There are many acts and laws that employers need to be compliant with in order to protect against potential fines by the Department of Labor, the Internal Revenue Service (IRS), or even employees. The Department of Labor and IRS want to raise more money with fines and penalties from non-compliance which is why the IRS has hired more than 87,000 new auditors to find employers that have not filed their documents correctly.
Fines and penalties have increased from $1.6 billion in 2018 to $3.12 billion in 2020; that is a 92% increase in only two years. All of these fines and penalties for non-compliance can be avoided, if employers file and provide documents on time and correctly.
The Employee Retirement Income Security Act (ERISA) is enforced by the Department of Labor to set the minimum standards for health and welfare plans. These are provided by employers to protect their employees. All corporations, partnerships, sole proprietors, and nonprofit organizations are required to comply with ERISA, while government plans and church plans are not.
ERISA requires the plan administrators of all sized groups to provide the Summary Plan Description (SPD), Summary of Material Modifications (SMM), Annual Notices, Summary of Benefits and Coverage (SBC), and Summary Annual Reports (SAR) if a Form 5500 is prepared.
ERISA requires all plan administrators to file a Form 5500 unless they participate in a small health care plan (less than 100 participants) that are fully insured, unfunded, or a combination of fully insured and unfunded. ERISA documents need to be constantly updated because it needs to have the current COBRA language in them, such as the 2021 COBRA Subsidy.
Penalties For Not Complying
If a participant in the plan submits a request for documents, the plan administrator must provide the requested documents within 30 days of the request. If the request is not fulfilled within the 30 days of the request, the Department of Labor will enforce a $110 per day penalty that will be paid to the participant until the documentation is provided.
According to 502(c)(2), plan administrators that fail or refuse to file the Summary Annual Report will be fined up to $2,259 per day until it is filed. Before being penalized, the Department of Labor will send a letter to the plan administrator stating the DOL’s intent to assess the penalty, the amount of the penalty, when the penalty will apply, and the reason for the penalty.
According to 502(c)(6), plan administrators that fail or refuse to furnish the Secretary documents will be fined up to $110 per day per employee, $161 per day and up to $1,613 per request. Before being penalized, the Department of Labor will send a letter to the plan administrator stating the DOL’s intent to assess the penalty, the amount of the penalty, when the penalty will apply, and the reason for the penalty.
According to 502(c)(4), plan administrators that fail or refuse to furnish actuarial information, financial information, funding information, notice of funding-based limits, notice of potential withdrawal liability, or Notice of rights and obligations under an automatic contribution arrangement will be liable for civil penalties of $1,788 per day assessed by the Secretary.
Before being penalized, the Department of Labor will send a letter to the plan administrator stating the DOL’s intent to assess the penalty, the amount of the penalty, when the penalty will apply, and the reason for the penalty.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is enforced by the Department of Labor that gives employees and their families who have lost their health benefits the opportunity to enroll in continuation of health coverage through the employer’s health plan for a limited time.
Employers that are subject to COBRA include all private-sector group health plans maintained by the employers that have 20 or more employees on more than 50 percent of business days in the previous calendar year , as well as plans that are sponsored by state and local governments.
The federal government, churches, and certain church related organizations are not required. COBRA requires most group health plans to provide temporary continuation of group health coverage to employees that may have been terminated by Termination of Employment or Reduction of Hours, Death of or Divorce/Legal Separation from employee, or Loss of Dependent status under the plan.
Plan administrators are required to provide the qualified terminated employees with updated COBRA Continuation Notices to the plan participants and the qualified dependents. Self-administrators may want to consider using a Third-Party administrator to stay on top of announcements and new information that needs to be included in the notices.
The extended COBRA Subsidy started on April 1, 2021 and runs through September 30, 2021. It also extends all the way back to October 2019. The subsidy is for employees that were involuntarily terminated or had a reduction of hours. The qualified participants will have their premium covered and the employer will pay the full premium to the carrier.
Employers that paid the premium of the qualified beneficiaries will be able to recover the paid premium through the Payroll Tax Credit, also known as the Quarterly Medicare Tax. Qualified beneficiaries have been given another opportunity to enroll in COBRA if their eligibility has not passed; a Notice of Subsidy of availability should have been sent by May 31st, 2021 as well as a Notice of Special Enrollment Period and Notice of Subsidy Expiration sent 15 to 45 days prior to the expiration of the subsidy.
