Objectives and Consequences
Objectives
The goal of your audit should be to ensure your employees understand the Plan’s eligibility requirements, remove those who are ineligible from the Plan, and identify ways to continue managing your Plan. The objectives of your audit should be considered when developing your approach and potential consequences for employees.
For example, if the goal of your audit is simply to remove ineligible dependents from the plan(s) and not to create “hard feelings” among employees, it may be best to use a softer approach that encourages the employee to come forward at any point of the process and voluntarily remove an ineligible dependent. Softening consequences for an employee who mistakenly thought his/her dependent met the qualifications or simply forgot to remove someone from coverage will encourage him/her to come forward to remove that dependent.
If the goal of your audit is strictly compliance driven, in regard to maintaining coverage for only those dependents who are eligible, you may determine those employees’ consequences should be stronger.
Consequences
Regardless of the consequences you choose to impose, you do need to consider how you will administer them. This can become very difficult in cases where strict consequences, such as retroactive terminations or required repayment of claims paid/employer portion of coverage premiums, for covering ineligible dependents are used.
A compromise may be to include language of possible consequences in multiple audit communications, thereby making the employees aware of possible action regardless of your intent to follow through on them.
We strongly recommend that you discuss any consequences to be imposed in relation to an audit with your legal and ERISA counsel, as appropriate, before beginning an audit.
