DP Tool Club 12/CD_ASCQ_12_0294.iso/vrac/sba93_4b.zip/F252.SBE

Text File | 1993-10-01 | 10KB | 227 lines

@197 CHAP 5

        ┌───────────────────────────────────────────────┐
        │   ERISA COMPLIANCE---EMPLOYEE BENEFIT PLANS   │
        └───────────────────────────────────────────────┘

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:

  ┌─────────────────────────────────────────────────────────┐
  │     ITEM:                            PROVIDED TO:       │
  └─────────────────────────────────────────────────────────┘
  . 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).