Everything You Need To Know About DOL Audits

Copyright 2015- Not to be reproduced without express permission of Benefit Express Services, LLC

By Larry Grudzien Attorney at Law


• Health Reform Audits

• Ongoing DOL Audits

• Voluntary Compliance Checklist

• Possible Fines and Penalties for Violations

Agenda

HEALTH REFORM AUDITS


Health Reform Audits

• The Department of Labor has begun requesting, through recent audit requests on health and welfare plans, that employers prove their plans currently comply with the Affordable Care Act (the “Act”).

• Grandfathered status; • Coverage of children to age 26; • Compliance with lifetime and annual limits; • Rescission rule compliance; • Provider choice disclosures; • Updated appeals notices; • External review compliance; and • Summary of benefits and coverage (SBC).




Generally, plan sponsors and administrators should be prepared to demonstrate that their plans comply with every aspect of the Act, which generally requires documentary evidence from plans, recordkeepers and/or service providers. Based on the substance of the recent DOL audit requests, plans will likely be expected to prove they comply with multiple Act-related requirements

Best practices to prepare for DOL Act-related audits



• Inadequate responses to these requests could lead to additional inquiries from the DOL, such as requests for additional documents, interviews, information, site visits, investigations and even DOL enforcement actions, and lawsuits by individual participants and beneficiaries.

• Various penalties could be imposed by the DOL and/or the IRS for failure to implement certain Act-related coverage mandates.

• For example, the Act levies a penalty of up to $100 a day per affected individual for the failure to provide coverage to adult children who are under the age of 26.




DOL and individual participants could file lawsuits, at least under ERISA, to ensure proper implementation of the Act. For example, they could contend that the Act's coverage mandates were not implemented or were not implemented correctly, or could complain that they were not properly notified.




Possible future litigation related to compliance with the ACA includes, but is not limited to, the following: • claims to mandated coverages that were or are not being provided;

• breach of fiduciary duty for failure to provide proper notice of the

availability of a mandated coverage;

• claims for interference with rights to benefits growing from the implementation of a workforce realignment and/or a retiree medical exit strategy; and

• whistleblower actions brought pursuant to the Act.




Given these risks, plan sponsors should prepare now to be able to prove their plans' compliance with the Act. In particular, there are several specific steps that plan sponsors, administrators, fiduciaries, and service providers can take to ensure that compliance can be proven and that such audits go as smoothly as possible:

• document steps taken to comply with the Act's requirements

• retain all records of plan design, administration, and maintenance, including contracts with third-party service providers such as HMOs




• have agreements with entities such as service providers or record keepers to obtain records that are needed to prove compliance

• have any plan amendments or written policies that were adopted to implement the Act mandates ready to produce

• upon receiving such an audit request, contact counsel immediately, as the issues are complex, and swift action is often necessary to protect the various rights and interests of the numerous entities involved in administering health and welfare plans.




• Distribution of Medical Loss Ratio Rebate,

• Form W-2 Reporting,

• Notice of filing to IRS,

• Full-time employee determination, and

• Large employer determination.

Other areas of concern

ONGOING DOL AUDITS


Ongoing DOL Audits

• An audit can be triggered by any number of things, from a participant complaint to certain red flags, and DOL has a duty to investigate them.

• There are even random audits of auditors.

• The results of an audit, from DOL's perspective, can range from a finding that everything is as it should be to discovery of serious improprieties and the need for legal action.

• But even in a best-case scenario where you come away with a clean slate an audit will place demands on your time, energy and organizational resources.

Introduction


Ongoing DOL Audits

• Health Benefits Security Project was established in 2012

• Includes broad range of investigative issues such as: Compliance with ERISA Unpaid or improperly processed benefit claims Excessive service provider fees Systemic denial of promised benefits Criminal misconduct by plan fiduciaries or medical providers

• Most common violations: Failure to maintain required documentation Failure to provide required notices Failure to provide benefits in accordance with plan terms Improper claims adjudication Failure to follow DOL claims procedures Failure to forward employee premiums to providers

DOL Audits


Ongoing DOL Audits

• Fortunately, there are steps you can take now to make it easier to survive an audit.

