Reporting and Disclosure

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Reporting and Disclosure

• Daniel N. Janich
• Janich Law Group
• 222 North LaSalle Street
• Suite 2500
• Chicago, IL 60601
• Tel. [phone]
• Fax [phone]
• djanich_at_janichlawgroup.com

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Background

• Limited reporting and disclosure requirements
  under Welfare Pension Disclosure Act
• ERISA enacted in response to concern that
  participants were acting on inaccurate or
  incomplete plan information
• ERISA Part 1, Title I establishes reporting and
  disclosure obligations for covered pension and
  welfare plans

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Background

• ERISA requires reporting and disclosure to
• One or more federal agencies (IRS, DOL, PBGC)
• Plan participants and beneficiaries
• Disclosure obligations cover automatic and
  responsive disclosures
• Plan administrator responsible for compliance
• Individual or group of individuals
• By default, sponsoring employer

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ERISAs Role in Reporting Disclosure

• Why require reporting and disclosure?
• To inform participants and beneficiaries
• know their plan rights
• provided information to make informed decisions
• Assist compliance efforts
• Encourage employer compliance by public filings
• Assist government monitoring of plans

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Plans Exempt from the Reporting Disclosure
Requirements

• The following plans are excluded from ERISAs
  reporting and disclosure requirements
• governmental plans
• certain church plans
• plans maintained solely for the purpose of
  complying with applicable worker's compensation,
  unemployment compensation or disability insurance
  laws
• plans maintained outside the United States for
  nonresident aliens
• certain individual retirement accounts
• certain self-employed individuals' plans

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Review of ERISA Disclosure Reporting
Requirements

• Part One Plan Participants Beneficiaries
• Part Two Specific Disclosures Required
• Part Three Miscellaneous Disclosures

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Part One Reporting Disclosures to Plan
Participants Beneficiaries

• Annual Report (Form 5500)
• Summary Annual Report (SAR)
• Summary Plan Description (SPD)
• Summary of Material Modification (SMM)
• Participant Benefit Statements

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Annual Report

• Annual report must be filed for each ERISA
  covered plan
• Several popular benefit plans and programs, such
  as cafeteria plans, educational assistance
  programs, adoption assistance programs, and
  accidental death dismemberment plans, are
  exempt

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Annual Report

• Annual report is one primary form and several
  attached schedules
• Five pension schedules cover plan operations over
  previous year
• Seven financial schedules cover plan expenses and
  financial transactions involving plan assets
• Accountants report provides details on qualified
  plan assets and related matters
• DOL filing deadline Last day of 7th month after
  end of plan year

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Annual Report

• Plans exempt from filing annual report
• Small insured or unfunded welfare plans
• Certain group insurance arrangements
• Top-hat plans
• Accountants report not required for
• Unfunded or fully insured welfare plans
• Pension plans holding solely insurance contracts
• Plans electing to defer accountants report for
  first two years
• Small pension plans under certain conditions

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Annual Report

• Civil penalties for inaccurate or incomplete
  reports
• IRS 25/day penalty maximum 15,000 per report
• DOL 1,100 /day penalty, plus separate penalties
  if certain schedules are missing
• Criminal sanctions for willful violations of
  Title I
• Fine up to 5,000 (100,000 for companies) or up
  to one year in prison, or both
• Additional criminal fines and imprisonment for
  fraud
• DOL equitable relief

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Annual Report

• It is always cheaper to self-confess
• Delinquent Filer Voluntary Compliance (DFVC)
  Program requires
• All delinquent annual returns must be filed
• Civil penalty of 10/day, up to 750 per report
  for small plans
• Civil penalty of 10/day, up to 2,000 per report
  for large plans
• IRS and PBGC will waive their separate penalties

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Summary Annual Report (SAR)

• SAR discloses plans financial condition
• Must be provided to participants and
  beneficiaries annually
• Within nine months after plan year close, or
• Within two months after end of extension period
  to file annual report
• SAR not required for small insured or unfunded
  welfare plans or top hat plans
• Only ERISA criminal penalties for willful failure
  to provide SAR

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Summary Plan Description (SPD)

• SPD is summary of plan benefits, rights and
  features
• Must be written in plain English, accurate and
  complete
• Must be furnished within 90 days after
  participation or benefits begin
• Updated every 5 years if plan was amended or
  every 10 years otherwise
• Must be furnished to DOL upon request civil
  penalty for ignoring request
• Noncompliance with SPD requirements may result in
  civil penalties of up to 110 per day

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Summary Plan Description (SPD)

