In this episode, host Zach Finey and Seyfarth partner Ben Conley discuss ERISA compliance, dependent eligibility audits, fiduciary responsibilities, and more.
Meet Our Guest
Benjamin J. Conley
Ben counsels clients on qualified retirement plans, health and welfare plans, and executive compensation. He regularly advises clients on defined benefit and defined contribution plan compliance, including corrections for plan operational errors.
Dependent Eligibility Verification Logistics
What advice would you give employers that are wanting to go that route of using a random sample set of employees versus an audit of the entire population?
If you’re going to invest in taking the steps to run a dependent eligibility audit, it seems to make sense that you would perform a comprehensive audit rather than a targeted approach that isn’t really going to accomplish that broader goal of cost savings.
Do you have any advice you might give employers that are concerned with employee morale taking a hit when performing a dependent eligibility verification?
If you have a good process in place where you’re communicating and you’re making it clear what forms of documentation are required, you’re making it easy to produce that documentation. That should make it a much more streamlined, smooth process and cause a lot less heartache from an employee morale perspective.
Are there any reasons why you shouldn’t remove an eligible employee from your plan after conducting a dependence?
If a plan covers someone who does not meet that definition of an eligible participant, that’s a breach of fiduciary duty.
Will performing a dependent audit will help the employer maintain ERISA compliance?
There are fiduciary obligations on the plan administrator, which includes the company, to ensure that they’re administering it in accordance with its terms. This includes only offering coverage to dependents who are eligible based on the plan. A dependent eligibility audit is one of the most surefire ways to ensure that you’re only covering eligible dependents.
Employee and Carrier Rights
Do the employees have any rights or claims because their employer allowed ineligible dependents on the plan either knowingly or through failure to conduct a dependent audit?
If an employee believes that there is widespread fraud occurring on the plan and there’s a host of ineligible dependents enrolled, and they believe that they’ve been harmed directly or indirectly there because claims are being paid or the premiums have been driven up or whatever the case might be, they could certainly bring up a lawsuit against the employer, alleging breach of fiduciary duty. And under those lawsuits, there are all kinds of shifting mechanisms, including the right to recover attorney, so it’s certainly not a situation you want to see yourself in now.
Can a carrier cancel a policy if there are ineligible dependents on it?
The carrier could potentially cancel the policy. That’s going to be policy-specific, but certainly, as an employer, you were making representations and warranties about the covered population under your plan. If the carrier finds that those representations were inaccurate, that’s often grounds for termination of that policy.
Links and Resources Mentioned
- Beneficially Yours blog – https://www.beneficiallyyours.com
- ClearTrack HR website – cleartrackhr.com
- ClearTrack HR Podcast page – cleartrackhr.com/podcast
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