• You need to make sure, first of all, that your plan is run properly and that you have complied with all regulatory requirements and documentation.

• Be sure to educate yourself and keep up to date on DOL requirements, and work with your legal counsel and independent auditors to stay in compliance.

• DOL has a new Fiduciary Educational Campaign, started in June 2004, which offers free educational materials and a series of seminars for plan professionals, which you can find out about at www.dol.gov/ebsa.

What Can You Do?


Ongoing DOL Audits

You need to have access to your essential documents and to have a plan in place for dealing with the demands an audit will put on you and your organization. The time to prepare is now, and it's not difficult.

What Can You Do?


Ongoing DOL Audits

• As part of its responsibility to protect plan participants, DOL relies on the Employee Benefits Security Administration (EBSA) to administer and enforce ERISA's fiduciary, EBSA is the agency responsible for conducting audits and investigations of plans.

• The audits and investigations can result from a variety of triggers.

• These can include bankruptcy, participant or vendor complaint, and problems with the Form 5500.

Background


Ongoing DOL Audits

• EBSA's Office of the Chief Accountant performs random audits that do not directly involve you or your fiduciary duties.

• These are audits of the auditors; their purpose is to make sure the auditors' work is up to standards.

• If this happens to your plan, you may receive a notice from DOL that such an audit is underway.

• This does not indicate any shortcoming in your auditors, since they have been selected at random. In most cases, work will be performed in the auditors' office, where DOL will review audit work papers.

• You may wish to ask your auditor and DOL for a copy of the final report, just for your own peace of mind.

On Site Reviews of Audit Work Papers


Ongoing DOL Audits

• When you are notified of an audit, your first step should be to find out what's being investigated.

• Chances are, your audit will fall into one of the categories discussed above.

• Knowing what the investigators want will help you gather the information you need and alert the necessary personnel to be available.

Steps To Take


Ongoing DOL Audits

• Generally, DOL will give you a list of documents they would like you to have available during their visit.

• If there is something on the list that is unclear to you, call and ask for clarification.

• Make that call early in the process to give yourself ample time to obtain any documentation required.

Steps To Take


Ongoing DOL Audits

In addition to what is requested, the following is a list of documents you generally should have on hand during the DOL visit: • Plan document. • Trust agreement. • Master trust agreement, if any. • Latest IRS determination letter. • Form 5500, together with supporting schedules and documentations, including the audit

report with the accountant's opinion and financial statements with notes for the period being audited.

• Board of trustees meeting minutes. • Bank and investment custodian statements. • Investment guidelines. • Independent investment appraisals, if any. • Expense allocation methodology documentation (including allocation studies and expense

allocation agreements with related plans, if any). • Summary plan description. • Agreements with service providers. • Insurance policies.

Steps To Take


Ongoing DOL Audits

• Looking at the audit as a process you must participate in, one of your next steps should be to appoint a point person.

• Make it clear what the extent of this person's authority and responsibility is.

• Because of an audit's potential impact on the plan and its administrators, this individual should be the plan administrator, attorney or outside accountant.

Steps To Take


Ongoing DOL Audits

He or she should have broad powers indeed, and requests for information should receive the highest priority. The point person's duties will include coordinating with DOL on the timing of the audit, assembling and reviewing the requested documentation, coordinating meetings with appropriate personnel, reporting to the board of trustees and devising recommendations for future audits.

Steps To Take


Ongoing DOL Audits

• You should also make the plan's legal counsel and independent auditors aware of the audit from the very beginning.

• They can provide you with invaluable assistance in responding to DOL inquiries, finding information and interpreting government regulations.

• You may also want to request their presence during interviews, where they can protect your interests and respond to technical questions quickly and authoritatively.

