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ERISA Compliance: Monitoring Service Providers


        ERISA Compliance: Fiduciary Responsibilities

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An employer should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using the current service providers or look for replacements.

When monitoring service providers, employers should:

     • Review the service providers’ performance

     • Read any reports they provide

     • Check actual fees charged

     • Ask about policies and practices (such as a TPA’s claims processing systems)

     • Ensure that plan records are properly maintained

     • Follow up on participant complaints

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans maintained by private-sector employers. ERISA includes requirements for both retirement plans (for example, 401(k) plans) and welfare benefit plans (for example, group health plans). ERISA has been amended many times over the years, expanding the protections available to welfare benefit plan participants and beneficiaries.

ERISA includes standards of conduct for those who manage an employee benefit plan and its assets, who are called “fiduciaries.” This Legislative Brief includes a set of frequently asked questions (FAQs) to help employers understand the basic fiduciary responsibilities applicable to group health plans under ERISA.


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ERISA Compliance: Maintaining the Plan’s Benefits Claims Procedure


        ERISA Compliance: Fiduciary Responsibilities

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Under ERISA, group health plans must establish and maintain reasonable claims procedures that allow participants and beneficiaries to apply for and receive the plan’s promised benefits. Fiduciaries must maintain the plan’s procedures. DOL regulations provide minimum standards for benefit claims determinations for ERISA plans (including insured and self-funded plans). While many plans hire benefits professionals or insurance companies to process claims, it is important for an employer to understand the requirements before selecting a service provider who can comply with the standards.

A claim for benefits is a request for a plan benefit made in accordance with the plan’s procedures by a claimant (participant or beneficiary) or a claimant’s authorized representative. Questions concerning plan benefits, coverage and eligibility questions, and casual inquiries are generally not considered claims for benefits.

The key issues to become familiar with are the timeframes for deciding claims, the contents for the notices of benefit denials and the standards for appeals of benefit denials. More information on the benefit claims procedures for group health plans is available on the DOL’s webpage for health plan compliance assistance.

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans maintained by private-sector employers. ERISA includes requirements for both retirement plans (for example, 401(k) plans) and welfare benefit plans (for example, group health plans). ERISA has been amended many times over the years, expanding the protections available to welfare benefit plan participants and beneficiaries.

ERISA includes standards of conduct for those who manage an employee benefit plan and its assets, who are called “fiduciaries.” This Legislative Brief includes a set of frequently asked questions (FAQs) to help employers understand the basic fiduciary responsibilities applicable to group health plans under ERISA.


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ERISA Compliance: Are there some transactions that are prohibited?


        ERISA Compliance: Fiduciary Responsibilities

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Certain transactions are prohibited under ERISA to prevent dealings with parties who may be in a position to exercise improper influence over the plan. In addition, fiduciaries are prohibited from engaging in self-dealing and must avoid conflicts of interest that could harm the plan.

Prohibited parties (called parties-in-interest) include the employer, the union, plan fiduciaries, service providers and statutorily defined owners, officers and relatives of parties-in-interest. Some of the prohibited transactions are:

     • A sale, exchange or lease between the plan and party-in-interest

     • Lending money or other extension of credit between the plan and
     party-in-interest

     • Furnishing goods, services or facilities between the plan and party-in-interest

Other prohibitions relate solely to fiduciaries who use the plan’s assets in their own interest or who act on both sides of a transaction involving a plan. Fiduciaries cannot receive money or any other consideration for their personal account from any party doing business with the plan related to that business.

ERISA includes a number of exemptions that provide protections for the plan in conducting necessary transactions that would otherwise be prohibited. The DOL has authority to grant additional exemptions. ERISA includes exemptions for many dealings that are essential to the ongoing operations of the plan. One of these exemptions allows the plan to hire a service provider as long as the services are necessary to operate the plan and the contract or arrangement under which the services are provided and the compensation paid for those services is reasonable.

The exemptions issued by the DOL can involve transactions available to a class of plans or to one specific plan. Both class and individual exemptions are available on the DOL’s webpage for technical guidance for employee benefit plans. More information on applying for an exemption is available in the DOL’s Exemption Procedures under Federal Pension Law. This publication and the procedures also apply to group health plans.

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans maintained by private-sector employers. ERISA includes requirements for both retirement plans (for example, 401(k) plans) and welfare benefit plans (for example, group health plans). ERISA has been amended many times over the years, expanding the protections available to welfare benefit plan participants and beneficiaries.

