Benefits Compliance
Benefits compliance refers to an employer's ongoing responsibility to administer employee benefit programs in accordance with applicable federal and state laws and regulations. It includes meeting requirements related to plan administration, employee notices, enrollment deadlines, reporting and documentation under laws such as ERISA, the ACA, COBRA, HIPAA and the FMLA. Failing to meet these obligations can result in government penalties, legal liability, plan disqualification and other compliance-related consequences.
Understanding the definition of benefits compliance is an important first step toward recognizing the responsibilities that come with offering employee benefits. Once employers understand how benefits compliance applies to their organization, they can make more informed decisions about benefits administration, plan management and responding to changing employment requirements.
What Is Benefits Compliance?
Benefits compliance is the process of administering employee benefit programs in accordance with applicable employment laws. Employers are required to comply with regulations on health plan administration, continuation coverage, employee privacy, medical leave, retirement benefits and other matters related to employee benefits.
The Employee Retirement Income Security Act of 1974 (ERISA) is the foundational federal law that establishes minimum standards for most voluntarily established retirement and health plans in the private sector. It specifies requirements for plan documentation, participant disclosures, fiduciary responsibilities and annual reporting to help protect employees participating in these plans.
Since benefit programs, employment laws and workforce needs can change over time, many employers must take steps to update their processes to continue meeting applicable requirements.
Which Laws Govern Employee Benefits Compliance?
The following table highlights several key federal laws related to employee benefits compliance. It also summarizes the primary employer obligations under each one.
Note: This overview is intended for general informational purposes and does not include every obligation, exemption or reporting requirement related to benefits administration.
Benefits Compliance Checklist: What Are Employers Required to Do?
Employers that sponsor benefit plans have a variety of ongoing risk mitigation responsibilities beyond simply offering benefits. Depending on the laws that apply to their plans, employers may need to:
- Document its plans. Maintain written plan documents and update them whenever benefit plans change.
- Distribute Summary Plan Descriptions (SPDs). Provide SPDs within required timeframes and furnish a Summary of Material Modifications (SMM) when plan changes require one.
- Manage open enrollment. Communicate benefits enrollment periods in advance and generally limit mid-year election changes to qualifying life events when permitted under the plan.
- Issue required notices. Provide required notices, including COBRA election notices, HIPAA special enrollment notices and other required benefit communications.
- Complete required reporting. This includes things like filing Form 5500 when required and completing ACA information reporting, when applicable.
- Administer COBRA. Notify the plan administrator of qualifying events within applicable deadlines and provide election notices to qualified beneficiaries.
- Retain records. Keep plan records, participant disclosures, filings and other compliance documentation for the periods required under ERISA and other applicable laws.
What Happens if an Employer Fails to Comply?
Employers that fail to meet benefits compliance requirements may face enforcement actions from the U.S. Department of Labor (DOL), the Internal Revenue Service (IRS) or state agencies. Depending on the type of violation, consequences may include:
- Regulatory penalties for ERISA violations, COBRA notice failures and ACA reporting failures, each of which has its own penalty structure.
- Lawsuits resulting from certain compliance failures, such as fiduciary breaches under ERISA or failures to provide required benefit notices.
- Plan disqualification that can affect the tax-advantaged status of certain retirement plans.
- Additional state-law penalties. State laws may impose their own compliance obligations and enforcement actions.
How Do Benefits Compliance Requirements Differ by Company Size?
Note: This table provides a general overview of federal requirements. State laws, including mini-COBRA laws, may impose additional obligations. Employers should consult qualified HR or legal professionals to determine which laws apply.
What Is the Difference Between Mandatory and Voluntary Benefits Compliance?
Not all employee benefits are treated the same under the law. Some benefits are required when an employer is subject to the applicable legal requirements, while others are optional but still carry compliance obligations once an employer chooses to offer them.
Mandatory benefit-related obligations (generally required when the applicable law applies to an employer) may include:
- Workers' compensation
- Social Security and Medicare payroll tax contributions
- Unemployment insurance
- FMLA leave for covered employers and eligible employees
Voluntary benefits (offered at an employer's discretion) may include: health, dental, vision, retirement and life insurance. Once offered, these benefits generally must comply with applicable federal and state requirements for benefits administration, reporting, disclosures and participant communications.
What Is a Benefits Compliance Audit?
A benefits compliance audit is a systematic review of an employer's benefit plans, administrative processes, required notices and regulatory filings to identify potential areas of non-compliance and help mitigate risk before a government inquiry or legal dispute arises.
As employee benefit programs become more complex, it can become more difficult to keep documentation, reporting and administrative processes up to date. These audits enable employers to identify potential issues and correct them before they lead to larger compliance challenges.
Frequently Asked Questions
HR compliance is a broad category covering an employer's adherence to all employment laws — including wage and hour rules, anti-discrimination statutes, workplace safety requirements and record-keeping obligations.
Benefits compliance is a subset of HR compliance focused specifically on the administration of employee benefit plans in accordance with applicable federal and state statutes such as ERISA, the ACA, COBRA, HIPAA and the FMLA.
Small businesses can be subject to benefits compliance requirements, depending on the number of employees and the types of benefits offered. Many compliance obligations — including ERISA plan documentation and certain HIPAA requirements — apply regardless of company size once the employer offers a covered benefit plan.
Thresholds for laws like the ACA employer mandate, COBRA and FMLA are tied to headcount and apply once an employer crosses the relevant employee count.
A Summary Plan Description (SPD) is a legally required document under ERISA that outlines, in plain language, how an employee benefit plan works, what benefits it provides and how to file a claim.
Employers must provide an SPD to plan participants within 90 days of enrollment. Failure to distribute an SPD or to keep it current can result in DOL penalties and expose the plan to legal challenges.
