Essential Takeaways
Maneuvering employee benefits compliance doesn’t have to feel overwhelming. Here’s what you need to know:
- Documentation gaps remain the most common violation, costing companies thousands of dollars in penalties when plan documents do not match actual practices.
- ACA reporting errors continue to trigger IRS notices, especially regarding measurement periods and variable-hour employees.
- COBRA administration mistakes happen more frequently than most HR teams realize, particularly around notification deadlines.
- Non-discrimination testing failures often surface during audits because companies wait too long to address participation imbalances.
- HIPAA privacy breaches can occur through seemingly minor oversights in benefits communication and data handling.
Employee benefits compliance has not been getting any easier lately. Between ERISA, ACA, COBRA, HIPAA, and state-specific regulations, even experienced HR professionals are finding themselves in an increasingly complex environment. One missed deadline or overlooked requirement can result in significant penalties, not to mention the stress of an audit.
The good news is that most compliance pitfalls are preventable when you know what to watch for. Here is a look at the most common mistakes we see and, more importantly, how you can avoid them.
Missing or Outdated Plan Documents
Here is a scenario that plays out more often than it should: A company updates its health plan, adding telehealth benefits or changing its cost-sharing arrangements. The benefits team communicates the changes to employees, and everything seems fine… until an audit reveals that the official plan documents were never amended to reflect the updates.
This disconnect between what you’re actually doing and what your plan documents say you’re doing can create considerable compliance exposure. The Department of Labor takes plan document accuracy very seriously, and your penalties can add up quickly.
How to avoid it: Schedule quarterly plan document reviews instead of just planning annual ones. Any time you make a change to benefits, create a checklist that includes updating all related documents. Your summary plan descriptions, wrap documents, and carrier contracts must all be in alignment. Consider working with employee benefits consulting professionals who can help you maintain this documentation systematically.
ACA Reporting Errors and Measurement Period Confusion
The Affordable Care Act’s reporting requirements still trip up many organizations, particularly regarding Forms 1094-C and 1095-C. Employees who work variable hours pose a special challenge. We’ve seen companies incorrectly calculate hours, misapply measurement periods, or simply miss the filing deadlines altogether.
These mistakes are not just administrative nuisances; they trigger IRS penalty assessments that can reach into six figures for larger employers.
How to avoid it: Use a tracking system that monitors your employees’ hours in real time, rather than trying to reconstruct data later. Document your measurement period methodology clearly and apply it consistently. If you use multiple payroll systems or your organization has acquired other companies, pay careful attention to how you aggregate data. Run test reports well ahead of the deadline so you have time to fix errors.
COBRA Administration Failures
COBRA administration seems straightforward until you’re in the middle of it. The tight timelines create problems. Employers have 30 days to notify the plan administrator of a qualifying event, and the plan administrator must then notify qualified beneficiaries within 14 days. Miss either deadline, and you’ve committed a violation.
We also see confusion about who qualifies for COBRA, how long coverage must be offered, and what constitutes proper notification. Some companies still send COBRA notices by regular mail without proof of delivery, which does not provide any protection if an employee claims they never received it.
How to avoid it: Automate your COBRA administration wherever possible. Choose certified mail or electronic delivery that confirms receipt. Set up a COBRA calendar to track all deadlines for each qualifying event. Train your HR team on qualifying events beyond just termination and retirement, including reductions in hours, divorce, and loss of dependent status. When in doubt, offer COBRA coverage. It is better to offer it unnecessarily than to deal with penalties for failing to offer it when required.
Non-Discrimination Testing Oversights
Cafeteria plans, health FSAs, and self-insured medical plans require non-discrimination testing, but many companies forget to conduct these tests or find problems too late to fix them easily.
The consequences are not just theoretical. Failing testing means you need to either restructure your benefits to achieve compliance or handle potential tax implications for highly compensated employees. Neither option is pleasant to explain to your CFO or executive team.
How to avoid it: Run preliminary non-discrimination tests before the plan year starts. That way, if your testing points to potential problems, you’ll have time to adjust your plan design or eligibility requirements. Monitor your participant demographics throughout the year, especially during periods of significant hiring or turnover. Consider broadening participation through employer contributions or adjusting eligibility requirements to improve your testing results.
HIPAA Privacy Violations in Benefits Administration
HIPAA compliance in benefits administration goes beyond just medical providers. Every time you handle protected health information, such as processing leave requests, managing FSA claims, or even discussing coverage options, you are subject to HIPAA requirements.
Common violations businesses encounter include discussing employee health information in open office areas, sending unencrypted emails containing protected health information, and failing to establish proper business associate agreements with vendors that handle health data.
How to avoid it: Conduct regular HIPAA training that goes beyond the basics. Create clear protocols for handling protected health information in your benefits administration. Audit your vendor relationships to make sure all business associate agreements are up to date and thorough. In communications about benefits, be sure to separate health information from other HR matters. Consider limiting access to the business’s health-related information.
Prevention Makes All the Difference
Compliance mistakes can be very costly, but they’re also preventable with the right approach. Start by carrying out a thorough audit of your current practices. Identify any gaps in your documentation. Review your benefits administration processes, particularly in the high-risk areas we’ve discussed.
Most importantly, don’t try to manage all of this alone. The regulatory environment is constantly changing, and staying current while managing your day-to-day responsibilities can stretch even the strongest HR teams.
Partner With BBG for Compliance Confidence
For nearly three decades, BBG has helped organizations handle the complexities of employee benefits consulting and compliance. Our team stays current on regulatory changes so you don’t have to, and we offer ongoing support to keep your benefits programs compliant and your organization protected.
Let’s work together to reinforce your compliance framework. Contact BBG today to learn how our complete employee benefits consulting services can help you avoid these costly pitfalls and build a more secure future for your organization.