• SPD content requirements revised by DOL
• Model ERISA Rights Statement
• Claims Procedure Disclosures health plans
  required to provide detailed disclosures
• Support Order Procedures pension/QDRO and
  health plan/QMCSO procedures
• Claim Management and Utilization Control health
  plan coverage issues
• PPO providers, HMO coverage, NMHPA and COBRA
  rights

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Summary Plan Description (SPD)

• Frequent litigation arising from noncompliance
  with SPD requirements
• Content requirements not satisfied
• Insurance policy and employer letter did not
  constitute SPD
• SPD in conflict with plan

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Summary of Material Modification (SMM)

• SMM as SPD amendment - required when material
  modification to plan or change made to SPD
• Like SPDs, clarity and brevity required
• Furnished to current participants and
  beneficiaries within 210 days following end of
  plan year of change, but
• HIPAA requires group health plans to notify
  participants and beneficiaries within 60 days
  after adoption of any material reduction in
  covered services and benefits
• SMMs furnished to DOL upon request same penalty
  for noncompliance as SPDs

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Participant Benefit Statements

• Participant benefit statement addresses amount
  and form of deferred vested benefit for
  participant
• Must be provided to participants no later than
  annual report
• Separated participants of qualified plans are
  entitled to updated individual benefit statement
• Pension plan participants and beneficiaries may
  request additional statement of total accrued
  benefits
• Proposed Enron related legislation would require
  quarterly benefit statements for defined
  contribution plans and tri-annual benefit
  statements for defined benefit plans

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Part Two Specific Disclosures Required

• COBRA
• HIPAA
• Survivor Annuity Notices
• Eligible Rollover Distributions
• Sarbanes-Oxley Blackout Notices
• Notice of Reduction in Benefit Accrual Rate
• ERISA Title IV Filing Notice Requirements

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COBRA

• Proposed regulations establish minimum standards
  for timing and content of required notices and
  for administering notice process
• Various notices associated with COBRA rights
• Initial notice to employee and spouse when plan
  coverage begins
• Events requiring employer to notify plan
  administrator
• Events requiring employee or qualified
  beneficiary to notify plan administrator
• Events requiring plan administrator to notify
  qualified beneficiary
• Election notices
• Notice of unavailability of continuation coverage
  New
• Notice of early termination of COBRA coverage
  New
• Employer acting as plan administrator has 44 days
  after qualifying event to notify qualified
  employee or beneficiary on COBRA rights

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Sanctions for COBRA Noncompliance

• Excise tax of 100 per day for noncompliance with
  COBRA
• How long? Excise tax does not extend beyond six
  months after maximum period of COBRA coverage for
  employee or qualifying beneficiary
• Unintentional failures subject to lesser excise
  tax amount and waivable by Treasury Secretary
• Failure to furnish COBRA notice subjects plan
  administrator to additional 110 per day penalty

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Health Insurance Portability and Accountability
Act of 1996 (HIPAA)

• Preexisting Condition Exclusions
• Notice to participant disclosing imposition of
  preexisting condition exclusion
• Group health plans required to provide notice of
  special enrollment rules
• Group health plans must provide certificate of
  creditable coverage to former participants and
  beneficiaries

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Health Insurance Portability and Accountability
Act of 1996 (HIPAA)

• Privacy Rules
• Covered entity with direct treatment
  relationships must provide privacy notice
• Privacy notice must explain in plain language
• uses and disclosures of protected health
  information for treatment, payment and health
  care operations
• other permitted or required uses or disclosures
  under law without specific authorization

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Defined Benefit Money Purchase Pension Plans
Survivor Annuity Notices

• Qualified Joint Survivor Annuity (QJSA) notice
  must be provided to each participant soon before
  or soon after annuity starting date
• Qualified Pre-Retirement Survivor Annuity (QPSA)
  notice must be provided after individual becomes
  plan participant
• Notices must describe relative value of optional
  forms of benefit compared to QJSA and QPSA
• Failure to provide QJSA or QPSA notice may result
  in plan disqualification subject plan to civil
  penalties for ERISA disclosure noncompliance

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Eligible Rollover Distributions

• Eligible rollover distribution notice to
  participants explains potential tax consequences
  of distribution
• Generally provided within 90 days prior to
  distribution model notices available from IRS
• Failure to furnish explanation 100 per failure
  excise tax, up to 50,000 per calendar year
• Distribution that is not eligible rollover
  distribution requires withholding tax notice
• Failure to provide excise tax of 10 per
  failure, up to 5,000 per calendar year

