The purpose of this short white paper is to argue that even though commercial insurance through crime insurance policies can meet the bonding requirements of ERISA, that a more efficient, less complicated, and potentially more compliant solution is to purchase an actual bond that covers only the plan and the persons who “handle” money on behalf of the plan.
This white paper is not meant to duplicate or replace the direction that can be found in various places on the internet. This is also not legal advice, just the opinion of the insurance professionals at Montgomery & Graham Property & Casualty.
ERISA section 412 imposes a bonding requirement for any person who handles plan funds. In November, 2008, the United States Department of Labor Employee Benefits Security Division Office of Compliance Assistance published Field Assistance Bulletin 2008-04. This document provides a set of 42 questions and answers all related to the bonding rules for ERISA plans.
A few of those questions and answers are reproduced below with comments related to the argument of this paper that a “real bond” is better than trying to provide coverage through a crime policy in most instances.
Q-22: Do the regulations require that a bond take a particular form?
The Department’s regulations allow substantial flexibility regarding bond forms, as long as the bond terms meet the substantive requirements of section 412 and the regulations for the persons and plans involved. Examples of bond forms include: individual; name schedule (covering a number of named individuals); position schedule (covering each of the occupants of positions listed in the schedule); and blanket (covering the insured’s officers and employees without a specific list or schedule of those being covered). A combination of such forms may also be used. 29 C.F.R. § 2580.412-10.
A plan may be insured on its own bond or it can be added as a named insured to an existing employer bond or insurance policy (such as a “commercial crime policy”), so long as the existing bond is adequate to meet the requirements of section 412 and the regulations, or is made adequate through rider, modification or separate agreement between the parties. For example, if an employee benefit plan is insured on an employer’s crime bond, that bond might require an “ERISA rider” to ensure that the plan’s bonding coverage complies with section 412 and the Department’s regulations. Service providers may also obtain their own bonds, on which they name their plan clients as insureds, or they may be added to a plan’s bond by way of an “Agents Rider.” Choosing an appropriate bonding arrangement that meets the requirements of ERISA and the regulations is a fiduciary responsibility.
In our opinion, it is tough to comply with the regulations with an endorsed commercial crime policy. The endorsements need to waive the deductible, meet the required 10% up to $500,000 (up to $1,000,000 for plans that hold employer stock). Not all insurance companies offer the endorsements and as clients of TKW move insurance carriers, the bonding requirements might not be met at the time of an audit.
Q-29: If an employee benefit plan is added as a named insured to a company’s existing crime bond, which covers employees but specifically excludes the company owner, does the plan’s coverage under the crime bond satisfy the requirements of section 412?
If the crime bond excludes the company owner, and the owner handles plan funds, then the company bond does not fully protect the plan as required by ERISA section 412 and the Department's regulations. The company owner would then need to be covered under a separate bond or, alternatively, if the crime bond has an ERISA rider, that rider must ensure that the company owner is not excluded from coverage with respect to the plan.
Crime policies typically restrict owners from coverage. The various endorsements to remove this restriction from the coverage for the plan only seem confusing to us.
Q-30: Can the bond have a deductible?
No. Section 412 requires that the bond insure the plan from the first dollar of loss up to the maximum amount for which the person causing the loss is required to be bonded. Therefore, bonds cannot have deductibles or similar features whereby a portion of the risk required to be covered by the bond is assumed by the plan or transferred to a party that is not an acceptable surety on ERISA bonds. 29 C.F.R. § 2580.412-11. However, nothing in ERISA prohibits application of a deductible to coverage in excess of the maximum amount required under ERISA.
Most commercial crime policies have a deductible.
Q-31: Must the plan be named as an insured on the bond for the bond to satisfy ERISA’s requirements?
Yes. The plan whose funds are being handled must be specifically named or otherwise identified on the bond in such a way as to enable the plan’s representatives to make a claim under the bond in the event of a loss due to fraud or dishonesty. 29 C.F.R. § 2580.412-18.
Q-32: Can bonds use an “omnibus clause” to name plans as insureds?
