Employee benefit plans can be risk minefields Mergers, acquisitions, corporate growth and turnover can contribute to noncompliance risk

by Marian Campbell

for the Business Journal

Are your employee benefit plans a big business risk? If so, can you contain that risk?

The answer to both questions is yes. With employee benefit laws and regulations proliferating, employers face an increasingly complex compliance environment. As the rules become more complicated, the potential for administrative or reporting errors increases.

Paying attention to compliance helps maximize organizational performance. Conversely, not addressing these issues may result in unforeseen liabilities that affect performance gains. Noncompliance can be costly for employers, both financially and in terms of the negative publicity it may generate.

For example, in an unprecedented move, the U.S. Department of Labor brought a lawsuit to challenge a major corporation's classification of temporary employees and independent contractors.

The government asserted that retirement and health benefits were not provided for people who should have been eligible. This action is a strong move by the Clinton administration and is likely to have symbolic and legal significance that goes well beyond this case.

Another company suffered negative publicity from a COBRA action. For failing to notify ex-spouses of their COBRA rights, the company was sued for $500 million. Besides the substantial cost of defending this class action, the organization suffered damage to its reputation and image.

Is your company at risk? Because of the complexity of the rules governing benefit plans, it's nearly impossible to ensure absolute compliance. However, certain events make an organization more susceptible to problems:

?Mergers and acquisitions.

?Turnover among staff members responsible for day-to-day operations.

?Fast corporate growth.

?Outsourced benefits administration.

Although such events increase the possibility of noncompliance, every organization faces an array of compliance issues. As a result, it would be in the company's best interest to take proactive measures to demonstrate its commitment to quality, thus minimizing future risk and offering assurance that benefit plans are in order.

Benefits compliance. What is it? Benefits compliance takes into account the long list of laws and regulations ERISA, the Internal Revenue Code, the Health Insurance Portability and Accountability Act (HIPAA) and others that apply to benefit plans. It addresses both the extent to which plans adhere to those laws and regulations, and whether employers follow proper procedures in administering benefit programs.

Why is compliance in the spotlight? Congress, the business community, risk managers and the media are paying more attention than ever to employee benefit plans because:

?Substantially more money is invested in 401(k) plans.

?Employees are better informed and, therefore, more apt to assert claims against employers and service providers.

?Key federal agencies are enforcing the laws more aggressively.

Meanwhile, compliance has become more difficult. New laws and regulations require continuous adjustments to administrative procedures and plan documentation.

In health care, new mandates for ERISA plans have become a common event since HIPAA was passed in 1996, often requiring quick changes in plan administration and documentation.

For example, in late October 1998, Congress passed a law requiring ERISA plans to provide coverage for certain reconstructive surgical procedures following a mastectomy. Companies had to notify employees of this benefit by Jan. 1, 1999.

While the outsourcing of benefit plan administration has helped many organizations manage their workload, it too carries risk. Though it removes many key activities from an employer's direct control, the employer still bears the risk of noncompliance.

Staying on top of compliance issues. Managing compliance is a full-time job for any employer who sponsors employee benefit plans. As part of the process, businesses should periodically audit their plans to ensure ongoing compliance. This may include:

?Examining plan documents for clarity, consistency and compliance.

?Reviewing administrative procedures, notices and forms for compliance with laws and regulations, as well as the plan's provisions.

?Negotiating or reviewing vendor and outsourcing contracts and procedures to fulfill your fiduciary responsibilities and minimize risk

?Designing a strategic benefit plan that complies with mandates, surcharges and other state and federal requirements

?Training your administrative staff to conduct accurate transactions and communicate consistently with plan participants

After a compliance review, companies are in a better position to identify and evaluate the risks associated with their benefit programs and to correct any compliance gaps or deficiencies. As an added bonus, the review often results in plan design changes that streamline administration.

Your company is at risk. But, by carefully planning and evaluating your compliance strategies, you can minimize that risk. An important step toward aligning your employee benefit plans with your overall business objectives.

(Marian Campbell is a principal and attorney in the Kansas City office of William M. Mercer Incorporated, the world's largest human resources consulting firm.)