1 Reporting and Disclosure Daniel N. Janich Janich Law Group 222 North LaSalle Street Suite 2500 Chicago, IL Tel Fax

2 Background Limited reporting and disclosure requirements under Welfare & Pension Disclosure Act Limited reporting and disclosure requirements under Welfare & Pension Disclosure Act ERISA enacted in response to concern that participants were acting on inaccurate or incomplete plan information ERISA enacted in response to concern that participants were acting on inaccurate or incomplete plan information ERISA Part 1, Title I establishes reporting and disclosure obligations for covered pension and welfare plans ERISA Part 1, Title I establishes reporting and disclosure obligations for covered pension and welfare plans

3 Background ERISA requires reporting and disclosure to: ERISA requires reporting and disclosure to: One or more federal agencies (IRS, DOL, PBGC) One or more federal agencies (IRS, DOL, PBGC) Plan participants and beneficiaries Plan participants and beneficiaries Disclosure obligations cover automatic and responsive disclosures Disclosure obligations cover automatic and responsive disclosures Plan administrator responsible for compliance Plan administrator responsible for compliance Individual or group of individuals Individual or group of individuals By default, sponsoring employer By default, sponsoring employer

4 ERISA’s Role in Reporting & Disclosure Why require reporting and disclosure? Why require reporting and disclosure? To inform participants and beneficiaries To inform participants and beneficiaries know their plan rights know their plan rights provided information to make informed decisions provided information to make informed decisions Assist compliance efforts Assist compliance efforts Encourage employer compliance by public filings Encourage employer compliance by public filings Assist government monitoring of plans Assist government monitoring of plans

5 Plans Exempt from the Reporting & Disclosure Requirements The following plans are excluded from ERISA’s reporting and disclosure requirements: The following plans are excluded from ERISA’s reporting and disclosure requirements: governmental plans governmental plans certain church plans certain church plans plans maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws plans maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws plans maintained outside the United States for nonresident aliens plans maintained outside the United States for nonresident aliens certain individual retirement accounts certain individual retirement accounts certain self-employed individuals' plans certain self-employed individuals' plans

6 Review of ERISA Disclosure & Reporting Requirements Part One: Plan Participants & Beneficiaries Part One: Plan Participants & Beneficiaries Part Two: Specific Disclosures Required Part Two: Specific Disclosures Required Part Three: Miscellaneous Disclosures Part Three: Miscellaneous Disclosures

7 Part One: Reporting & Disclosures to Plan Participants & Beneficiaries Annual Report (Form 5500) Annual Report (Form 5500) Summary Annual Report (SAR) Summary Annual Report (SAR) Summary Plan Description (SPD) Summary Plan Description (SPD) Summary of Material Modification (SMM) Summary of Material Modification (SMM) Participant Benefit Statements Participant Benefit Statements

8 Annual Report Annual report must be filed for each ERISA covered plan Annual report must be filed for each ERISA covered plan Several popular benefit plans and programs, such as cafeteria plans, educational assistance programs, adoption assistance programs, and accidental death & dismemberment plans, are exempt Several popular benefit plans and programs, such as cafeteria plans, educational assistance programs, adoption assistance programs, and accidental death & dismemberment plans, are exempt

9 Annual Report Annual report is one primary form and several attached schedules Annual report is one primary form and several attached schedules Five pension schedules cover plan operations over previous year Five pension schedules cover plan operations over previous year Seven financial schedules cover plan expenses and financial transactions involving plan assets Seven financial schedules cover plan expenses and financial transactions involving plan assets Accountant’s report provides details on qualified plan assets and related matters Accountant’s report provides details on qualified plan assets and related matters DOL filing deadline: Last day of 7 th month after end of plan year DOL filing deadline: Last day of 7 th month after end of plan year

10 Annual Report Plans exempt from filing annual report: Plans exempt from filing annual report: Small insured or unfunded welfare plans Small insured or unfunded welfare plans Certain group insurance arrangements Certain group insurance arrangements Top-hat plans Top-hat plans Accountant’s report not required for: Accountant’s report not required for: Unfunded or fully insured welfare plans Unfunded or fully insured welfare plans Pension plans holding solely insurance contracts Pension plans holding solely insurance contracts Plans electing to defer accountant’s report for first two years Plans electing to defer accountant’s report for first two years Small pension plans under certain conditions Small pension plans under certain conditions

