ERISA Compliance Basics Every Small Business Owner Needs

If you offer employee benefits beyond basic medical insurance, you've likely encountered the term ERISA. But what exactly is it, and why should Long Island business owners care? The Employee Retirement Income Security Act affects more benefit plans than most employers realize, and non-compliance can result in significant penalties and legal issues.

What ERISA Actually Is

Think of ERISA as a set of federal rules that govern how you must manage certain employee benefit plans. Enacted in 1974, ERISA protects employees by ensuring they receive clear information about their benefits and that plan assets are managed responsibly.

ERISA doesn't require you to offer benefits, but once you do offer certain types of plans, you must follow its rules. It's like choosing to drive a car – nobody forces you to drive, but once you're behind the wheel, you must follow traffic laws.

Which Plans Does ERISA Cover?

ERISA applies to most employer-sponsored benefit plans, including:

• 401(k) and other retirement plans
• Group health insurance plans
• Dental and vision insurance
• Life insurance and disability insurance
• Health Savings Account (HSA) plans
• Flexible Spending Accounts (FSAs)

However, some plans are exempt, such as workers' compensation, unemployment insurance, and certain government plans. Churches and some small businesses may also qualify for exemptions under specific circumstances.

Your Fiduciary Duties as an Employer

When you sponsor an ERISA plan, you become a fiduciary – essentially a trustee responsible for managing plan assets in your employees' best interests. This means you must:

Act solely in participants' interests: Every decision about the plan should benefit employees, not the company's bottom line. You can't use plan assets for company purposes or choose vendors based on personal relationships.

Manage costs prudently: You must ensure plan fees are reasonable for the services provided. This doesn't mean choosing the cheapest option, but rather ensuring good value.

Follow plan documents: Your plan's governing documents are like a contract. You must operate the plan exactly as these documents specify.

Diversify investments: For retirement plans, you must offer a range of investment options so employees aren't putting all their eggs in one basket.

Summary Plan Descriptions: Your Communication Requirement

ERISA requires you to provide employees with Summary Plan Descriptions (SPDs) – documents that explain their benefits in plain English. Think of SPDs as user manuals for your benefit plans.

These documents must be written clearly enough that average employees can understand their benefits, coverage limits, claims procedures, and rights under the plan. You must distribute SPDs within specific timeframes and update them when plan changes occur.

Many employers underestimate this requirement, but poor communication can lead to compliance issues and confused employees who don't appreciate the benefits you're providing.

Why Proper ERISA Compliance Matters for Your Business

Beyond avoiding penalties, ERISA compliance protects your business in several ways:

Legal protection: Following ERISA rules provides a legal safe harbor. If employees later dispute benefit decisions, proper procedures demonstrate you acted appropriately.

Employee trust: Clear communication and proper plan management build confidence that you're handling their benefits responsibly.

Competitive advantage: Well-managed benefits programs help attract and retain quality employees, especially important in Long Island's competitive job market.

Common Compliance Mistakes to Avoid

Many small business owners inadvertently violate ERISA rules. Common mistakes include:

• Using plan assets to pay company expenses, even temporarily
• Failing to provide required notices within specified timeframes
• Not updating SPDs when plan terms change
• Choosing service providers without documenting the decision-making process
• Allowing employees to make benefit elections outside proper enrollment periods
• Not maintaining required plan documents and records

The Employee Perspective

From your employees' viewpoint, ERISA compliance means they can trust that their benefits will be there when needed. They receive clear information about their coverage, understand how to file claims, and know their rights if disputes arise.

Well-communicated benefits also help employees make better financial decisions. When staff understand their 401(k) options or how their health plan works, they're more likely to use these benefits effectively and appreciate their value.

How Benton Oakfield Simplifies ERISA Compliance

Managing ERISA compliance while running your Long Island business can feel overwhelming. That's where Benton Oakfield comes in. We handle the complex compliance requirements so you can focus on your core business.

Our team ensures your ERISA compliance stays current with changing regulations, helps create clear employee communications, and provides ongoing support when questions arise. We work with medical practices, professional service firms, and other Long Island businesses to navigate these requirements successfully.

Rather than trying to become an ERISA expert yourself, partnering with experienced professionals protects your business and ensures your employees receive the clear communication they deserve about their valuable benefits.

Ready to ensure your benefit plans meet ERISA requirements? Contact our team to discuss how we can help your Long Island business maintain proper compliance while maximizing the value of your employee benefits investment.

Compliance Note: Benefit plan rules and tax implications vary based on company size and location. This guide is for educational purposes only. Please contact your Benton Oakfield representative to discuss how this applies to your specific situation.

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