As open enrollment approaches, employers with group health plans face a range of compliance requirements. From mandatory notices to employee communications, careful preparation helps prevent costly mistakes. Here are five key compliance areas to prioritize.
1. Regulatory Notices and Disclosures
Employers must distribute specific notices and disclosures alongside open enrollment materials, ensuring delivery aligns with applicable distribution rules.
Timing matters: Certain notices, such as the Children’s Health Insurance Program (CHIP) Notice and the Women’s Health and Cancer Rights Act (WHCRA) Notice, must be distributed prior to the start of open enrollment to ensure employees have the information needed to make informed decisions.
Distribution requirements: Employers must follow regulatory guidelines for how notices are delivered, whether electronically or in paper form. They must also ensure proper accessibility for all eligible participants.
Annual review: It’s important for employers to review notice obligations each year to confirm that materials are up to date and in compliance with current regulations.
Documentation: Employers should maintain records of when and how notices were distributed to demonstrate compliance in the event of an audit or inquiry.
Proper notice distribution not only fulfills the employer’s compliance obligations, but it also promotes informed decision-making for employees.
2. ACA Offer of Coverage
Employers subject to the Affordable Care Act’s (ACA) employer mandate must offer affordable, minimum-value coverage to all full-time employees and their dependent children. Employers must also be mindful to not overlook certain employee groups such as interns, temporary staff, or variable hour employees that may meet the definition of a full-time employee.
Eligibility oversight: Employers should review their workforce classifications to confirm that full-time employees, including interns and temporary workers who meet eligibility criteria, are offered timely coverage.
Affordability threshold: Coverage offered to full-time employees must be affordable based on the IRS-defined thresholds, which are updated annually.
Safe harbors: Employers may use the W-2, rate-of-pay, or federal poverty level safe harbors to determine affordability.
Minimum value: Coverage offered must pay at least 60% of the total allowed cost of benefits. This can usually be confirmed via plan documents, the plan carrier or third-party administrator.
Thorough eligibility reviews and inclusive enrollment practices help employers to avoid penalties and support compliance with federal requirements.
3. FSA/HSA Interaction
Employers offering both health flexible spending accounts (FSA) and health savings accounts (HSA) must carefully manage eligibility rules to avoid disqualifying employees from HSA contributions.
Disqualifying coverage: Unless the FSA is a limited-purpose FSA (covering only dental and vision expenses), employees enrolled in a health FSA cannot contribute to an HSA.
Grace periods and carryovers: Funds remaining in a general-purpose FSA, even via a grace period or carryover, can disqualify HSA eligibility unless properly transitioned to a limited-purposes FSA.
Communication is key: Employers should clearly explain these plan interactions and offer employees the option to waive FSA carryovers if they wish to contribute to an HSA.
Proper plan design and employee education is essential to avoid inadvertent tax penalties for plan participants.
4. Dependent Verification
Verifying dependent eligibility is both an ERISA fiduciary responsibility and a practical cost-containment strategy for employers.
Preventing ineligible coverage: Covering individuals who do not meet eligibility criteria can expose both the employer and employee to financial and legal risk.
Audit opportunities: Open enrollment is an ideal time to verify newly added dependents or conduct a broader audit to confirm ongoing eligibility.
Consistent documentation: Employers should collect verification documents (e.g., birth certificates, marriage licenses) using a standardized process to ensure fairness and avoid potential discrimination claims. Employers should also note that sometimes plan terms require collection of documentation (e.g., a domestic partner affidavit).
Plan alignment: Definitions of “dependent” should be consistent across plan documents and enrollment materials to prevent coverage disputes and administrative errors. Employers should also align eligibility definitions with carrier requirements to prevent claim denials.
A consistent and well-documented verification process helps safeguard plan integrity, ensures benefits are provided only to eligible individuals, and protects all parties from unnecessary risks.
5. Employee Communications
Clear, timely communication is essential to a successful and compliant open enrollment process.
Multi-channel strategy: Employers may want to use a combination of communication methods (e.g., email, intranet, webinars, town halls, etc.) to effectively reach employees.
Plain language: It is important for employers to present benefit options and changes in clear, simple terms to help employees understand their choices and responsibilities.
Enrollment timeline: It is recommended for employers to provide communications well in advance of open enrollment and continue reminders and support throughout the open enrollment period.
Coverage changes and exceptions: Clear communication around any plan changes, coverage limitations, or exceptions is critical to a successful open enrollment. If mistakes occur during enrollment, employers should have a documented process for resolving errors fairly and consistently, while maintaining compliance with plan rules. For example, employers may allow employees to make changes to their elections prior to the start of the coverage period for any reason. However, once the plan year begins, changes generally require a qualifying life event under IRS rules.
Transparent communication gives employees confidence in electing their benefits, helping them feel informed and supported throughout the enrollment process.
Open enrollment is more than a logistical exercise; it also serves as a critical compliance checkpoint. By proactively addressing these five areas, employers can reduce risk, enhance employee experience, and fulfill their fiduciary duties. As regulations evolve, staying informed is key to maintaining a compliant and competitive benefits program.
How Sequoia Helps
Sequoia supports employers during open enrollment by streamlining compliance through expert guidance, practical tools, and proactive checks. For example, we provide required legal notices with instructions for proper distribution, offer resources to navigate ACA requirements, and help clarify FSA/HSA interactions to avoid disqualifying employees from making HSA contributions.
Employers also benefit from sample communication templates, educational materials, and a robust compliance checklist tool. Additionally, Sequoia conducts multiple compliance checks at renewal and ongoing throughout the plan year, to help ensure plans remain compliant with current regulations and utilize best practices. Employers are encouraged to contact us with any questions or requests for assistance during the open enrollment season.
Connect with a Sequoia consultant to learn how Sequoia’s compliance services are integrated in our benefits services and tailored solutions. And if you’re already a Sequoia client, stay on top of your employer obligations with your Compliance Checklist that highlights important compliance dates, action items, and resources.
The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog. © 2025 Sequoia Consulting Group. All Rights Reserved.