Yes. An “omnibus clause” is sometimes used as an alternative way to identify multiple plans as insureds on one bond, rather than specifically naming on the bond each individual plan in a group of plans. By way of example, an omnibus clause might name as insured “all employee benefit plans sponsored by ABC Company.” ERISA does not prohibit using an omnibus clause to name plans insured on a bond, as long as the omnibus clause clearly identifies the insured plans in a way that would enable the insured plans’ representatives to make a claim under the bond.
If an omnibus clause is used to name plans insured on a bond, the person responsible for obtaining the bond must ensure that the bond terms and limits of liability are sufficient to provide the appropriate amount of required coverage for each insured plan
The “omnibus clauses” would mean at the time of an audit, that instead of being presented a document clearly showing that the plan was bonded by a T-listed Surety, the auditor would need to be presented with a policy that did not specifically name the plan and then would need to find an insurance policy, find the endorsement, and then be able to determine that the endorsement met the requirements of “naming”. We think it better to just have the plan named on a bond.
Our research indicates that there are no specific monetary penalties for inadequate bonding coverage. The plan fiduciaries can be held personally liable for any loss to the plan that should have been covered by a bond. We also found references that indicated that DOL investigators routinely review ERISA Bonds in the context of a plan audit or investigation.
In short, here are the reasons to consider an ERISA Bond rather than finding ERISA coverage through a commercial insurance crime policy:
-A bond can be written for 3 years-commercial policies can change every year
-Only some insurance companies even offer ERISA coverage and some only offer on the Business Owners Policies (BOP) and others only offer on “Package” policies.
-Some businesses do not have a crime exposure (or do not think they have) except for ERISA
-The bond is inexpensive
-The bond is the more traditional approach and could be advantageous at the time of an audit or investigation
-Providing the proper coverage level for growing plans can be difficult. In our experience, bond underwriters are willing to offer higher limits related to current plan assets than commercial crime underwriters.
Finally, it needs to be noted that ERISA coverage is not Fiduciary coverage for plan trustees. The ERISA coverage protects the plan. A fiduciary liability policy protects the personal assets of a plan fiduciary due to the allegations of a breach of duties. Fiduciary Liability Policies cover:
-Breach of fiduciary duties
-Negligent errors and omissions
-Improper disclosures to plan participants
-Remiss investment advice
-Imprudent choice of outside service provider
-Faulty advice of counsel
-Improper amendments to plan documents
Friday, June 12, 2009
Five Steps to a Successful Wellness Program
“If you’re going to promote the benefits of good health to your clients, then you should also set the example,” said Mary Starr, CFO of The Starr Group. “We’re in the second year of our wellness program and today our employees can’t wait for our next wellness series.”
We started with a health risk assessment which was proposed by our Best of the Best Committee. Following the analysis, the committee set out to address the top four areas from the employees’ test results: sedentary, nutrition habits, stress/anxiety and tobacco use.
Today, the group offers two, 12-week programs a year (spring and fall). For example, their first activity was simply walking. Teams were formed and everyone was given pedometers to measure steps, or they needed document other exercise equivalents. Another event played off of the “Biggest Loser” show where the body fat, not weight, was used as an indicator.
To compliment the program, the committee brings in an athletic trainer for exercise and weigh-in sessions and also sponsors healthy Lunch and Learns featuring health experts and other guests to speak on wellness topics.
Mary says you don’t need a big budget to have good results and offers Five Steps to a Successful Wellness Program:
1. Form a Wellness Committee: Include a sampling of employees from all departments.
2. Have a Short and Long Range Plan: List objectives like improving employee health or ultimately reducing claims through a wellness program. Set a schedule of events.
3. Encourage Participation: From top executives to staff employees, get everyone involved and have sign-up prize giveaways. Then communicate results in company announcements.
4. Have Fun with Weekly Challenges: Have weekly challenges with prizes instead of waiting until the program ends. PTO is a great giveaway with little expense.
5. Consult with your healthcare carrier: They typically have wellness programs that you can access to help employees improve their health behaviors with a variety of tools and services including: Health coaching and on-site training; Personal health record; Biometric screenings; Health and Wellness publications; Preventive Care Reminders and Health Discount Program.
We started with a health risk assessment which was proposed by our Best of the Best Committee. Following the analysis, the committee set out to address the top four areas from the employees’ test results: sedentary, nutrition habits, stress/anxiety and tobacco use.