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Sarbanes-Oxley Act (SOA) Blackout Notices

• Plan administrators generally required to provide
  30 to 60 day notice to affected defined
  contribution plan participants and beneficiaries
  of suspension, limitation or restriction of right
  to direct or diversify assets or to obtain loan
  or distribution for more than three consecutive
  business days
• Plain language notice must explain reasons for
  blackout period, rights of participants and
  beneficiaries affected, expected beginning and
  ending dates of blackout period, contact
  information for plan administrator model
  blackout notice available
• Failure to provide timely and adequate notice
  civil penalties of up to 100 per day per
  affected participant or beneficiary against plan
  administrator for

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Defined Benefit Money Purchase Plans Notice of
Reduction in Benefit Accrual Rate

• Significant reduction in rate of future benefit
  accruals requires ERISA 204(h) notice to
  affected participants
• Notice generally must be given prior to effective
  date of plan amendment timing requirement
  depends on size of plan and factual circumstance
  involved
• Egregious failures to comply entitle affected
  participants to greater of plan benefits as
  calculated prior to or after plan amendment
• Employer subject to 100 per day excise tax for
  noncompliance, up to 500,000 in any taxable year
  

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ERISA Title IV Notice Filing Requirements

• Notice of Reportable Events
• Plan administrator must give PBGC timely notice
  of reportable events, i.e., events revealing
  plan or employer financial problems that impact
  PBGC potential liability for benefits or increase
  likelihood of an underfunded plan termination
• PBGC regulations list reportable events
• Penalty of up to 1,100 per day for noncompliance
  with notice requirements, not to exceed 100
  times the number of participants
• Reports on Large Underfunded Plans
• Annual financial reporting to PBGC required for
  large underfunded defined benefit plans PBGC
  penalties of up to 1,100 per day against
  contributing sponsor for noncompliance

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ERISA Title IV Notice Filing Requirements

• Notice to Participants Regarding Underfunded
  Plans
• Plan administrator must report to plan
  participants and beneficiaries regarding plans
  funding status and limits on PBGC guaranty should
  plan terminate while underfunded failure to
  comply subjects plan administrator to civil
  penalty of up to 1,100 per day PBGC model
  participant notice available
• Notices Upon Termination of Defined Benefit
  Pension Plans
• Notice to Participants plan administrator issues
  notice of intent to terminate 60 to 90 days in
  advance
• Notice to PBGC plan administrator thereafter
  notifies PBGC
• Notice of Benefits on or before date PBGC is
  notified, plan administrator must also notify
  each participant, beneficiary and alternate payee
  of his/her benefits under plan
• Notice of Final Distribution After PBGC approval
  of plan termination, plan administrator files
  notice with PBGC confirming completion of final
  distribution of plan assets
• Missing Participants plan administrator files
  with PBGC a Schedule MP if plan has missing
  participants

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Part Three Miscellaneous Disclosures

• Minimum Funding Notices
• Transfer of Assets
• Disclosures Upon Participant Request

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Defined Benefit Money Purchase Plans
Miscellaneous Notices

• Notice of Failure to Satisfy Minimum Funding
  Requirements
• Late payment of minimum funding contribution to
  defined benefit or money purchase pension plan
  requires employer to issue notice to each
  participant and beneficiary
• Failure to issue notice employer may be held
  liable to participant or beneficiary up to 110
  per day
• Transfer of Excess Pension Assets to Health
  Benefit Accounts
• Plan administrator must give 60 day advance
  notice to each participant and beneficiary before
  transfer civil penalty for noncompliance of up
  to 110 per day
• Sponsoring employer must notify DOL, IRS, plan
  administrator 60 days prior to transfer date
  detailing plan assets before and after transfer
  employer may be held liable to participant or
  beneficiary for noncompliance in amount up to
  110 per day

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General Disclosures

• Participant Request for Additional Plan
  Information
• Plan administrator must furnish upon request copy
  of latest SPD, annual report, any terminal
  report, bargaining agreement, trust agreement,
  contract, or other instrument under with plan is
  established or operated
• Meaning of other instruments
• Recent case law restricted to formal or legal
  documents under which plan is established or
  managed
• Early case law broadly interpreted to include
  all documents helpful in determining rights,
  eligibility or interest in plan

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General Disclosures

• DOL Advisory Opinion 96-14A favors broad
  interpretation
• Penalties for Noncompliance
• ERISA civil penalties for failure to make
  required disclosures apply
• Plan administrator subject to discretionary 110
  per day penalty for failure to timely respond to
  proper request for documents

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Questions