11 Annual Report Civil penalties for inaccurate or incomplete reports: Civil penalties for inaccurate or incomplete reports: IRS $25/day penalty; maximum $15,000 per report IRS $25/day penalty; maximum $15,000 per report DOL $1,100 /day penalty, plus separate penalties if certain schedules are missing DOL $1,100 /day penalty, plus separate penalties if certain schedules are missing Criminal sanctions for willful violations of Title I Criminal sanctions for willful violations of Title I Fine up to $5,000 ($100,000 for companies) or up to one year in prison, or both Fine up to $5,000 ($100,000 for companies) or up to one year in prison, or both Additional criminal fines and imprisonment for fraud Additional criminal fines and imprisonment for fraud DOL equitable relief DOL equitable relief

12 Annual Report It is always cheaper to self-confess It is always cheaper to self-confess Delinquent Filer Voluntary Compliance (DFVC) Program requires: Delinquent Filer Voluntary Compliance (DFVC) Program requires: All delinquent annual returns must be filed All delinquent annual returns must be filed Civil penalty of $10/day, up to $750 per report for small plans Civil penalty of $10/day, up to $750 per report for small plans Civil penalty of $10/day, up to $2,000 per report for large plans Civil penalty of $10/day, up to $2,000 per report for large plans IRS and PBGC will waive their separate penalties IRS and PBGC will waive their separate penalties

13 Summary Annual Report (SAR) SAR discloses plan’s financial condition SAR discloses plan’s financial condition Must be provided to participants and beneficiaries annually Must be provided to participants and beneficiaries annually Within nine months after plan year close, or Within nine months after plan year close, or Within two months after end of extension period to file annual report Within two months after end of extension period to file annual report SAR not required for small insured or unfunded welfare plans or top hat plans SAR not required for small insured or unfunded welfare plans or top hat plans Only ERISA criminal penalties for willful failure to provide SAR Only ERISA criminal penalties for willful failure to provide SAR

14 Summary Plan Description (SPD) SPD is summary of plan benefits, rights and features SPD is summary of plan benefits, rights and features Must be written in plain English, accurate and complete Must be written in plain English, accurate and complete Must be furnished within 90 days after participation or benefits begin Must be furnished within 90 days after participation or benefits begin Updated every 5 years if plan was amended or every 10 years otherwise Updated every 5 years if plan was amended or every 10 years otherwise Must be furnished to DOL upon request; civil penalty for ignoring request Must be furnished to DOL upon request; civil penalty for ignoring request Noncompliance with SPD requirements may result in civil penalties of up to $110 per day Noncompliance with SPD requirements may result in civil penalties of up to $110 per day

15 Summary Plan Description (SPD) SPD content requirements revised by DOL: SPD content requirements revised by DOL: Model ERISA Rights Statement Model ERISA Rights Statement Claims Procedure Disclosures – health plans required to provide detailed disclosures Claims Procedure Disclosures – health plans required to provide detailed disclosures Support Order Procedures – pension/QDRO and health plan/QMCSO procedures Support Order Procedures – pension/QDRO and health plan/QMCSO procedures Claim Management and Utilization Control – health plan coverage issues Claim Management and Utilization Control – health plan coverage issues PPO providers, HMO coverage, NMHPA and COBRA rights PPO providers, HMO coverage, NMHPA and COBRA rights

16 Summary Plan Description (SPD) Frequent litigation arising from noncompliance with SPD requirements: Frequent litigation arising from noncompliance with SPD requirements: Content requirements not satisfied Content requirements not satisfied Insurance policy and employer letter did not constitute SPD Insurance policy and employer letter did not constitute SPD SPD in conflict with plan SPD in conflict with plan

17 Summary of Material Modification (SMM) SMM as SPD amendment - required when material modification to plan or change made to SPD SMM as SPD amendment - required when material modification to plan or change made to SPD Like SPDs, clarity and brevity required Like SPDs, clarity and brevity required Furnished to current participants and beneficiaries within 210 days following end of plan year of change, but— Furnished to current participants and beneficiaries within 210 days following end of plan year of change, but— HIPAA requires group health plans to notify participants and beneficiaries within 60 days after adoption of any material reduction in covered services and benefits HIPAA requires group health plans to notify participants and beneficiaries within 60 days after adoption of any material reduction in covered services and benefits SMMs furnished to DOL upon request; same penalty for noncompliance as SPDs SMMs furnished to DOL upon request; same penalty for noncompliance as SPDs