• It may be advisable to have the plan's legal counsel and independent auditors review the documents DOL is interested in before meeting with DOL or handing over the documents.

Steps To Take


Ongoing DOL Audits

• Once these steps have been taken, let other plan personnel know what's going on.

• At the very least, they should have the name of the point person in charge of responding to the audit, plus directions about what to do if information is requested by DOL investigators.

• Depending on the size of the plan's staff, you may not need to inform everyone, but anyone who might be approached by DOL should be aware of the protocols.

Steps To Take


Ongoing DOL Audits

• In your communications with DOL investigators, do not give them information they do not request.

• Resist the temptation to try to bury them in unrelated paperwork.

• The last thing you want is for them to identify a new area into which they should inquire.

• You will do better to cooperate with DOL and provide documents in a timely manner than to drag your feet and delay, which can raise suspicions of problems.

• Remember, DOL and you have a common goal to protect the assets of the plan and provide participants with the benefits they are entitled to.

Steps To Take


Ongoing DOL Audits

• If the investigation finds problems, you'll have to fix them.

• Voluntary compliance will generally satisfy DOL and avert any civil lawsuit.

• You may have to pay amounts to restore losses, disgorge profits or pay penalty amounts, depending on the violation that has been determined.

• If you don't, DOL will refer the case to its attorneys.

• In that case, you may be able to settle without going to court, but you're in an unhappy position.

Steps to Take


Ongoing DOL Audits

• If you find problems before or apart from a DOL audit, you should know about the Voluntary Fiduciary Correction Program (VFCP).

• This program allows plan officials to make corrections on prohibited transactions such as purchase of assets from party in interest, sale of assets to party in interest, payment of excessive compensation and 12 other specified prohibited transactions.

• If you document an acceptable correction, DOL will issue a no action letter.

• A no action letter reports EBSA's decision to take no civil action against you and not to impose certain penalties on the amount you have repaid to the plan.

Problems Apart From The Audit


Ongoing DOL Audits

• If your plan is late in filing its Form 5500, DOL also has a Delinquent Filer Voluntary Compliance (DFVC) program.

• This program allows plans to file their late Form 5500 before a DOL late-filing notice with far lower penalties than if DOL found their failure to file and requested the missing forms.

• The maximum penalty per late filing is $750 for a small plan and $2,000 for a large plan.

• There is also a new per plan cap of $1,500 for small plans and $4,000 for large plans.

• The per plan cap is designed for plans with multiple late filing years.

Problems Apart From The Audit


Ongoing DOL Audits

DOL Tools:

• HIPAA and ERISA Checklist » 38-page check sheet covering HIPAA and ERISA Part 7 mandates »

http://www.dol.gov/ebsa/pdf/part7-1.pdf

• PPACA Checklist » 29-page check sheet covering ERISA Part 7 mandates added by

PPACA » http://www.dol.gov/ebsa/pdf/part7-2.pdf –

• Understanding Your Fiduciary Responsibilities under a Group Health Plan » EBSA publication outlining the fiduciary responsibility rules that apply to

group health plans » http://www.dol.gov/ebsa/publications/ghpfiduciaryresponsibilities.html

Audit Preparation


Ongoing DOL Audits

• No action – Closing Letter No ERISA violations found Violations cited, however, DOL does not deem the case fit for

further action Violations cited, however no damages or de minimis damages Violations cited and corrected (following receipt of a Voluntary

Compliance Letter)

• Corrective Measures Required Voluntary Compliance Letter issued 10 days to respond Proof of correction must be submitted Can take up to a couple months for processing

Possible Audit Outcomes


Ongoing DOL Audits

• Identify an individual to coordinate compliance efforts

• Identify all group plans subject to compliance concerns

• Routinely conduct self-audits and correct failures

• Retain documentation and procedures that support compliance measures

• Maintain compliance documents in a central location

• Respond to participant questions and requests on a timely basis

• File Form 5500s timely and accurately

• Distribute required participant notices timely and keep records of distribution

