Shifting regulations and contradicting messages on enforcement have employers questioning whether they need to prepare for a DOL audit and what they should be doing. Join this Q&A with our benefits attorney to learn: - What to do after receiving a notice - How to prepare for an audit - What auditors are looking for - Best practices during a DOL audit

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2. Bracing for (Regulatory)
Impact: Your DOL Audit
Checklist
Larry Grudzien
Attorney at Law

3. Department of Labor (“DOL”) Audits
• DOL Enforcement Authority
• Process – what to expect if your plan is audited
• Current “hot” compliance issues
• Potential Penalties
• Proactive measures your employer can take
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Agenda

4. DOL Audits

5. DOL's Investigation Powers
• The DOL's investigative authority comes from ERISA §504
 Provides the agency with power to investigate whether “any person
has violated or is about to violate any provision of ERISA Title I or
any regulation or order issued under Title I.”
• The DOL may commence an investigation and require
records whether or not it has reasonable cause to believe
any particular violation exists.
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DOL ERISA Enforcement

6. DOL's Investigation Powers (continued)
• ERISA §504(a)(1) permits the DOL to investigate whether any
person has violated or will violate ERISA.
• ERISA §504 states that the DOL may make available to any
person actually affected by any matter which is the subject of an
investigation (and to any department or agency of the United
States), information concerning any matter which may be the
subject of an investigation.
• In addition to its power to obtain documents in connection with
an investigation, the DOL has the broad general authority to
request production of documents “relating to” an ERISA plan.
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DOL ERISA Enforcement

7. The DOL is responsible for enforcement of ERISA compliance
• 10 regional offices (CA, GA, IL, MA, MO, NY, OH, PA and TX)
ERISA enforcement includes:
• Consolidated Omnibus Budget Reconciliation Act (COBRA)
• Health Insurance Portability and Accountability Act (HIPAA)
• Mental Health Parity Act (MHPA)
• Newborns’ and Mothers’ Health Protection Act (Newborn’s Act)
• Women’s Health and Cancer Rights Act (WHCRA)
• Genetic Information Nondiscrimination Act (GINA)
• Mental Health Parity and Addiction Equity Act (MHPAEA)
• Children’s Health Insurance Program Reauthorization Act (CHIPRA)
• Michelle’s Law
• Patient Protection and Affordable Care Act (ACA)
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DOL Health & Welfare Plan Audits

8. Types of DOL Audits:
• Criminal Investigations/Audits
• Civil Investigations/Audits
• Random Audits
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DOL Health & Welfare Plan Audits

9. • Employers of any size who sponsor an ERISA health & welfare
benefit plan can be subject to DOL audit
• DOL audits on the rise – especially small to mid-size employers
• Audits can be random, but the following are common sources:
 Participant complaints
 Form 5500 reviews
 Referrals from other agencies, state insurance departments, and advocacy
groups
 Media
 Private litigation
• ACA compliance random audits
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DOL Health & Welfare Plan Audits

10. • 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
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DOL Health & Welfare Plan Audits

11. How does it work?
• Step 1: DOL audit letter arrives in the mail
• Step 2: Document request and/or onsite audit
• Step 3: Onsite interviews with fiduciaries and other
persons with plan decision making authorities
• Step 4: Voluntary Compliance Letter
• Step 5: Correction Period
• Step 6: Closing letter
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DOL Health & Welfare Plan Audits

12. DO…
• Notify your legal counsel immediately
• Work with legal counsel to timely produce the requested documentation
• Provide documentation in a complete and organized fashion
• Be comprehensive – explain any missing information or documentation
• Identify any known compliance problems in advance
• Treat the auditor with respect and be non-confrontational
DON’T…
• Ask questions about what prompted the audit
• Volunteer documents or information that is not requested
• Ignore the notice
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Initial Steps Upon Receiving the Notice

13. • Determine who will be interviewed
 Familiar with plan documents and plan operation
 Prepared to address compliance issues and/or corrective measures
• Arrange to have legal counsel present
• Designate an appropriate location
 Provide comfortable, usable workspace
 Avoid high traffic areas
 Have all documents produced readily accessible
• Informal interview (not recorded or videotaped)
• DOL will ask series of questions until he has covered his agenda
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On-Site Audit Protocols

14. • 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
• Litigation
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Possible Audit Outcomes