18 Participant Benefit Statements Participant benefit statement addresses amount and form of deferred vested benefit for participant Participant benefit statement addresses amount and form of deferred vested benefit for participant Must be provided to participants no later than annual report Must be provided to participants no later than annual report Separated participants of qualified plans are entitled to updated individual benefit statement Separated participants of qualified plans are entitled to updated individual benefit statement Pension plan participants and beneficiaries may request additional statement of total accrued benefits Pension plan participants and beneficiaries may request additional statement of total accrued benefits Proposed Enron related legislation would require quarterly benefit statements for defined contribution plans and tri-annual benefit statements for defined benefit plans Proposed Enron related legislation would require quarterly benefit statements for defined contribution plans and tri-annual benefit statements for defined benefit plans

19 Part Two: Specific Disclosures Required COBRA COBRA HIPAA HIPAA Survivor Annuity Notices Survivor Annuity Notices Eligible Rollover Distributions Eligible Rollover Distributions Sarbanes-Oxley Blackout Notices Sarbanes-Oxley Blackout Notices Notice of Reduction in Benefit Accrual Rate Notice of Reduction in Benefit Accrual Rate ERISA Title IV Filing & Notice Requirements ERISA Title IV Filing & Notice Requirements

20 COBRA Proposed regulations establish minimum standards for timing and content of required notices and for administering notice process Proposed regulations establish minimum standards for timing and content of required notices and for administering notice process Various notices associated with COBRA rights: Various notices associated with COBRA rights: Initial notice to employee and spouse when plan coverage begins Initial notice to employee and spouse when plan coverage begins Events requiring employer to notify plan administrator Events requiring employer to notify plan administrator Events requiring employee or qualified beneficiary to notify plan administrator Events requiring employee or qualified beneficiary to notify plan administrator Events requiring plan administrator to notify qualified beneficiary Events requiring plan administrator to notify qualified beneficiary Election notices Election notices Notice of unavailability of continuation coverage [New] Notice of unavailability of continuation coverage [New] Notice of early termination of COBRA coverage [New] Notice of early termination of COBRA coverage [New] Employer acting as plan administrator has 44 days after qualifying event to notify qualified employee or beneficiary on COBRA rights Employer acting as plan administrator has 44 days after qualifying event to notify qualified employee or beneficiary on COBRA rights

21 Sanctions for COBRA Noncompliance Excise tax of $100 per day for noncompliance with COBRA Excise tax of $100 per day for noncompliance with COBRA How long? Excise tax does not extend beyond six months after maximum period of COBRA coverage for employee or qualifying beneficiary How long? Excise tax does not extend beyond six months after maximum period of COBRA coverage for employee or qualifying beneficiary Unintentional failures subject to lesser excise tax amount and waivable by Treasury Secretary Unintentional failures subject to lesser excise tax amount and waivable by Treasury Secretary Failure to furnish COBRA notice subjects plan administrator to additional $110 per day penalty Failure to furnish COBRA notice subjects plan administrator to additional $110 per day penalty

22 Health Insurance Portability and Accountability Act of 1996 (HIPAA) Preexisting Condition Exclusions: Preexisting Condition Exclusions: Notice to participant disclosing imposition of preexisting condition exclusion Notice to participant disclosing imposition of preexisting condition exclusion Group health plans required to provide notice of special enrollment rules Group health plans required to provide notice of special enrollment rules Group health plans must provide certificate of creditable coverage to former participants and beneficiaries Group health plans must provide certificate of creditable coverage to former participants and beneficiaries

23 Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rules: Privacy Rules: Covered entity with direct treatment relationships must provide privacy notice Covered entity with direct treatment relationships must provide privacy notice Privacy notice must explain in plain language: Privacy notice must explain in plain language: uses and disclosures of protected health information for treatment, payment and health care operations uses and disclosures of protected health information for treatment, payment and health care operations other permitted or required uses or disclosures under law without specific authorization other permitted or required uses or disclosures under law without specific authorization

24 Defined Benefit & Money Purchase Pension Plans: Survivor Annuity Notices Qualified Joint & Survivor Annuity (QJSA) notice must be provided to each participant soon before or soon after annuity starting date Qualified Joint & Survivor Annuity (QJSA) notice must be provided to each participant soon before or soon after annuity starting date Qualified Pre-Retirement Survivor Annuity (QPSA) notice must be provided after individual becomes plan participant Qualified Pre-Retirement Survivor Annuity (QPSA) notice must be provided after individual becomes plan participant Notices must describe relative value of optional forms of benefit compared to QJSA and QPSA Notices must describe relative value of optional forms of benefit compared to QJSA and QPSA Failure to provide QJSA or QPSA notice may result in plan disqualification; subject plan to civil penalties for ERISA disclosure noncompliance Failure to provide QJSA or QPSA notice may result in plan disqualification; subject plan to civil penalties for ERISA disclosure noncompliance

