5 Common ERISA Compliance Mistakes Employers Should Avoid

By Sasha Bell

Managing a growing workforce involves navigating a range of responsibilities, including compliance with benefit regulations. Offering competitive benefits is essential for attracting and retaining talent, but understanding and adhering to the Employee Retirement Income Security Act (ERISA) requirements can be challenging for many employers.

ERISA establishes minimum standards for retirement and health benefit plans to protect employees. Compliance with ERISA requirements helps employers meet legal obligations, support employee satisfaction, and improve operational efficiency, and demonstrate prudent plan administration. Failure to comply with ERISA requirements may expose employers to regulatory scrutiny, civil penalties, corrective action, or litigation. This blog outlines five common ERISA compliance challenges and offers general strategies to address them.

Table of Contents

Mistake 1: Failing to Provide Summary Plan Descriptions

The Summary Plan Description (SPD) is the primary vehicle for informing participants about their plan benefits. Many companies assume they are compliant just by handing out an insurance carrier booklet, but this is a major oversight.

Insurance carriers provide benefit booklets that explain coverage details, but these booklets often do not contain all the legal provisions required for ERISA compliance. Employers often distribute these documents believing they have fulfilled their legal obligation. This creates a gap in compliance that audits quickly uncover.

Employers are responsible for ensuring that employees receive a complete and compliant Summary Plan Description (SPD). To support compliance:

  • Consider using an ERISA wrap document to include required legal language alongside carrier booklets.
  • Provide the SPD to new participants within 90 days of their plan coverage start date.
  • Keep your SPD updated. If there have been changes to the SPD, it must be restated five years from the last restatement date. If you have not made changes to the SPD, the DOL requires you to redistribute every ten years. and distribute SPDs every five years if plan amendments are made, or every ten years if no changes occur.
  • Implement automated onboarding processes to help ensure timely distribution of required documentation.

Mistake 2: Missing Form 5500 Filing Deadlines

Form 5500 is an annual report that provides the federal government with details about an employer’s plan financial conditions and operations. Missing the deadline for this filing may result in significant penalties when not corrected.

As companies scale, tracking deadlines across multiple benefit plans becomes more complex. Many HR managers also mistakenly believe that Form 5500 only applies to retirement plans. In reality, health and welfare plans with 100 or more enrolled employees, as defined by ERISA, must also file this form annually.  Without defined processes, missed deadlines can occur.

Staying on top of Form 5500 filing deadlines requires careful planning. Employers may consider the following steps to reduce the risk of late filings:

  • Determine which plans require Form 5500 filings based on participant counts at the start of the plan year. This may include certain employer‑paid or “basic” life insurance plans that are ERISA-covered.
  • Use automated reminders to track deadlines, which typically fall seven months after the plan year ends, subject to available extensions.
  • Work with a qualified vendor to assist with document preparation and filing.

Mistake 3: Mishandling Employee Contributions

When employees contribute portions of their paychecks to health, welfare, or retirement plans, those funds must be deposited into the plan trust promptly in accordance with ERISA’s timing requirements.

Administrative bottlenecks and disconnected systems frequently cause delays. If a payroll system does not feature seamless integration with an employer’s benefits platform, human error can easily slow down the transfer of funds. Delays beyond the earliest reasonable segregation date may raise compliance concerns and regulatory scrutiny.

Timely handling of employee contributions is a key aspect of compliance. Employers may consider the following practices:

  • Deposit employee contributions promptly, once they can reasonably be segregated from company assets.
  • Integrate payroll and HR systems to facilitate the timely transfer of funds.
  • Conduct periodic internal reviews to confirm that transfer times align with regulatory expectations.

Mistake 4: Neglecting Fiduciary Responsibilities

Under ERISA, individuals who manage plan assets or make decisions about the plan may be considered fiduciaries. Fiduciaries must act solely in the interest of plan participants and beneficiaries.

Business owners and HR leaders sometimes fail to realize they may be performing fiduciary functions. They might renew a plan without comparing costs or select a service provider without fully understanding the fee structure. When employers overlook these duties, they may increase the risk of fiduciary claims and adversely affect the financial health of the plan.

Employers can support compliance by implementing a structured approach to fiduciary responsibilities:

  • Establish a committee to oversee plan administration and investment decisions, where appropriate.
  • Maintain detailed records of committee decisions, including meeting minutes.
  • Periodically review service provider fees to assess their reasonableness.
  • Evaluate the potential benefits of fiduciary liability insurance for decision-makers.