Tips for Being “Audit Ready”

VOLUNTARY COMPLIANCE CHECKLIST


Voluntary Compliance Checklist

Plan Document

• What: written document(s) describing plan terms and conditions, including some general ERISA-required provisions

• When: distributed upon request (within 30 days after written request, to avoid penalties)

Summary Plan Description (“SPD”)

• What: written document(s) summarizing plan; often drafted as a “wrap” for insured benefits; must contain specific information and language as required by ERISA

• When: distributed upon plan enrollment and at least every 5/10 years thereafter, and upon request; generally within 90 days after enrollment

• Who: participants, beneficiaries entitled to benefits

ERISA



Summary of Material Modification

• What: written document summarizing changes to SPD • When: distributed (unless updated SPD is distributed) when

modification is adopted and upon request; generally within 210 days after plan year end

• Who: participants, beneficiaries entitled to benefits

Summary of Material Reduction in Covered Services/Benefits (for health plan)

• What: written document summarizing reductions • When: distributed after adopting reduction; generally within 60 days • Who: participants, beneficiaries entitled to benefits

ERISA



Annual Report

• What: IRS Form 5500 series; reporting requirements depend on size of plan and type of plan and funding method (e.g., insured, self-insured, trust or general assets); exception for certain small plans (generally less than 100 participants)

• When: filed annually; distributed upon request to participants • Who: filed with DOL

Summary Annual Report (“SAR”)

• What: written document summarizing Annual Report • When: distributed automatically and upon request; within 60 days

after Annual Report is filed • Who: participants, beneficiaries entitled to benefits

ERISA



Claims Notices/Explanation of Benefits

• What: written document describing claim determinations; requirements vary depending on type of plan/claim

• When: distributed upon claim determination; specific time periods apply depending upon type of plan/claim and whether initial claim or appeal of denial

• Who: participant/beneficiary claimants • Note: Patient Protection and Affordable Care Act (PPACA) changes

to internal and external claims and appeal procedures are effective first day of plan year beginning on or after September 23, 2010 or July 1, 2011 (for those provisions which were “delayed”).

ERISA



Initial COBRA Notice

• What: advises new participants/beneficiaries regarding COBRA rights

• When: distributed upon commencement of plan coverage • Who: covered employees and spouses/dependent children

COBRA Election Notice

• What: advises participants/beneficiaries regarding right to elect COBRA coverage

• When: distributed upon “qualifying event”; generally within 14 or 44 days

• Who: covered employees and spouses/dependent children

COBRA



Notice of Unavailability of COBRA

• What: advises participants/beneficiaries that COBRA is unavailable • When: distributed upon “qualifying event”; generally within 14 or 44

days • Who: employees, spouses or dependent children who are ineligible

for COBRA coverage

Notice of COBRA Early Termination

• What: advises participants/beneficiaries of early COBRA termination

• When: distributed prior to termination of coverage; as soon as practicable

• Who: employees, spouses or dependent children for whom COBRA coverage will terminate early

COBRA



Notice of Special Enrollment Rights

• What: notice describes special enrollment rules (e.g., birth, adoption, loss of other coverage)

• When: distributed prior to or during enrollment • Who: covered employees

HIPAA



Womens’ Health and Cancer Rights Act Notices • Note: WHCRA also applies to “non-electing” church plans and

governmental plans, under laws other than ERISA. • What: describes required benefits for mastectomy and

reconstructive surgery • When: distributed with initial enrollment materials and annually • Who: initial notice to covered employees; annual notice to

participants

Newborns’ and Mothers’ Health Protection Act Notice • Note: NMHPA also applies to “non-electing” church plans and

governmental plans, under laws other than ERISA. • What: describes rights regarding minimum length of hospital stay

during childbirth • When: distributed with enrollment materials • Who: covered employees

Miscellaneous ERISA and Related Requirements



Medical Child Support Order (“MCSO”) Notices • Note: Although not subject to the ERISA MCSO requirements, “non-electing”

church plans and governmental plans are subject to medical child support orders.