Today, the group offers two, 12-week programs a year (spring and fall). For example, their first activity was simply walking. Teams were formed and everyone was given pedometers to measure steps, or they needed document other exercise equivalents. Another event played off of the “Biggest Loser” show where the body fat, not weight, was used as an indicator.
To compliment the program, the committee brings in an athletic trainer for exercise and weigh-in sessions and also sponsors healthy Lunch and Learns featuring health experts and other guests to speak on wellness topics.
Mary says you don’t need a big budget to have good results and offers Five Steps to a Successful Wellness Program:
1. Form a Wellness Committee: Include a sampling of employees from all departments.
2. Have a Short and Long Range Plan: List objectives like improving employee health or ultimately reducing claims through a wellness program. Set a schedule of events.
3. Encourage Participation: From top executives to staff employees, get everyone involved and have sign-up prize giveaways. Then communicate results in company announcements.
4. Have Fun with Weekly Challenges: Have weekly challenges with prizes instead of waiting until the program ends. PTO is a great giveaway with little expense.
5. Consult with your healthcare carrier: They typically have wellness programs that you can access to help employees improve their health behaviors with a variety of tools and services including: Health coaching and on-site training; Personal health record; Biometric screenings; Health and Wellness publications; Preventive Care Reminders and Health Discount Program.
Oregon State Continuation Plans for Small Groups Not Subject to Federal COBRA
Recognizing the need for changes to state law to allow Oregonians to obtain the full advantage of the federal subsidy, the Oregon legislature enacted HB 2433. HB 2433 and follow-up rule-making by the Oregon Department of Consumer Business Services (DCBS) achieves the following:
• Extends the amount of time former employees can continue coverage through the state continuation program from six months to nine months. This gives eligible Oregonians the opportunity to receive the full nine months of premium assistance.
• Allows an independent election of coverage by each qualified beneficiary.
• Creates a second election opportunity for state continuation coverage for AEIs who experienced a qualifying event on or after Sept. 1, 2008 and before the effective date of HB 2433 and either did not elect or whose continuation coverage ended, e.g., lapse due to nonpayment, and/or expiration of six month coverage period.
• Specifies that enrollees who take advantage of the second election opportunity be treated as having continuous coverage for purposes of calculating creditable coverage.
• Insurers subject to continuation of coverage provisions are now required to provide a notice explaining state continuation of benefits directly to individuals losing group coverage, for any reason other than replacement of their group coverage, within ten days following the date of any administrative action taken by an insurer to initiate or document the loss of coverage.
• Extends the amount of time former employees can continue coverage through the state continuation program from six months to nine months. This gives eligible Oregonians the opportunity to receive the full nine months of premium assistance.
• Allows an independent election of coverage by each qualified beneficiary.
• Creates a second election opportunity for state continuation coverage for AEIs who experienced a qualifying event on or after Sept. 1, 2008 and before the effective date of HB 2433 and either did not elect or whose continuation coverage ended, e.g., lapse due to nonpayment, and/or expiration of six month coverage period.
• Specifies that enrollees who take advantage of the second election opportunity be treated as having continuous coverage for purposes of calculating creditable coverage.
• Insurers subject to continuation of coverage provisions are now required to provide a notice explaining state continuation of benefits directly to individuals losing group coverage, for any reason other than replacement of their group coverage, within ten days following the date of any administrative action taken by an insurer to initiate or document the loss of coverage.
How Supervisors can Communicate More Effectively to Help Improve Job Performance
One key way to help employees improve job performance is by tailoring your communications to match their motivational triggers. Employees are motivated by either intrinsic values like goal achievement, doing a job well, or garnering recognition, or by extrinsic values based on conditions reflected by such statements as “If I don’t do my job well, I may not get a raise” or “If I don’t perform well, others will complain.” A combination of these factors often motivates employees, but a predominant style can usually b identified. Take time to learn what motivates your employees and you’ll improve your communication in ways that will increase their productivity. When communicating with employees, be sure to describe what changes you expect so that employees know what you want. Some employees need visual communication – a written note from you or a diagram, for example. Others need more discussion and verbal processing to grasp the results you want from them. And the simplest rule of all: Ask your employees what works best for them in communication. They’ll tell you.
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