SPD compliance- Does it really matter? What are the liabilites and ar

[Guest PALAWYER]

Assume a ERISA Welfare Plan sponsor does not revise its SPD and PLan to include the new claims procedures, etc. Assume the SPD is completely non-compliant. Moreover, assume the Plan never decides a benefit claim and always denies claims by default- (ie making no decision within the time periods set forth in the regulations).

What is the liability (other then paying benefits due and legal fees if a participant sues or if a participant requests and spd in writing and one is not provided as required)

I am trying to see what the motivation is for an employer to spend dollars to fix SPD and Plan documents if the risks are relatively small. Please comment on the risks.

[jeanine]

How small of a threat do you consider it to be to be sued in federal court and having the court apply the de novo standard of review, granting no discretion to the Plan Admininstrator's decision? Or should I say non-decision. If I were the plaintiff's atty, I think I would also raise the bad faith issue.

[Guest PALAWYER]

Thank you for this reply- please understand that the purpose of my message is to find a way to convince my client otherwise. The client is comfortable with de novo review and and that litigation may result in an award equal to the benefit plus atty fees. What other liabilities could apply? For example, if an emergency operation is denied, could the Plan be forced to pay damages beyond the amount or cost of the improperly denied benefit? If the participant dies and the benefit is no longer necessary, what is the amount due then? The amount of the benefit? I need to find more to convince a very reluctant client. Thank you.

[jeanine]

I guess I don't what else would motivate your client to comply with the law since there doesn't seem to be any other consequences than what you already described. However, this would not be the case if one of the Patient Protection Acts ever passes and the patient has the right to punitive damages. It distresses me to hear that you actually have a client that feels it's OK to operate like this. This just adds fuel to the fire of people who want a Patient Protection Act, because of the bad administrators such as this. What do you mean by the client never pays claims just denies by default? Do you mean appeals of claims? If they are not paying any claims, they don't have a health plan. If the DOL investigates this plan based on a complaint, finds total lack of compliance, are there any DOL or tax consequences?

[Guest PALAWYER]

The client does not respond to appeals. Sorry. Also, that is my question. What are DOL consequences? For example, I know that if a participant asks for an SPD and the SPD is not in substantial compliance with rules, its not an SPD and the $110 per day penalty may apply. So, my client says, well if they ask for and SPD in writing, we will put one together then. Does anyone know if there are fiduciary consequences here? Client believes the cost of operational compliance and document compliance is more than the cost of noncompliance.

[jeanine]

I've been wracking my brain on this one and know at least one situation where this may eventually hurt them financially. Although you are talking about claims appeals not having a written SPD could cost your client big money in a subrogation case. The SPD will be requested by any sharp atty in a personal injury case. Without clear subro language in the SPD, the court might apply whatever default rule is in place. Here in the 6th Circuit (i'm in Ohio) the Courts will apply the make whole rule if the plan does not specifically reject it. On a large dollar claim this could be plenty. Is this a small employer or large employer? Any reinsurance involved here?

[Guest PALAWYER]

This is a small employer (about 200 employees) with alot of highly paid employees. There is a general anti-lawyer/who cares about technical compliance/what is the worse that can happen attitude. The client does not see how paying to revise documentation is more cost effective than just dealing with the liability, which may never happen. The claims are dealth with by a 3rd party administrator and appeals are handled by employer-who "gets to it when they can" The client's HR person has asked me for support in convincing the officers to spend the money to get into compliance. What I have delivered so far is not enough.

Thanks for your help on this.

[Moe Howard]

The employer always denies claims ??? That makes no sense. Why then even have a plan ? The answer to that question is probably because ... only the owner's claims are paid.

It sounds to me like your client has a bogus self-insured medical plan, that he just happened to have never told the employees about. I'll bet that the only employee that is aware of the plan is the owner/employee himself. Am I right? Is this a bogus plan? I'll also bet that the owner's claims are paid timely at 100%.... and of course he does not report those payments as income on his individual tax return (because he is willing to take the risks which you described).

As far as penalties ? How about criminal penalties for intentional disregard of the US Tax Code.

Do you prepare his individual or business income tax returns? If you keep that jerk as a client ... then that says volumes about you.