Avoid These Costly SBC Mistakes in 2025: How to Stay 100% Compliant and Prevent Massive IRS Fines

Introduction: Why SBC Compliance Still Matters in 2025
If you’re offering group health coverage in the U.S. or Canada in 2025, there’s one compliance responsibility you cannot afford to overlook: the Summary of Benefits and Coverage (SBC). While many employers and brokers treat SBCs like routine paperwork, small mistakes can lead to major consequences — including IRS fines exceeding thousands of dollars per employee, per violation.

The good news? Staying compliant with SBC requirements isn’t rocket science. But it does demand attention to detail and awareness of common pitfalls that businesses — even well-meaning HR teams — often miss.

In this post, we’ll decode the top SBC mistakes to avoid in 2025, explain how to meet regulatory expectations, and show how to stay penalty-free. We’ll focus on requirements in both Canada and the United States, highlighting practical steps to help your organization remain compliant.

What Is an SBC, and Why Does It Matter?

The Summary of Benefits and Coverage (SBC) is a standardized document mandated by the Affordable Care Act (ACA) in the U.S. It’s designed to clearly explain what a health plan covers and what it costs, helping employees compare options easily. In Canada, while SBCs aren’t legislatively required in the same way, clear, transparent benefits communications are a key part of employment law and best practices.

Why You Should Care:

IRS penalties for failing to comply with SBC rules are significant. In 2025, fines can exceed $1,500 per participant, per failure.
Poor SBC delivery leads to employee confusion, HR complaints, and possible legal disputes.
Non-compliance sends the wrong message to employees about transparency and fairness.

Top SBC Mistakes to Avoid in 2025

These are the most common — and costly — mistakes organizations make. Avoiding them is your best defense against penalties.

1. Using Outdated SBC Templates

Each year, the U.S. Department of Labor and HHS updates the SBC template. Using a previous year’s version in 2025 automatically puts you at risk of non-compliance. Ensure your broker or administrator provides the latest 2025-compliant SBC format.

✅ Tip: The Department of Labor provides the official SBC templates updated annually.

2. Failing to Distribute SBCs at Required Times

This is one of the most frequent — and avoidable — violations. SBCs must be provided:

Upon initial enrollment
At open enrollment
When coverage changes
Upon request

Missing any of these triggers leaves you vulnerable to audits and fines.

3. Inconsistent Information Across Documents

What’s on your SBC must match what’s in your Summary Plan Description (SPD) and insurance certificates. Conflicting information confuses employees and exposes your company to disputes and penalties.

4. Not Tracking SBC Delivery

If the IRS or DOL audits you, you’ll need proof you provided SBCs correctly and on time. Verbal assurances won’t cut it.

Best Practices:

Document delivery dates.
Retain signed acknowledgments (paper or electronic).
Use trackable methods for distribution.

5. Assuming Brokers Handle Everything

Many employers wrongly assume their broker manages all SBC compliance. However, the legal responsibility rests on the employer, not the broker.

Collaborate with your broker, but confirm all steps yourself. Trust, but verify.

Comparison: SBC Requirements USA vs. Canada (2025)

Aspect	USA (ACA)	Canada (Best Practice)
Is SBC Mandatory?	Yes, under ACA	No legal SBC requirement, but clarity expected
Penalties for Non-Compliance	IRS fines per violation	Risk of labor disputes or legal claims
Distribution Rules	Strict timing required	Strong recommendation for transparency
Template Format	Standardized template provided by DOL	No standardized format, but clarity essential
Legal Focus	Consumer protection through clear choice	Employee satisfaction and retention

How to Stay 100% Compliant with SBC Rules in 2025

Step 1: Confirm You’re Using the Right Template

Every year, verify you’re working from the latest government-issued SBC format. The U.S. Department of Labor updates these frequently to reflect changes in regulations.

👉 Resource for U.S. Employers:
Department of Labor SBC Resources

Step 2: Implement a Clear SBC Process

Avoid last-minute scrambles by embedding SBC tasks into your annual HR compliance calendar.

Your Checklist:

✔ Gather updated SBCs from insurers or TPAs well in advance.
✔ Review for accuracy against plan documents.
✔ Schedule timely delivery at all required stages.
✔ Track distribution proof diligently.

Step 3: Educate Your HR & Benefits Team

Ensure everyone involved understands:

What an SBC is.
When it must be distributed.
The risks of non-compliance.

Regular training sessions reduce human error.

Step 4: Leverage Technology for Tracking

Use your HRIS or benefits platform to automate SBC distribution and maintain an audit trail. Most modern systems offer features to streamline compliance tracking.

Step 5: Audit Annually for Gaps

Conduct an internal compliance audit each year. Look for:

Missing delivery records.
Outdated templates.
Mismatched information.

Catch issues before regulators do.

Common Myths About SBC Compliance (Debunked)

❌ “My broker handles this, so I’m safe.”

Truth: You’re still on the hook legally. Verify their work.

❌ “Employees don’t read these, so it doesn’t matter.”

Truth: Regulators don’t care if employees read them. They care if you provided them.

❌ “We emailed it once, that’s enough.”

Truth: Distribution must occur at specific times — one email years ago doesn’t count.

Consequences of Ignoring SBC Rules in 2025

Failing to comply isn’t just about potential fines. It’s about the broader risks:

IRS penalties of over $1,500 per employee per violation.
Loss of employee trust.
Greater scrutiny in DOL or CRA audits.
Legal disputes over coverage misunderstandings.

How Non-Compliance Affects Your Business (At a Glance)

Risk Area	Impact
Financial Penalties	Thousands in fines per violation
Employee Relations	Confusion, distrust, dissatisfaction
Legal Exposure	Increased risk of lawsuits
Brand Reputation	Seen as careless or non-compliant

FAQs About SBC Requirements in 2025

Who must comply with SBC rules?

In the U.S., any employer offering group health insurance. In Canada, while there’s no legal SBC equivalent, transparency is considered a best practice.

What happens if I miss a distribution deadline?

You face potential fines and regulatory audits. In Canada, it can fuel legal claims if benefits are misunderstood.

Do SBC requirements apply to dental and vision plans?

Generally, no. SBC requirements are specific to major medical coverage under ACA rules.

Final Thoughts: Don’t Let Simple Mistakes Lead to Massive Fines

SBC compliance isn’t complex, but it requires consistency, attention to detail, and proper documentation. In 2025, the stakes are high. Whether you’re a small business in Canada aiming for best practices or a U.S. employer avoiding IRS scrutiny, following these steps will safeguard your organization.

Avoid these common mistakes. Stay organized. Stay compliant. Stay penalty-free.

If you want additional clarity or downloadable resources, you can explore official government guidance through the U.S. Department of Labor’s SBC page or Canada’s workplace benefit best practices through Canada Life’s employer resources.

Key Takeaway Checklist for SBC Compliance in 2025

✅ Use the latest SBC templates.
✅ Distribute on time at every required stage.
✅ Match SBC content to all plan documents.
✅ Track and document distribution.
✅ Don’t assume your broker handles everything.

If you’d like, I can expand this post further into a downloadable PDF guide for your audience or help you create a compliance checklist for your HR team. Let me know!