29 May Premium Credits Related to COVID-19 – ERISA Fiduciary Rules
The COVID-19 pandemic has significantly decreased health care utilization, as health care providers and patients have canceled appointments and postponed elective procedures.
Because employees are not using their insurance benefits, some group medical, dental and vision carriers are providing employers with a credit against future premiums owed under their insurance contracts.
Employers receiving these premium credits should consider their fiduciary obligations under ERISA when determining how to apply the credits. Any credit amount that qualifies as a plan asset under ERISA must be used for the exclusive benefit of the plan’s participants.
Department of Labor (DOL) guidance on medical loss ratio (MLR) rebates generally indicates that employers must share the premium savings with plan participants based on their plan’s contribution strategy. This means that, if the employer and participants both contribute to the premium cost, the premium credit should be shared with plan participants. For example, the credit could be shared with participants in the form of a premium holiday, reduced payroll deductions or benefit enhancements.
In addition, ERISA’s fiduciary duty rules prohibit employers from retaining employees’ payroll deductions for plan premiums. These contributions must be used for paying plan benefits and expenses, and not for the employer’s own purposes. To comply with ERISA, employee contribution amounts must be forwarded to the carrier within 90 days or placed in a trust account.
Employers that receive premium credits should comply with ERISA’s fiduciary duty rules when using the credits and administering employees’ payroll deductions for plan premiums.
- Employers that receive premium credits from carriers must comply with ERISA’s fiduciary rules.
- Any portion of the premium credit that is a plan asset must be used for the exclusive benefit of plan participants.
- The DOL’s rules for MLR rebates provide guidance on determining whether the credit (or any portion of the credit) is a plan asset.
- Any employee contributions must be used for proper plan purposes and cannot be retained by the employer for its own use.
- Most employee benefit plans sponsored by private-sector employers are subject to ERISA.
- Employee benefit plans sponsored by government and church employers are exempt from ERISA.
- There are also exemptions for certain payroll practices and voluntary plans.
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