Software Club 210: Light Red/Club_Software_210_Light_Red_Micro_Star_1997.iso/sba/f252.sbe

Text File | 1997-01-01 | 9KB | 226 lines

@197 CHAP 5

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

If you have employees and provide them with "fringe benefits"
such as group insurance (other than workers' compensation)
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 Security 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 -- pension
plans and welfare plans.  Pension plans under ERISA are
pretty much what you might expect -- tax qualified retirement
plans, including both pension and profit sharing plans
(including Keogh plans), plus other types of benefit programs
that defer payments until after employment has terminated.
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 professional
assistance in meeting the ERISA requirements that may apply.
See summary in paragraph (b) below.

"Welfare" plans under ERISA include most other types of
employee 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 disability, group-term life insurance and
accidental death insurance 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 benefits for employees of the type
mentioned above.  Note that a number of so-called fringe
benefits that are in the nature of payroll practices,
such as paid holidays, vacation pay, bonuses, overtime
premium pay and most kinds of severance 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
requirement 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 information 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 coverage
for employees should be a firm commitment from the insurance
company or brokers that they will prepare the necessary 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 substantial professional fees.

Other than the need for an employer to prepare SPDs and
distribute 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
uninsured (and "funded") welfare plan, you will suddenly
become subject to a whole array of additional ERISA
requirements, 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
business 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 constantly changing, no attempt to spell them out in
detail is made here.  Instead, the basic ERISA compliance
requirements for most pension and profit sharing plans
are briefly summarized as follows:

  ┌─────────────────────────────────────────────────────────┐
  │     ITEM:                            PROVIDED TO:       │
  └─────────────────────────────────────────────────────────┘
  . Summary Plan               Department of Labor;
    Description                participants; beneficiaries

  . Annual Return/Report       IRS (Required even for a
    (Form 5500, 5500-C/R       simple 1-person Keogh plan,
    or 5500-EZ)                if over $100,000 in assets)

  . Schedule A, Form 5500      IRS
    series (Insurance info)

  . Schedule B, Form 5500      IRS
    series (Actuarial
    information 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       IRS; recipient of distribution
    periodic plan benefit
    payments made during year)

  . Form 1099-R (Report of     IRS; recipient of distribution
    total distribution of
    benefits during the year)

  . Form W-3 or W-3G           IRS
    (Transmittal of Forms
    W-2P and 1099-R)

  . Form PBGC-1 (Premium       Pension Benefit Guaranty Corp.
    payments of required plan  (a government agency that
    termination insurance --   insures pension plans of
    for "defined benefit"      employers)
    plans only)

  . Summary Annual Report      Participants; beneficiaries

  . Individual Deferred        Former participant in plan
    Vested Benefit Statement
    to Separated Employee

  . Summary of Material        Department of Labor;
    Modifications (to a plan)  participants; beneficiaries

  . Terminal Report            Department of Labor;
    (when plan is terminated)  participants; beneficiaries

  . Written explanation of