25 Eligible Rollover Distributions Eligible rollover distribution notice to participants explains potential tax consequences of distribution Eligible rollover distribution notice to participants explains potential tax consequences of distribution Generally provided within 90 days prior to distribution; model notices available from IRS Generally provided within 90 days prior to distribution; model notices available from IRS Failure to furnish explanation: $100 per failure excise tax, up to $50,000 per calendar year Failure to furnish explanation: $100 per failure excise tax, up to $50,000 per calendar year Distribution that is not eligible rollover distribution requires withholding tax notice Distribution that is not eligible rollover distribution requires withholding tax notice Failure to provide: excise tax of $10 per failure, up to $5,000 per calendar year Failure to provide: excise tax of $10 per failure, up to $5,000 per calendar year

26 Sarbanes-Oxley Act (SOA) : Blackout Notices Plan administrators generally required to provide 30 to 60 day notice to affected defined contribution plan participants and beneficiaries of suspension, limitation or restriction of right to direct or diversify assets or to obtain loan or distribution for more than three consecutive business days Plan administrators generally required to provide 30 to 60 day notice to affected defined contribution plan participants and beneficiaries of suspension, limitation or restriction of right to direct or diversify assets or to obtain loan or distribution for more than three consecutive business days Plain language notice must explain reasons for blackout period, rights of participants and beneficiaries affected, expected beginning and ending dates of blackout period, contact information for plan administrator; model blackout notice available Plain language notice must explain reasons for blackout period, rights of participants and beneficiaries affected, expected beginning and ending dates of blackout period, contact information for plan administrator; model blackout notice available Failure to provide timely and adequate notice: civil penalties of up to $100 per day per affected participant or beneficiary against plan administrator for Failure to provide timely and adequate notice: civil penalties of up to $100 per day per affected participant or beneficiary against plan administrator for

27 Defined Benefit & Money Purchase Plans: Notice of Reduction in Benefit Accrual Rate Significant reduction in rate of future benefit accruals requires ERISA 204(h) notice to affected participants Significant reduction in rate of future benefit accruals requires ERISA 204(h) notice to affected participants Notice generally must be given prior to effective date of plan amendment; timing requirement depends on size of plan and factual circumstance involved Notice generally must be given prior to effective date of plan amendment; timing requirement depends on size of plan and factual circumstance involved Egregious failures to comply entitle affected participants to greater of plan benefits as calculated prior to or after plan amendment Egregious failures to comply entitle affected participants to greater of plan benefits as calculated prior to or after plan amendment Employer subject to $100 per day excise tax for noncompliance, up to $500,000 in any taxable year Employer subject to $100 per day excise tax for noncompliance, up to $500,000 in any taxable year

28 ERISA Title IV Notice & Filing Requirements Notice of Reportable Events Notice of Reportable Events Plan administrator must give PBGC timely notice of “reportable events,” i.e., events revealing plan or employer financial problems that impact PBGC potential liability for benefits or increase likelihood of an underfunded plan termination Plan administrator must give PBGC timely notice of “reportable events,” i.e., events revealing plan or employer financial problems that impact PBGC potential liability for benefits or increase likelihood of an underfunded plan termination PBGC regulations list reportable events PBGC regulations list reportable events Penalty of up to $1,100 per day for noncompliance with notice requirements, not to exceed $100 times the number of participants Penalty of up to $1,100 per day for noncompliance with notice requirements, not to exceed $100 times the number of participants Reports on Large Underfunded Plans Reports on Large Underfunded Plans Annual financial reporting to PBGC required for large underfunded defined benefit plans; PBGC penalties of up to $1,100 per day against contributing sponsor for noncompliance Annual financial reporting to PBGC required for large underfunded defined benefit plans; PBGC penalties of up to $1,100 per day against contributing sponsor for noncompliance