15. • Plan documents, adoption agreements,
wrap documents and amendments
• Summary Plan Description and any
Summaries of Material Modification
• Signed Form 5500s for past three years
• All contracts, policies or arrangements
with all providers of service to the Plan
• If self-funded, all contracts for claims
processing, administrative services and
reinsurance
• Copies of all required notices, including
lists and logs of issued notices and a
description of procedures for distribution
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Document Request Includes:
• Plans rules regarding pre-authorization
for hospital stays in connection with
childbirth
• Sample written description of benefits
mandated by WHCRA required to be
provided upon enrollment and annually
• Materials describing any wellness
program including disclosure statement
regarding the availability of a reasonable
alternative
• If claiming grandfathered status, copy of
disclosure statement and records
documenting terms of plan on March 23,
2010 and documents necessary to verify
grandfathered state of health plan

16. • Written notice describing enrollment
opportunities of dependent children to
age 26
• If coverage has rescinded any participant
or beneficiary coverage, a list of
individuals whose coverage has been
rescinded, reason for rescission, copy of
required rescission notice
• Documents showing lifetime limits for
each plan year after September 23, 2010
• Documents showing annual limits for
each plan year after September 23, 2010
• Documents relating to provision of
preventive services for each plan year on
or after September 23, 2010
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Document Request Includes:
• Copies of Plan’s claims and appeals
procedures
• Related collective bargaining agreements
• Plan’s accounting records
• Log reports for participant claims
• Summary Annual reports for past three
years
• Fiduciary liability insurance policy
• Fidelity bond
• Names and contact information for plan
actuary, attorney, accountants, insurance
agents, committee members, etc.

17. Current “Hot” Compliance Issues

18. Every health and welfare benefit plan must be in writing
• Welfare benefits include health, dental, vision, life, disability,
health flexible spending accounts, health reimbursement
arrangements, some EAPs, some wellness programs and some
“voluntary” benefits
Governing body / Board of Directors must adopt resolutions to
authorize initial adoption of the plan
• Approve amendments unless the plan document delegates the
authority to amend the plan to someone else
• Generally must be adopted by last day of plan year in which
plan/amendment is effective
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ERISA Plan Document

19. • Required features:
 Named fiduciary
 Procedure for allocating responsibilities
 Funding policy
 How payments are made
 Claims and appeals procedures
 Procedure for amending the plan and identifying who has the authority to amend the
plan
• For insured benefits, can sometimes use the insurance contract as the plan
document
• Recommend a wrap plan document to ensure compliance
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ERISA Plan Document

20. • Every welfare benefit plan must be described in an SPD which is intended to
provide an explanation of the plan and participant’s rights in easy to
understand language
• Must be given to participants and beneficiaries within:
 120 days after the Plan is initially adopted
 Or within 90 days after the employee becomes a participant in the plan
 An updated SPD must be furnished every five (5) years (10 years if no plans
amendments made)
• Most of the time insurance carriers and TPAs do not provide you with an SPD
– you must secure this on your own
• If you are provided with an SPD by a third party (TPA, consultant, etc.) it
should be reviewed by legal counsel for compliance with applicable laws
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ERISA Summary Plan Description (“SPD”)

21. • Plan identifying information
• Plan eligibility
• Plan benefits (cost-sharing, co-
insurance, networks, etc.)
• Circumstances causing loss or denial
• Amendment/termination provisions
• Source of contributions
• Funding
• Claims and appeals procedures
• Statement of ERISA rights
• Offer of assistance in non-English
language
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ERISA Summary Plan Description
• Role of health insurers or claims
administrators
• Procedures for obtaining pre-
authorization, approvals, utilization review
• COBRA notice
• Newborns and Mothers Health Protection
Act notice
• Mental Health Parity rights
• Women’s Health and Cancer Rights Act
• QMCSO procedures
• FMLA leave procedures as relate to
benefits
• Grandfathered Notice (if applicable)

22. An SMM must be provided to participants when changes are
made to the plan that impact information reported in a prior SPD
Due Date:
• If the plan is amended, SMMs must be furnished to plan
participants within 210 days after the end of the plan year in
which the change occurs
• An SMM that involves a “material reduction in covered services
or benefits” must be furnished to participants and beneficiaries
no later than 60 days after the adoption of the modification or
change
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Summary of Material Modification (“SMM”)

