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Payment terms are net 120


Guest moto
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We have an employer who has indicated that they will pay us "net 120." This is an ERISA plan, can they do this if participant contributions are used to pay for the benefit? Or would this be in violation of ERISA/fiduciary duties?

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Guest Mr. Kite
We have an employer who has indicated that they will pay us "net 120." This is an ERISA plan, can they do this if participant contributions are used to pay for the benefit? Or would this be in violation of ERISA/fiduciary duties?

"Net 120" is a term I am unfamiliar with. Can you clarify what the employer is doing?

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I don't understand why that violate ERISA (unless the eventual late premium payments caused the policy to be cancelled)? There is an ERISA reg. requirement to pay the employee amounts into the welfare plan within a certain time period, as 401(k) deferrals must be paid over into the trust with a certain time period, but, to the best of my knowedge, there is no requirement as to when payouts of those amounts to insurance companies must occur. And, isn't it also true that employee welfare plan payments do not have to be held in trust in any event?

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moto, do you wait until receiving funds from the ER before paying any EE claims? or is your firm paying those claims out of its own funds, to then be reimbursed by the ER within 120 days?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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It is a common misconception that welfare benefit plan assets are not required to be held in trust. The DOL has a "look the other way" policy based on certain standards but those standards are violated all the time, especially in health FSA arrangements. I venture that far more than half of the arrangements violate the trust rule, even with the DOL concession to practicality. Evidently it is not practical enough, and the DOL must know it because the DOL is not enforcing its own policy.

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It is a common misconception that welfare benefit plan assets are not required to be held in trust. The DOL has a "look the other way" policy based on certain standards but those standards are violated all the time, especially in health FSA arrangements. I venture that far more than half of the arrangements violate the trust rule, even with the DOL concession to practicality. Evidently it is not practical enough, and the DOL must know it because the DOL is not enforcing its own policy.

Spot-check type enforcement by the DoL? To date, I think QDROphile's observation is correct.

When EEs complain to the DoL that promised health benefits are not being provided, the DoL often relies on this policy as part of its enforcement actions against the ER and its functionaries.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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This is a situation wherein we provide certain services to employees through the employer's welfare plan (not on a self-insured basis) and the employees are responsible for paying a portion of the applicable cost. The employer is saying that it will pay us 120 days after we bill.

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This is a situation wherein we provide certain services to employees through the employer's welfare plan (not on a self-insured basis) and the employees are responsible for paying a portion of the applicable cost. The employer is saying that it will pay us 120 days after we bill.

You provide the underlying service to the employees, rather than what I and maybe some of the other responders assumed was services to the employer to process claims and keep track of dollar amounts accrued or used. In that case, I know of nothing in ERISA that would be violated by the plan taking 120 days to pay given the time tables that insurance companies, Medicare and state Medicaid programs take to pay.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Even though these "services" relate to ERISA benefits (e.g. insured medical HMOs)? My thought was that the employees have to pay a portion of the premium, but if the employer isn't paying that premium over for 120 days...

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While insurance companies etc take a long time to pay providers they only pay for those services incurred while eligible for coverage, the main condition for that coverage to be in force is that the premiums were timely paid. If premiums are not paid coverage lapses and claims are not delayed but instead not paid.

moto's case seems different. It is not payment for services but payment of premium that is the issue. The premiums are not being forwarded in an acceptable manner.

I think that the issue of timeliness depends not only on the contract terms but also whether or not the arrangement falls under the DoL 7 day rule.

Whenever, I have cases like this I have always resolved it by pointing out that 7 day rule (or predecessor) and any relevant state law regarding payroll deductions. Sometimes they refer the matter to legal counsel, but in all of the 5 or 6 cases the eventual decision was to start remitting timelly.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I understand this question to be "the employer is not forwarding premiums for 120 days after due date", is that correct?

If so, I have seen situations like this in the past, where larger companies needed longer time frames to process their payments...or so they say. We at the health plan had to make a buisness decision about this practice. It usually had to do with the size of the account and the amount of revenue/profit the group was contributing. In these situations we would adjust our policy towards these groups. We never had more than 2-3 ever at any time.

Hope this helps.

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Guest Mr. Kite

Even if the 7-day rule is applicable here (facts still somewhat hazy), I don't believe ERISA provides moto with any relevant rights -- that is, moto (or, more correctly, moto's company) does not have standing under ERISA to bring an action based on delayed payment of premiums. Rather, this would be a non-ERISA contract dispute between moto and the employer. If moto doesn't like the arrangement, then they should either require quicker payments or cancel the contract.

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While moto might hace no standing to bring court action, moto could very easily bring the matter to the attention of the DoL and state regulator for their action. At least this is what the clients' lawyers in my cases warned of and suggested that their client avoid at all costs.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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If premiums from employee $$ are not sent to the insurer or trust timely so that the policy is threatened to be cancelled, see DOL's VFCP, Sections 7.1(b) and ©. I guess the potential fiduciary violation is the failure to remit and therefore to cause the policy to be cancelled and coverage for participants to be lost.

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