Understanding Wrap Plan Documents & Summary Plan Descriptions

Many employers do not fully understand Employee Retirement Income Security Act (ERISA), how it impacts business and employees, and the possible risks it presents. 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 2019 fiscal year, 67% of investigations resulted in penalties or required other corrective action.

One requirement under Section 402 of ERISA is that all employers who offer group health and welfare benefits to their employees, maintain a written plan document, and distribute summary plan descriptions (SPD) to plan participants.

The plan document must clearly identify certain information and provisions about the plan benefits, including the responsibilities for the operation and administration of the plan. Whereas the summary (of the) plan document (SPD) also referred to as a summary plan description, is the primary vehicle for informing participants and beneficiaries about their rights and benefits.”

Many employers make an incorrect assumption that the documents (e.g., coverage certificate or plan booklet) they received from their insurance carrier or third-party administrator (TPA) satisfies ERISA’s plan document requirements. It is true, these documents generally include detailed descriptions of the benefits available under the plan however, they do not contain everything that is required to satisfy ERISA’s plan document requirements. Group insurance policies are written to cover the legal needs of the insurance carrier, not to satisfy the requirements of ERISA, or to provide legal protection to the Employer.

ERISA’s requirements are the responsibility of the employer and plan administrator, not the insurance company. If the insurance booklets do not satisfy ERISA’s requirements, it is the employer that violates ERISA, not the insurance company.

 A Wrap Plan Document Fills the Gaps

A Wrap Plan Document is an umbrella document that wraps around existing carrier documents to ensure the required provisions and language to comply with ERISA are provided.  It contains legalese.  This umbrella document incorporates all other welfare plans, insurance contracts (medical, dental, vision, etc.) and other relevant documents to create one “plan”, generally referred to as ABC Company’s Health & Welfare Benefit Plan. The Wrap Plan Document provides additional legal protection for the employer and plan fiduciaries and can simplify plan administration.

A Wrap Summary Plan Description is a Summary [of the Wrap] Plan Document written in language that can be understood by the typical participant. It wraps around the carrier certificate of coverage or other benefit plan documents, to ensure ERISA’s requirements which are often missing from carrier documents are included. To be compliant, the Wrap SPD and accompanying benefit plan component documents must be distributed to plan participant at specific times.

The benefits available under a wrap plan document (e.g., ABC Company’s Health & Welfare Benefit Plan) are still governed by the insurance carrier’s policies. The wrap document simply supplements the information necessary to comply with ERISA—filling the gaps left by the insurance carrier’s (or TPAs) plan booklets.

Resources:

“The Five Ws, and One H of Wrap Documents.” Alera Group, 10 Aug. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-wrap-documents-081020/.

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