on the 31st day after the written request is
made
• The requesting participant or beneficiary can sue to recover these
penalties.
64
ERISA

• In addition to possible criminal penalties for willful Form 5500 failures,
the plan administrator is also subject to penalties of up to $1,100 for
every day a Form 5500 is missing or incomplete (participants and
beneficiaries are not entitled to sue for imposition of these penalties;
only the DOL may assess these penalties).
 The penalties are cumulative (i.e., they are assessed separately for each
missing or incomplete Form 5500), and there is no statute of limitations.
 While it is unusual to see full penalties assessed, imposition of even reduced
penalties can make the cost of non-compliance very high.
 For this reason, the DOL offers a program for voluntary correction of Form
5500 problems.
65
ERISA

• Failure to provide the certifications can result in penalties under ERISA,
the Internal Revenue Code, and the Public Health Service Act (PHSA).
• For plans sponsored by private employers, penalties can include:
 Under ERISA, plan participants and the Department of Labor can sue the plan
administrator, which is often the employer, to force the plan to provide the
certifications; and
 The IRS can impose an excise tax on the employer equal to $100 per day per
violation for failure to provide the certification (in the case of a multi-employer
plan, the tax is imposed on the plan rather than the employer).
• For plans sponsored by governmental employers, the states are
charged with enforcing the requirements.
• However, if the states fail to do so, the Secretary of Health and Human
Services has the authority to impose a penalty on the employer of up to
$100 per day per violation for failure to provide the certification.
66
HIPAA

• The potential penalties for failure to comply with HIPAA's portability and
nondiscrimination requirements range from the requirement to take
administrative actions (such as issuing a new HIPAA Certificate or
summary of material modifications describing PCE limitations or special
enrollment rights) to costly provision of retroactive coverage.
• DOL investigations typically probe into HIPAA portability and
nondiscrimination compliance issues.
• Moreover, statutory penalties may be imposed for failing to satisfy the
various HIPAA legal requirements.
• The penalties include excise taxes under the Code of $100 per day for
each violation that may be assessed by the IRS against the employer
sponsoring the plan, and civil penalties of up to $100 per day that may be
assessed by CMS against an issuer of a health insurance policy that is
subject to CMS enforcement
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HIPAA

• Excise tax penalties may be assessed under the Code for each day's
failure to comply with COBRA, in amounts described below.
• Statutory penalties of up to $110 per day may be recovered under ERISA
for failures by nongovernmental plans to provide certain notices under
COBRA.
• Qualified beneficiaries under nongovernmental plans may sue to recover
COBRA coverage under ERISA. Such suits carry the potential for large
damages, which, in the case of an insured plan, might not be covered by
the plan's insurance.
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COBRA

• Qualified beneficiaries under governmental plans may sue to recover
COBRA coverage under the PHSA.
• In addition to the up to $110 per day penalties mentioned above, failure to
provide adequate initial and election notices by a nongovernmental plan
can create exposure to “other relief,” including extra-contractual
damages.
• In all suits under ERISA, the court is permitted to award attorney's fees
and interest to the prevailing party. COBRA lawsuits will also present
procedural issues.
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COBRA

• Consequences of Failing to Provide the SBC
 A penalty of up to $1,000 per failure can be assessed on plan administrators
and insurers (for insured health plans) and plan administrators (for self-insured
health plans) that “willfully fail” to timely provide the SBC.
 A failure with respect to each participant or beneficiary constitutes a separate
offense.
 The fine cannot be paid from plan or trust assets.
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Other Penalties

Questions?
71

• Larry Grudzien
 Phone: 708-717-9638
 Email: larry@larrygrudzien.com
 Website: www.larrygrudzien.com
72
Contact Information

Dealing with DOL Audits

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