ERISA includes standards of conduct for those who manage an employee benefit plan and its assets, who are called “fiduciaries.” This Legislative Brief includes a set of frequently asked questions (FAQs) to help employers understand the basic fiduciary responsibilities applicable to group health plans under ERISA.


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How Can You Control Your Modification Factor?


        Understanding Your Modification Factor

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Your mod factor has a direct impact on your workers’ compensation premium. The key to controlling your insurance costs is accident prevention.

     • The mod is calculated based on data reported to the rating bureau by
     past insurers. Incorrect or incomplete data can cause incorrect mod factors.
     Review loss and payroll data to ensure the calculation is complete and accurate.

     • Losses remain in the experience rating formula for three years.
     The experience modification factor is influenced more by small, frequent
     losses than by large, infrequent ones.

     • Develop a sound safety program, return to work program and appropriate
     prevention procedures to reduce loss frequency.

     • An effective self-inspection and accident investigation program are
     critical to managing claim frequency.

     • Implement an active claims management program to manage
     outstanding reserves and focus on efficiently resolving open claims.

     • Report all claims to your carrier immediately.

     • Take an aggressive approach to providing light duty to all injured
     employees upon their release
from treatment.

     • Set safety performance goals for supervisory roles. Success in achieving
     safety goals should be used as one measure during performance appraisals.

     • Train employees on their responsibilities for safety, and enforce violations.

     • Frequently communicate with employees on a formal and informal
     basis regarding the importance of safety.

A key to understanding your workers’ compensation premium is the experience modification factor, also known as your mod. Understanding your company’s mod and the data used to obtain it helps you identify ways to minimize your workers’ compensation premium.

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Commonly Asked Questions on Your Modification Factor


        Understanding Your Modification Factor

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Who Calculates the Mod Factor?

Most states use the National Council on Compensation Insurance (NCCI) to collect data and calculate the experience modification factor. NCCI is a private corporation funded by member insurance companies.

However, the following states have their own independent rating bureaus that are separate from the NCCI:

     • California

     • Delaware

     • Indiana

     • Massachusetts

     • Michigan

     • Minnesota

     • New Jersey

     • New York

     • North Carolina

     • Pennsylvania

     • Wisconsin

     * Texas is in the process of transferring from an independent bureau
        to the NCCI system.


How is a Mod Calculated?

The process of calculating the experience modification factor is complex, but the underlying theory and purpose of the formula is straightforward. Your company’s actual losses are compared to its expected losses by industry type. The formula incorporates factors that account for company size, unexpected large losses and the incidence of loss frequency and loss severity to achieve a balance between fairness and accountability.

Understanding your company’s mod and the data used to obtain it helps you identify ways to minimize your workers’ compensation premium.


How does my mod affect my premiums?

The mod factor represents either a credit or debit that is applied to your workers’ compensation premium. A mod factor greater than 1.0 is a debit mod, which means that your losses are worse than expected and a surcharge will be added to your premium. A mod factor less than 1.0 is a credit mod, which means losses are better than expected, resulting in a discounted premium.


How do your losses compare?

The final mod calculation compares your actual primary and excess loss figures to those expected for a company of the same size and industry type. There are advantages to understanding how workers’ compensation losses in your business compare to state industry averages.

A key to understanding your workers’ compensation premium is the experience modification factor, also known as your mod. Understanding your company’s mod and the data used to obtain it helps you identify ways to minimize your workers’ compensation premium.

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Safety Coordinator Responsibilities



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The Safety Coordinator is responsible for implementation and compliance with the safety and health policy of a business and is accountable for results as measured by criteria, such as incident rates.

Safety Coordinator Responsibilities include:

1.) Resolve questions, approve and/or recommend necessary expenditures to
     correct unsafe conditions.

2.) Make regular shop, warehouse, office and grounds job site tours and
     safety inspections to determine if safe work practices are being observed;
     and to ensure that unsafe conditions do not exist.

3.) Actively participate and follow the company’s safety and health programs.

4.) Plan, coordinate, perform or delegate all safety training and testing
     given to supervisors and employees. Review results to be sure
     they are satisfactory. Maintain appropriate training
     and testing records.

5.) Review disciplinary actions with employees.

6.) Perform select safety inspections, and review safety inspection reports
     and unsafe conditions reported by supervisors, employees or others.
     Make or obtain corrections as required to maintain a safe workplace
     and ensure compliance.

7.) Conduct regular safety meetings with employees to promote safety
     awareness and compliance with the safety and health policies.

8.) Ensure safety awareness among workers through regular meetings.

