The Employee Retirement Income Security Act of 1974 (commonly referred to as ERISA) provides regulation that, if an employer “over pays” for benefits, the employer has the right to request overpayments within a period up to 12 months within the time the request has been made. However, Trust Funds may develop alternative rules, so it’s always best to review the policies of your Fund.
The auditor has viewed your records in connection with your reporting to the Health Trust; the payroll compliance verification is in the final fieldwork completion stages. As in past verifications, the auditor comes to you for an exit conference to discuss the preliminary findings. During the meeting, you are informed that an employee who did not meet the monthly hourly requirement had been reported to the Trust for over a year.
Your immediate thought? You must be able to get that money back, right? The answer is ‘maybe, maybe not.’ The reported contribution months are referred to as improper payments or unauthorized contributions, and the Trust should have a policy and procedure in place to deal with these payments. Knowing what those policies are in addition to the type of plan in which you participate will be the guide to answering your question.
Types of Plans
There are two different types of plans: The Self-Funded plan and the Non-Self-Funded plan. Depending on the one to which you report, it may affect the outcome if you request monies back.
In a self-funded plan, the contributions may have created eligibility and coverage for the employee and family (if family coverage is included). Claims processed and paid were based upon this eligibility listing, which now has been shown to be incorrect. Even if no claims were paid, the Trust assumed the risk of exposure to claims made.
In the self-funded plan, a policy and procedure should be in place to evaluate the effect of the unauthorized contribution. The policy should be clear and precise, focusing on both the research into claims payment histories and refund policy. Refunds generally are considered only after a request for refund has formally been made by the contributing employer. Trust policy will dictate if a refund is acceptable if no claims were submitted.
If a claims search shows that the employee or the employee’s dependent utilized the coverage through a claims submission, then the Trust not only assumed the risk of claims exposure but has incorrectly paid out monies. Your Trust policy should directly address the procedures in such an instance—the dollar amount of improper payments needs to be addressed. If the claims paid are less than or equal to the unauthorized contributions, most Trusts will not allow the refund. If the claims paid exceed the contributions submitted, many Trusts seek restitution from the improperly contributing employer.
In a non-self-funded plan, the Trust Fund receives the monthly contribution for employees’ benefits, then pays a premium to the respective health care entity (such as Regence, Kaiser, United Care, etc.) for those employees to be able to use those benefits. Claims processed, as in the self-funded plan, would have been adjudicated based upon improper eligibility. Policies and procedures covering improper eligibility in these plans should still be in place, but some carriers won’t allow adjustments beyond a 12-month period, with the adjustment allowed only if no claims/services were provided.
Food for Thought
Our health care system is currently in turmoil, leaving us with a dilemma in the unauthorized contributions area. The Affordable Care Act (ACA), generally referred to as Obama Care, provides that coverage cannot be retroactively rescinded except in cases of fraud or intentional misrepresentation of material fact. It is rare to think of a Trust where, if an employer remits unauthorized contributions, the carrier doesn’t delete coverage upon notification of the ‘error.’ It usually is not an issue because they don’t refund mistaken (or purposeful) contributions if eligibility was provided, regardless of whether claims were paid or not.
The goal for all employers is to be knowledgeable about the Fund in which you participate, and to create a system that ensures accurate monthly reporting so that improper payments don’t occur.
Deanna Rothschild is a payroll compliance manager in Lindquist LLP's Orange office. She has 10 years of experience in the employee benefit plan sector, including payroll compliance testing. She currently manages payroll compliance programs for 19 trust funds. Deanna holds a Bachelor of Science degree in Accounting and Finance from California State University, Chico. She can be reached at (714) 257-0100 or email@example.com.
Rick Sutton is a payroll compliance director in Lindquist LLP's Portland office. He has continuously practiced accounting since he joined the American Institute of Certified Public Accountants (AICPA) in 1980. His primary areas of emphasis have been payroll compliance testing for Taft-Hartley funds and working with insurance professionals in the analysis of insurance claims. Rick holds a Bachelor of Accountancy from Walsh College in Troy, Michigan. He can be reached at (971) 532-6300 or firstname.lastname@example.org.