If adequate notices are not provided, the Department of Labor can assess a Civil penalty of $110 per day per participant and the IRS can assess an excise tax of $100 per day per participant or $200 per day per family until the participants are sent an adequate notice. Individuals can file lawsuits for informational and economical damages due to not receiving adequate notices, such as the Southwest Airlines Class Action Lawsuit in 2020.
The Family and Medical Leave Act (FMLA) is enforced by the Department of Labor to provide eligible employees the opportunity to take job-protected and unpaid leave for specific family and medical reasons while maintaining certain group health insurance coverage as if the employee had not taken any leave. All private-sector group health plans that are maintained by employers with 50 or more employees in 20 or more workweeks in the current or previous calendar year are subject to FMLA; the federal government is not required.
Not only can the employer be held accountable for FMLA violations, but supervisors, managers, and any individual that represents the business and interacts with employees can also be fined and held accountable for violations. FMLA requires a written policy and poster of employee rights, notices be provided to employees within five days of request for leave, and the employer cannot retaliate against the employee for their right to take leave.
If FMLA poster of employee rights is not posted, there will be a $100 penalty.
Employers that violated an individual’s FMLA rights may have to pay Back Pay (lost pay for employee after termination), Front Pay (pay until equivalent job is located), Attorney Fees, or Liquidated Damages (double front pay and back pay unless employer acted reasonably).
The Health Insurance Portability and Accountability Act (HIPAA) is enforced by the Office of Civil Rights to protect sensitive patient information such as Protected Health Information and Individually Identifiable Health Information from being disclosed without the patient’s consent. Under HIPAA, no one can send personal information of an individual through an unsecured email to respect Individually Identifiable Health Information.
HIPAA requires the Notice of Privacy Practices and Notice of Breach of Unsecured Protected Health Information & Individually Identifiable Health Information. If there is a breach of unsecured Protected Health Information & Individually Identifiable Health Information, covered entities and business associates must provide a notice without reasonable delay and no later than 60 days following the discovery of the information breach.
The Office of Civil Rights may impose a civil monetary penalty for each violation of $100 to $50,000 for instances that occurred with no knowledge, $1,000 to $50,000 for instances that occurred with reasonable cause, $10,000 to $50,000 for instances that occurred with willful neglect but has been correct, or $50,000 to $1,785,651 for instances that occurred with willful neglect and have not been corrected. The maximum penalty is $50,000 per violation, but increases to an annual maximum of $1,785,651 for repeated violators.
For violators that intentionally obtain or disclose protected health information, the penalty is up to $250,000 with up to one year in prison. For violators under false pretenses, the penalty increases to a $250,000 fine with up to 10 years in prison.
The Affordable Care Act (ACA) reduces the cost of health coverage for people who qualify. The ACA requires Code Section 6055 Reporting, which applies to all employers with self-insured and level-funded health plans that provide the minimum essential coverage to employees.
The ACA also requires Code Section 6056 Reporting is for ESRM Mandates, which requires applicable large employers to offer minimum essential coverage that is affordable and a minimum value to Full-Time employees. Both Section 6055 and Section 6056 returns must be filed with the IRS annually, no later than February 28 physically or March 31st electronically, unless extended. Statements for the covered individuals must be provided no later than January 31st of the year after the Calendar year when minimum essential coverage was provided, unless extended.
If minimum essential coverage is not offered, the IRS will apply a penalty of $2,700 per Full-Time employee (not including the first 30) to applicable large employers.
If minimum essential coverage is not affordable or at the minimum value, the IRS will apply a penalty of $4,060 per Full-Time employee that is receiving the subsidy.
The IRS will penalize employers for failing to provide or file the necessary statements/returns. Employers that fail to provide employee statements are fined $280 per statement.
Employers that fail to file with the IRS with the IRS are fined $280 per return. Employers that provide incorrect statements to enrollees are fined $280 per incorrect statement. Violations that are due to “intentional disregard” can increase up to $560 per statement. The total penalty for reporting failures has a maximum penalty of $3,392,000 per calendar year.
If employers correct reporting failures within 30 days of the due date, penalties are reduced to $50 with a maximum penalty of $565,000; if reporting failures are corrected after 30 days of the due date, penalties are decreased to $110 with a maximum penalty of $1,696,000.
How To Avoid Penalties With New City?
Brokers, agents, and Third-Party Administrators are there to help you comply with all of your filing and reporting requirements. To learn more about employer compliance and how to avoid potential penalties, contact New City Insurance to speak with a professional.