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, every employee benefit plan must be “established and maintained pursuant to a written instrument” called the plan document.

  • It is the legal document that governs the plan.
  • Must contain certain terms required by ERISA -which are almost never included in the insurer’s documents
  • It is typically written in legalese
  • It does not need to be distributed unless requested. 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)

  • Primary method for communicating the plan terms to participants
  • Written in plain language and in a manner to be understood by the average plan participant
  • Must be distributed at specific times to participants (e.g., within 90 days of the employee enrolling in the plan.)
  • ERISA 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 it 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 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 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 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, creating a complete SPD.

When an employer combines their health and welfare benefits into one document, the employer can file one Form 5500 (rather than a separate 5500 for each benefit).

Many employers use a single consolidated document as both the wrap plan document and the wrap SPD. 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 2020 fiscal year, 67% 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 will not happen to me”, however, the DOL conducts over 3,000 audits each year with an increase on employers with fewer than 500 employees. (See: Are You Prepared for a DOL Audit?)

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.

If you have questions about the above, or need help with another employee benefits administration question, please contact The Compliance Rundown. We would love to hear from you!

The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything in this post or on this website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.

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