29 ERISA Title IV Notice & Filing Requirements Notice to Participants Regarding Underfunded Plans Notice to Participants Regarding Underfunded Plans Plan administrator must report to plan participants and beneficiaries regarding plan’s funding status and limits on PBGC guaranty should plan terminate while underfunded; failure to comply subjects plan administrator to civil penalty of up to $1,100 per day; PBGC model participant notice available Plan administrator must report to plan participants and beneficiaries regarding plan’s funding status and limits on PBGC guaranty should plan terminate while underfunded; failure to comply subjects plan administrator to civil penalty of up to $1,100 per day; PBGC model participant notice available Notices Upon Termination of Defined Benefit Pension Plans Notices Upon Termination of Defined Benefit Pension Plans Notice to Participants: plan administrator issues notice of intent to terminate 60 to 90 days in advance Notice to Participants: plan administrator issues notice of intent to terminate 60 to 90 days in advance Notice to PBGC: plan administrator thereafter notifies PBGC Notice to PBGC: plan administrator thereafter notifies PBGC Notice of Benefits: on or before date PBGC is notified, plan administrator must also notify each participant, beneficiary and alternate payee of his/her benefits under plan Notice of Benefits: on or before date PBGC is notified, plan administrator must also notify each participant, beneficiary and alternate payee of his/her benefits under plan Notice of Final Distribution: After PBGC approval of plan termination, plan administrator files notice with PBGC confirming completion of final distribution of plan assets Notice of Final Distribution: After PBGC approval of plan termination, plan administrator files notice with PBGC confirming completion of final distribution of plan assets Missing Participants: plan administrator files with PBGC a Schedule MP if plan has missing participants Missing Participants: plan administrator files with PBGC a Schedule MP if plan has missing participants

30 Part Three: Miscellaneous Disclosures Minimum Funding Notices Minimum Funding Notices Transfer of Assets Transfer of Assets Disclosures Upon Participant Request Disclosures Upon Participant Request

31 Defined Benefit & Money Purchase Plans: Miscellaneous Notices Notice of Failure to Satisfy Minimum Funding Requirements Notice of Failure to Satisfy Minimum Funding Requirements Late payment of minimum funding contribution to defined benefit or money purchase pension plan requires employer to issue notice to each participant and beneficiary Late payment of minimum funding contribution to defined benefit or money purchase pension plan requires employer to issue notice to each participant and beneficiary Failure to issue notice: employer may be held liable to participant or beneficiary up to $110 per day Failure to issue notice: employer may be held liable to participant or beneficiary up to $110 per day Transfer of Excess Pension Assets to Health Benefit Accounts Transfer of Excess Pension Assets to Health Benefit Accounts Plan administrator must give 60 day advance notice to each participant and beneficiary before transfer; civil penalty for noncompliance of up to $110 per day Plan administrator must give 60 day advance notice to each participant and beneficiary before transfer; civil penalty for noncompliance of up to $110 per day Sponsoring employer must notify DOL, IRS, plan administrator 60 days prior to transfer date detailing plan assets before and after transfer; employer may be held liable to participant or beneficiary for noncompliance in amount up to $110 per day Sponsoring employer must notify DOL, IRS, plan administrator 60 days prior to transfer date detailing plan assets before and after transfer; employer may be held liable to participant or beneficiary for noncompliance in amount up to $110 per day

32 General Disclosures Participant Request for Additional Plan Information Participant Request for Additional Plan Information Plan administrator must furnish upon request copy of latest SPD, annual report, any terminal report, bargaining agreement, trust agreement, contract, or “other instrument under with plan is established or operated” Plan administrator must furnish upon request copy of latest SPD, annual report, any terminal report, bargaining agreement, trust agreement, contract, or “other instrument under with plan is established or operated” Meaning of “other instruments” Meaning of “other instruments” Recent case law: restricted to formal or legal documents under which plan is established or managed Recent case law: restricted to formal or legal documents under which plan is established or managed Early case law: broadly interpreted to include “all documents helpful in determining rights, eligibility or interest in plan” Early case law: broadly interpreted to include “all documents helpful in determining rights, eligibility or interest in plan”

33 General Disclosures DOL Advisory Opinion 96-14A favors broad interpretation DOL Advisory Opinion 96-14A favors broad interpretation Penalties for Noncompliance Penalties for Noncompliance ERISA civil penalties for failure to make required disclosures apply ERISA civil penalties for failure to make required disclosures apply Plan administrator subject to discretionary $110 per day penalty for failure to timely respond to proper request for documents Plan administrator subject to discretionary $110 per day penalty for failure to timely respond to proper request for documents

34 Questions