Most benefits compliance problems come from small gaps during open enrollment and don’t surface until the first payroll of the new plan year.
By then, fixing them means corrected paychecks, coverage disputes, and reporting errors.
Below are five of the most common ones, why each one creates compliance exposure, and what to do about it while there’s still time.
The good news: many of these problems can be corrected through better administration, reconciliation, and documentation rather than a full plan redesign.
1. Exceptions That Don’t Match the Plan Document
Open enrollment brings a steady stream of reasonable-sounding exception requests. An employee misses the deadline while traveling, and their manager asks HR to add them a week later. Someone sees their first January paycheck and wants to drop from family to employee-only coverage, with no qualifying event. One office gets a deadline extension by email that the other locations never hear about.
Each feels like good service in the moment, and that’s what makes them risky. ERISA-covered benefit plans generally must be administered in accordance with their governing plan documents, and Section 125 cafeteria plan elections generally cannot be changed during the plan year unless the change is permitted under applicable IRS rules and the plan’s written terms. A well-intentioned one-off exception can create compliance and administrative problems.
The fix: Put your open enrollment policy in writing, and make sure HR, managers, and your broker give the same answers on:
- What happens to employees who don’t respond by the deadline.
- Who can approve a late election, if anyone, and whether the plan allows the requested election and, if so, what documentation and timing requirements apply.
- Whether employees who decline coverage sign a waiver, and where it’s kept.
2. Outdated Eligibility Records
Part-timers drift toward full-time hours, contractors get converted, and new hires sit in waiting periods. For Applicable Large Employers under the ACA, eligibility tracking requires particular attention. An employer generally qualifies as an ALE when it averaged at least 50 full-time employees, including full-time-equivalent employees, during the prior calendar year. For ACA purposes, an employee is generally considered full-time if they average at least 30 hours of service per week or 130 hours per month.
Failing to offer coverage to an eligible employee can trigger an employer shared responsibility penalty. And because the same hours data feeds Form 1095-C reporting, eligibility mistakes can also create ACA reporting issues because ALEs must report information about the coverage offered to their full-time employees.
The fix: Compare a current payroll roster to the eligibility list your carrier is using, and flag anyone whose hours or status changed this year. If the review identifies employees who may have become eligible, confirm their status under the plan’s eligibility terms and the employer’s ACA measurement method, if applicable, and make any required offer of coverage on a timely basis. Our mid-year HR compliance review is a good framework for that work.
3. Enrollment Materials That Contradict the Plan
Enrollment guides and benefits slides often get recycled from last year with a few edits. If those materials don’t match the governing plan terms, insurance documents, or required disclosures, employees may make enrollment decisions based on inaccurate information, creating both compliance and employee-relations risk.
But inaccurate or inconsistent benefit communications can create ERISA compliance concerns, employee disputes, and potential liability. The ACA also imposes specific content and distribution requirements for Summaries of Benefits and Coverage (SBCs), making accuracy especially important.
The fix: Check every employee-facing material against the current plan documents and carrier summaries. Mismatches tend to hide in a few places:
- Renewal changes. Deductibles, copays, and out-of-pocket maximums that changed at renewal but still show last year’s figures.
- Employee contributions. Per-paycheck costs calculated on the wrong pay frequency, or rates that don’t match what payroll will actually deduct.
- Eligibility rules. Waiting periods, dependent age limits, and spousal coverage rules described differently than the plan document says.
- Broker and vendor decks. Slides from a broker or benefits platform that use generic language instead of your plan’s actual terms.
If you find an error after materials have gone out, send a written correction to everyone who received them and keep a copy. Then route benefits questions to HR instead of having managers answer from memory.
4. Employees on Leave Who Miss Enrollment
Employees on protected FMLA leave generally must receive continued group health coverage under the same terms and conditions that would have applied had they continued working, including the benefit of plan changes that occur during leave. California employers also need to account for CFRA’s benefit-continuation requirements.
But employees on leave aren’t at the benefits meeting and may not be checking work email. Failing to provide an employee on protected leave access to applicable benefit changes can create leave-compliance and interference risk.
The fix: For leave that’s scheduled, walk through open enrollment with the employee before it starts. For everyone else, send materials somewhere they’ll actually see them. In both cases, confirm how their premium share will be collected for any weeks they aren’t receiving a paycheck from you, and make sure their elections take effect on the same date as everyone else’s. Our guide to California leave compliance covers how these leave laws overlap.
5. Elections That Don’t Match Payroll
This is where benefits compliance and payroll compliance meet. Every election has to reach both the carrier and payroll. When the two don’t match, employees end up covered but not paying, paying but not covered, or missing pre-tax treatment they’re entitled to.
The fix: Before the plan year starts:
- Confirm your Section 125 cafeteria plan document supports the pre-tax deductions you’re running.
- Ask your plan administrator or benefits adviser whether preliminary Section 125 nondiscrimination testing is appropriate before year-end. If the plan fails applicable nondiscrimination requirements, certain highly compensated participants or key employees may face adverse tax consequences, depending on the test that is failed.
- Make sure your payroll and benefits systems has the IRS’s new-year limits for health FSAs, HSAs, and retirement plans.
- Schedule a check after the first January payroll comparing deductions to carrier enrollment for every employee.
Along the way, keep a dated record of every election, waiver, and exception. If a claim is denied because the carrier has no enrollment on file, or an employee says they never chose the coverage they’re paying for, that record is your answer. More on that in why documentation is the foundation of HR compliance.
Plan Strategic Fixes for the New Year
Open enrollment shows you where your benefits program is fragile, but it’s the wrong time to rebuild it. Once the plan year starts, use what you learned to fix the root causes:
- Turn your open enrollment policy and eligibility rules into a documented process that doesn’t depend on one person.
- Track ACA hours year-round so eligibility is current before enrollment, not discovered during it.
- Set a recurring reconciliation between carrier, payroll, and HR records instead of a once-a-year check.
- Revisit contribution strategy, plan design, and your broker relationship well ahead of next renewal.
Most mid-sized companies don’t have the internal bandwidth to take this on. Duffy Kruspodin’s HR services team serves as the strategic HR layer: diagnosing what broke this cycle, building the processes and documentation to prevent it, and coordinating with your broker and payroll provider so next year’s enrollment runs clean. Contact us to start planning for the new year.
