Can carrier plan materials serve as the SPD?

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Background

Under ERISA, all employers who offer group health and welfare benefits to their employees are required to maintain and distribute Summary Plan Descriptions (SPDs) to plan participants.

Definitions:

Plan Document – per ERISA, plans must be “established and maintained pursuant to a written instrument” called the plan document. It’s a document containing legalese, governing the terms of the plan including items such as: eligibility, participant and beneficiary rights, benefits available, how benefits are funded, and the named fiduciary. The plan document must be distributed upon request and failure to furnish the documents within 30 days after the request may expose the employer to penalties of up to $110 per day.

Summary [of the] Plan Document (SPD) – is a summary of the plan document written in language that can be understood by the typical participant. The SPD must be distributed at specific times to participants (e.g. within 90 days of the employee enrolling in the plan.) ERISA also requires specific information to be included in the SPD, such as: plan name, name of the plan sponsor & EIN, plan number, plan year, eligibility information (e.g waiting period), a description of plan benefits and circumstances causing loss or denial of benefits, benefit claim procedures, and a statement of participants’ ERISA rights.

NOTE: A summary of benefits and coverage (SBC) is also required for group health plans but is separate from and in addition to the plan document and the SPD

Employers with fully insured benefits receive plan materials (e.g. certificate of coverage) from the insurer (i.e. carrier) that describes the coverage provided under the plan. The carrier materials generally contain detailed benefits information, information on claims procedures and rights under ERISA but other ERISA required details (e.g. descriptions of eligibility, circumstances causing loss of benefits) are often missing. Therefore, it’s unlikely the the insurer’s materials can serve as the SPD on its own. 

ERISA’s requirements are the responsibility of the employer and plan administrator (typically the employer is the plan administrator), not the insurance company. Group insurance policies are written to cover the state-law and legal requirements of the insurance carrier, not to satisfy the requirements of ERISA, nor to provide legal protection to the employer. If the carrier materials do not satisfy ERISA’s requirements, it is the employer that violates ERISA, not the carrier.

Sometimes carriers will customize their materials and include employer and plan-identifying information, but that information may be incomplete or inaccurate and even with this additional customization the carrier documents often still do not contain the necessary details required to satisfy ERISA’s plan document requirements.

Solution: A Wrap Document

Many employers use a separate document that, when combined with the carrier provided materials, contains all of the “bells and whistles” required to satisfy ERISA’s requirements for an SPD, as well as certain other disclosures required under ERISA and COBRA. This separate document “wraps around” (i.e. incorporates by reference) the certificates and other benefit materials (e.g. summaries, open enrollment guide) for each plan option or component plan, thereby creating a complete SPD.

Another benefit of the “wrap document” is by combining all of the employer’s health and welfare benefits into one document, the employer can file one 5500 (rather than a separate 5500 for each benefit).

Many employers use a single document as both the wrap plan document/SPD and have the plan document and SPD as a consolidated document. If this approach is taken, the document must comply with both ERISA’s written plan document requirements and its SPD format and content rules.

The wrap document and the underlying carrier plan documents should be consistent and drafted to avoid creating conflicts. However, in the event of conflicting terms, generally, as long as the carrier documents comply with applicable federal law, the wrap document defers to the carrier documents only filling in the gaps when the carrier document is lacking.

Why It Matters?

Employers face strict deadlines and liability under ERISA law and failure to comply with ERISA requirements can lead to costly government penalties and even employee lawsuits. According to a U.S. Department of Labor (DOL) audit report for the 2018 fiscal year, 64.7% of investigations resulted in penalties or required other corrective action.

The DOL has recently enhanced its enforcement of ERISA violations by significantly increasing the number of audits it is conducting. Many employers think “It’s not going to happen to me”, however, the DOL conducts more than 3,000 audits each year with an increase on employers with fewer than 500 employees.

Given the recent upswing in health and welfare plan audits and the potentially stiff penalties for noncompliance, as a best practice and additional level of protection, employers should have a wrap plan document created to ensure they have and are providing an ERISA compliant SPD.

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