9.) Ensure compliance with safe work practices and company safety rules.
     Take appropriate disciplinary action to ensure compliance. This
     includes safe working procedures in flange and fitting machine shop
     operations; saw shop operations; the warehouse; yard and office operations.

10.) Investigate accidents and assist with completion of accident report
     forms when required.

11.) Review reports of first aid incidents and reportable injuries to
     determine possible preventative actions. Take immediate corrective
     actions as required.

12.) Ensure that specific programs, such as hazard communication, protection
     from bloodborne pathogens, hearing conservation, forklift
     safety/operator certification, are implemented and complied with consistently.

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Independent Contractors Protection against Misclassification:


        Employee or Independent Contractor?

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Companies wishing to hire an independent contractor should be aware of common mistakes in order to avoid potential penalties. An independent contractor agreement is a good first step. This document should contain a description of the services the individual will perform, how long the task should take and how the person will be paid. This agreement can serve as evidence of the person’s intended status with the employer should an investigation ever arise.

It is also wise to screen independent contractors before hiring them to complete a project. It’s best to develop a formal interview questionnaire to obtain the information needed to prove the person’s status. Here are some good questions to ask:

1. Do you have a legal entity established for your business?

2. Have you filed a fictitious business name (doing business as…)?

3. What is the address and telephone number of your business?

4. How many employees do you have?

5. What professional licenses do you hold?

6. How do you market yourself to obtain new business?

7. What type of equipment and supplies do you currently own to complete work?

8. What additional equipment and materials will you need to complete the task and how do you plan to obtain said materials?

9. What type of insurance coverage do you possess to cover your business?

10. Can you provide professional references?

While hiring an independent contractor provides many advantages to companies, it imperative that employers document and update records that can prove an individual’s status as an independent contractor. The pivotal detail to remember is that as the employer’s control increases, the likelihood that the individual can be classified as an independent contractor decreases. For this reason, it pays to be highly scrupulous when deciding to hire someone as an independent contractor.

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors Determining Classification: Labor Relations


        Employee or Independent Contractor?

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The National Labor Relations Act (NLRA) specifically excludes contracted persons as employees. As a result the National Labor Relations Board (NLRB) also developed several determinants to decide whether an individual is considered an employee or an independent contractor. The NLRB’s determinants focus on whether the employer has the right to control and provide direction for the work completed by asking:

     • How integral is the task to the business (part of
     continuous product or specialized assistance)?

     • How is the individual compensated (wages versus
     contracted amount)?

     • Does the employer have the right to discipline the individual?

     • To what extent can the employer supervise the work?

     • What is the nature of the skill required to the complete the
     tasks? Is this skill specialized and not commonplace within the company?

     • Does the individual work for other clients or advertise his or her
     services
as a business?

     • Can the individual profit from completing the task?

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors Determining Classification: Wage and Hour Issues


        Employee or Independent Contractor?

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Under the Fair Labor Standards Act (FLSA), the federal courts apply a six point test to determine whether an individual is considered an employee or an independent contractor. This test also focuses on how much control an employer has over an individual. Under the FLSA, federal courts consider the following:

1. Nature and degree of control the employer has over the individual

2. The individual’s opportunity for profit and loss

3. The individual’s investment in the business

4. The length of the relationship between the company and the individual

5. The skills needed to perform the task

6. The amount in which the individual’s work affects the company’s business

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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Independent Contractors Determining Classification: Retirement Issues


        Employee or Independent Contractor?

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The Supreme Court has ruled that the common law test also determines whether an individual is considered an employee for the purpose of the Employee Retirement Income Security Act of 1974 (ERISA), stating that it would consider the following in determining if someone is eligible for retirement benefits:

     • Employer rights to control how and with what resources tasks are completed

     • Skills necessary to complete the task

     • Materials used to complete the task

     • Locations at which the work is done

     • Length of the relationship between the company and the individual

     • Employer ability to assign additional tasks to the individual

     • Amount of discretion concerning when and for how long an individual will work

     • Payment methods

     • Employer involvement in hiring and paying assistants

     • Whether tasks are considered part of the individual’s regular business

     • Whether the individual provides services as part of his or her own business

     • Whether employee benefits are allocated to the individual

     • Whether the employer pays taxes on behalf of the individual

Hiring an independent contractor offers employers many advantages. Unlike for traditional employees, employers do not pay taxes on independent contractors’ wages, and are not expected to provide benefits. Employers often save 30 to 40 percent on labor costs by using independent contractors. In addition, as independent contractors are generally hired for a specific period or project, employers have no obligation to rehire them after each contract period or project is complete.

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