• What: notices acknowledging receipt of MCSO, describing MCSO qualification procedures, and acknowledging qualification of MCSO

• When: distributed upon receipt of MCSO and upon • qualification of MCSO • Who: participant subject to MCSO

USERRA Notice • Note: USERRA also applies to “nonelecting” church plans and governmental

plans. • What: describes continuation of health plan coverage during military service • When: notice generally posted at workplace; need not be distributed to

individual participants if posted • Who: participants




FMLA Notice and Written Guidance

• FMLA also applies to “non-electing” church plans and governmental plans. Exception for private employers with (generally) less than 50 employees.

• What: describes continuation of health plan coverage during FMLA leave • When: notice generally posted at workplace; notice need not be distributed

to individual participants if posted; written guidance must be distributed to individual participants if notification of need for FMLA leave

• Who: participants

CHIPRA Notice

• What: notification of potential opportunity for premium assistance subsidy (if covered under Medicaid or CHIP) for employer-sponsored plan coverage

• When: distributed annually • Who: employees




HIPAA Wellness Program

• Note: HIPAA also applies to governmental plans. • What: disclose the availability of an alternative standard, if reward

based on outcome • When: in all materials describing the wellness program • Who: employees




HIPAA Privacy and Security

• What: (i) notice of privacy practices; (ii) notice of breach of unsecured PHI

• When: (i) at enrollment and every 3 years; (ii) within 60 days following discovery of breach

• Who: (i) participants; (ii) affected individuals, HHS and, in certain cases, the media

PPACA Grandfather Notice

• What: notification that plan is being treated as grandfathered from certain PPACA requirements

• When: whenever plan information is provided • Who: participants




Form W-2 Reporting of Health Insurance • What: report “aggregate cost” of employer-sponsored health

coverage on annual Form W-2 • When: beginning January 2013 for coverage in effect in 2012 • Who: employees

Summary of Coverage and Advance Notice of Mid-Year Changes • What: use 8 page chart provided by insurer or created by employer • When: beginning at first annual enrollment after September 23,

2012. For all other enrollments for first Plan beginning after September 23, 2012. January 1, 2013 for all other enrollments. Must be provided an annual enrollment, initial enrollment , special enrollment and upon request. Must also provide 60 days before any change made during plan or policy yeear

• Who: all enrollees




Form 1095-C • What: report “compliance with employer mandate • When: beginning February 1, 2016 for 2015 • Who: full-time employees if insured


POSSIBLE FINES AND PENALTIES FOR VIOLATIONS


Possible Fines and Penalties for Violations

• ERISA fiduciaries that violate their duties are personally liable for any damages caused to the plan or for any profit realized by the fiduciary through its breach.

• A breaching fiduciary may also be liable for special fiduciary penalties assessed by the DOL (equal to 20% of the amount recovered by the DOL under a settlement agreement or through an adverse court decision).

• Such fiduciaries may also be removed from their fiduciary positions and may even be subject to criminal penalties.

ERISA



• On written request by a participant or beneficiary, the ERISA plan administrator must furnish a copy of the latest SPD and SMMs, the latest annual report, any terminal report, any bargaining agreement, any trust agreement, any contract, and any other “instrument under which the plan is established or operated.”

• Penalties of $110 per day may be assessed for each day after the deadline that the plan administrator does not respond.

• The penalty period begins on the 31st day after the written request is made

• The requesting participant or beneficiary can sue to recover these penalties.

ERISA



• In addition to possible criminal penalties for willful Form 5500 failures, the plan administrator is also subject to penalties of up to $1,100 for every day a Form 5500 is missing or incomplete (participants and beneficiaries are not entitled to sue for imposition of these penalties; only the DOL may assess these penalties).