23. • ERISA contains detailed requirements on benefit claims and
appeal procedures, including timing and content requirements
• Claim and appeal procedures must be in a plan document and
SPD
• Adverse benefit determinations must include required
disclosures (e.g. the specific reason(s) for the denial of the claim,
reference to the specific plan provisions on which the benefit
determination is based, and a description of the plan’s appeals
procedures)
• ACA adds additional requirements for certain plans
• Plan sponsors are ultimately responsible unless delegated to third
party (e.g. insurer, claims administrator, etc.)
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ERISA Claims and Appeal Procedures

24. • Newborns and Mother’s Health Protection Act
• Women’s Health and Cancer Rights Act
• HIPAA Special Enrollment Rights
• QMCSO Procedures
• Notice Grandfathered Status (if applicable)
• Adult Dependent Notice (ACA)
• Choice of Provider Notice (ACA)
• Lifetime and Annual Limit Notice (ACA)
• Summary of Benefits and Coverage (ACA)
• CHIPRA Notice
• Wellness Program Notice
• COBRA Notices
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Required Notices

25. The DOL’s audit requests related to ACA compliance have
been divided into the following categories:
• Requests for grandfathered plans
• Dependent coverage to age 26
• Recessions of coverage
• Lifetime limits
• Annual limits
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ACA Audit Issues

26. For health plans that claim grandfathered status under ACA, the DOL has been
requesting:
• Records documenting the terms of the plan on March 23, 2010, and any additional
documents to confirm the plan’s grandfathered status
• The participant notice of grandfathered status included in materials that describe the
benefits provided under the plan
For non-grandfathered health plans, DOL audit letters have been requesting:
• Documents related to preventive health services for each plan year beginning on or
after Sept. 23, 2010
• The plan’s internal claims and appeals procedures
• Contracts or agreements with independent review organizations (IROs) or third-party
administrators (TPAs) providing external review
• Notices regarding adverse benefit determinations and final external review
determination notices
• Documents relating to the plan’s emergency services benefit
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ACA Audit Issues

27. The DOL has been requesting the following information from both
grandfathered and non-grandfathered health plans:
• A sample notice describing enrollment opportunities for children up to
age 26 for plans with dependent coverage
• A list of participants who have had their coverage rescinded and the
reasons for the rescissions
• Documents related to any lifetime limit that has been imposed under
the plan since Sept. 23, 2010
• Documents related to any annual limit that has been imposed under
the plan since Sept. 23, 2010
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ACA Audit Issues

28. The DOL has been requesting the following information from
both grandfathered and non-grandfathered health plans:
• Prohibition on preexisting condition exclusions or other
discrimination based on health status
• Distributions of Summary of Benefits and Coverage
• Distribution of Medical Loss Ratio Rebates
• Imposition of 90 day waiting periods
• 60 day notice for changes made during the plan year
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ACA Audit Issues

29. Possible Fines and Penalties for Violations

30. • 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.
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ERISA

31. • 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.
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ERISA

32. • In addition to possible criminal penalties for willful Form 5500 failures,
the plan administrator is also subject to penalties of up to $1,100
($2,063 after August 2016) 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.
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ERISA

33. • 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.
 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.
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HIPAA

34. • 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.
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HIPAA

35. • 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.
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COBRA

36. Consequences of Failing to Provide the SBC
• A penalty of up to $1,000 ($1,087 after August 2016) 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.
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Other Penalties

37. • 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
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Tips for Being “Audit Ready”

38. • Make timely updates to plan document and SPDs to reflect legal and design
changes
• Confirm that vendors are following contract terms and administering plans in
compliance with federal and other requirements
• Require vendors to immediately report instances of potential noncompliance to
plan
• Train applicable staff on compliance obligations and procedures to address
violations
• Work with legal counsel to minimize or correct any potential violations
• Respond promptly and thoroughly to any governmental inquiry related to
health and welfare plans
• If receive an audit letter, secure legal counsel for assistance in preparing for
the audit and negotiating the scope of the audit and corrective measures
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Tips for Being “Audit Ready”

39. Questions?

40. Larry Grudzien
Attorney at Law
(708) 717-9638
larry@larrygrudzien.com
www.larrygrudzien.com
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Contact Information
40