Mistake 5: Poor Record Retention Practices

ERISA compliance demands meticulous record-keeping. Employers need to be able to demonstrate compliance if a government agency ever requests documentation.

Many growing companies rely on fragmented storage systems. Important plan documents might live on an old hard drive, in a physical filing cabinet, or in the email inbox of a former HR manager. When personnel changes happen or systems undergo updates, critical compliance records may become difficult to retrieve. A centralized and secure storage solution can help employers maintain compliance with record retention requirements.

  • Centralize all benefit plan documents in a secure, cloud-based platform.
  • Keep all records related to plan filings and disclosures for a minimum of eight years.
  • Ensure multiple authorized team members have access to the archives to reduce risk associated with employee turnover.

The Value of Proactive ERISA Compliance Management

A proactive approach to ERISA compliance may help reduce regulatory risk, promote operational consistency, and support effective plan governance. When employers streamline compliance-related processes, they build a more reliable foundation for plan administration and oversight. Navia’s compliance experts can help support employers build a secure compliance plan. Request a compliance quote today to get started.

FAQs

Q1. What Are the Most Common ERISA Compliance Mistakes Employers Make?

The most common ERISA compliance mistakes include failing to provide a complete Summary Plan Description (SPD), missing Form 5500 filing deadlines, mishandling employee contributions, neglecting fiduciary responsibilities, and poor record retention practices.

Many employers assume that distributing an insurance carrier booklet satisfies SPD requirements, or that Form 5500 only applies to retirement plans. Both are costly misunderstandings. Delays in depositing employee contributions, overlooking fiduciary duties when selecting plan providers, and storing benefit records across disconnected systems are also frequent issues that can trigger regulatory scrutiny or penalties.

A proactive compliance strategy helps reduce these risks and supports sound plan administration.

Q2. Is an Insurance Booklet the Same as a Summary Plan Description Under ERISA?

No. An insurance carrier booklet and a Summary Plan Description (SPD) are not the same thing. Carrier booklets explain coverage details but typically do not include all the legal provisions ERISA requires in an SPD. Distributing a carrier booklet alone does not satisfy your compliance obligation.

Employers are responsible for ensuring participants receive a complete, ERISA-compliant SPD. Many use a wrap document to add the required legal language alongside the carrier booklet. New participants must receive the SPD within 90 days of their coverage start date. Skipping this step is one of the first gaps auditors identify.

Q3. Who Needs to File Form 5500 for Health and Welfare Plans?

Form 5500 isn’t just for retirement plans. Health and welfare plans with 100 or more enrolled employees at the start of the plan year are generally required to file Form 5500 annually with the federal government.

Many employers overlook this requirement, assuming the form only applies to 401(k) or pension plans. That misunderstanding can lead to missed deadlines and significant penalties.

Filing is typically due seven months after the plan year ends, though extensions may be available. Employers should assess their filing obligations based on participant counts at the beginning of each plan year — including certain employer-paid life insurance plans covered under ERISA.

Q4. What Are ERISA Fiduciary Responsibilities for Employers?

Under ERISA, anyone who manages plan assets or makes decisions about a benefit plan may be considered a fiduciary. That includes business owners, HR leaders, and committee members — even if they don’t realize it.

Fiduciaries must act solely in the interest of plan participants and beneficiaries. In practice, this means:

  • Reviewing service provider fees regularly to confirm they’re reasonable
  • Documenting plan decisions, including meeting minutes from oversight committees
  • Selecting vendors carefully with a clear, documented process

Many employers unknowingly take on fiduciary roles without a structured approach in place. Setting up a plan oversight committee and considering fiduciary liability insurance can help reduce personal and organizational exposure.

Q5. How Quickly Must Employee Benefit Contributions Be Deposited Under ERISA?

Employee contributions to health, welfare, or retirement plans must be deposited as soon as they can reasonably be segregated from company assets. ERISA does not set a fixed number of days, but delays beyond the earliest feasible transfer date may trigger compliance concerns and regulatory scrutiny.

Disconnected payroll and HR systems are a leading cause of late deposits, as manual handoffs slow the transfer of funds. Integrating these systems and conducting periodic internal reviews can help employers stay on track. If your organization identifies a delay, corrective action should be taken promptly to limit potential exposure.

Navia and our staff’s suggestions or recommendations shall not constitute legal advice. No content on our website can be construed as tax or legal advice, and Navia may not be considered your legal counsel or tax advisor. Clients are encouraged to consult with their tax advisor and/or attorney to determine their legal rights, responsibilities, and liabilities. This includes the interpretation of any statute or regulation, federal, state, or local; and/or its application to the clients’ business activities.