• The penalties are cumulative (i.e., they are assessed separately for each missing or incomplete Form 5500), and there is no statute of limitations.

• While it is unusual to see full penalties assessed, imposition of even reduced penalties can make the cost of non-compliance very high.

• For this reason, the DOL offers a program for voluntary correction of Form 5500 problems.

ERISA



• Failure to provide the certifications can result in penalties under ERISA, the Internal Revenue Code, and the Public Health Service Act (PHSA).

• For plans sponsored by private employers, penalties can include: Under ERISA, plan participants and the Department of Labor can sue the plan administrator,

which is often the employer, to force the plan to provide the certifications; and The IRS can impose an excise tax on the employer equal to $100 per day per violation for

failure to provide the certification (in the case of a multi-employer plan, the tax is imposed on the plan rather than the employer).

• For plans sponsored by governmental employers, the states are charged

with enforcing the requirements.

• However, if the states fail to do so, the Secretary of Health and Human Services has the authority to impose a penalty on the employer of up to $100 per day per violation for failure to provide the certification.

HIPAA



• The potential penalties for failure to comply with HIPAA's portability and nondiscrimination requirements range from the requirement to take administrative actions (such as issuing a new HIPAA Certificate or summary of material modifications describing PCE limitations or special enrollment rights) to costly provision of retroactive coverage.

• DOL investigations typically probe into HIPAA portability and nondiscrimination compliance issues.

• Moreover, statutory penalties may be imposed for failing to satisfy the various HIPAA legal requirements.

• The penalties include excise taxes under the Code of $100 per day for each violation that may be assessed by the IRS against the employer sponsoring the plan, and civil penalties of up to $100 per day that may be assessed by CMS against an issuer of a health insurance policy that is subject to CMS enforcement

HIPAA



• Excise tax penalties may be assessed under the Code for each day's failure to comply with COBRA, in amounts described below.

• Statutory penalties of up to $110 per day may be recovered under ERISA for failures by nongovernmental plans to provide certain notices under COBRA.

• Qualified beneficiaries under nongovernmental plans may sue to recover COBRA coverage under ERISA. Such suits carry the potential for large damages, which, in the case of an insured plan, might not be covered by the plan's insurance.

COBRA



• Qualified beneficiaries under governmental plans may sue to recover COBRA coverage under the PHSA.

• In addition to the up to $110 per day penalties mentioned above, failure to provide adequate initial and election notices by a nongovernmental plan can create exposure to “other relief,” including extra-contractual damages.

• In all suits under ERISA, the court is permitted to award attorney's fees and interest to the prevailing party. COBRA lawsuits will also present procedural issues.

COBRA



Consequences of Failing to Provide the SBC

• A penalty of up to $1,000 per failure can be assessed on plan administrators and insurers (for insured health plans) and plan administrators (for self-insured health plans) that “willfully fail” to timely provide the SBC.

• A failure with respect to each participant or beneficiary constitutes a separate offense.

• The fine cannot be paid from plan or trust assets.

Other Penalties



Consequences of Failing to Provide the 1095-C

A reporting entity that fails to comply with the Code § 6055 or 6056 reporting requirements may be subject to the general reporting penalties for failure to file correct information returns and failure to furnish correct payee statements. Two different sections of the Internal Revenue Code discuss the penalties for not complying with Code §§ 6055 and 6056 reporting:

• Code § 6721 penalizes failing to send correct returns to the IRS.

The basic penalty is $250 for each incorrect return. The total fine during any calendar year will not exceed $3,000,000.

• Code § 6722 discusses failing to provide employee statements.

The penalty is the same as above but applies for not providing individual statements.

Other Penalties

Questions?



Contact Information

Larry Grudzien Phone: 708-717-9638 Email: [email protected] Site: www.larrygrudzien.com

Everything You Need To Know About DOL Audits

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Transcript of Everything You Need To Know About DOL Audits