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.

Life Insurance – Portability & Conversion

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When an employee goes out on a leave of absence or terminates employment, it is important for employers to have a dedicated process for notifying employees of critical changes to their benefits and what is required of an employee to continue their benefits.

Often employers remember to advise about COBRA eligible benefits but forget they are also responsible for providing information about life insurance, including portability or conversion information to employees who are losing benefit eligibility.

Background: Both the portability and conversion provisions allow the employee to continue life coverage that is lost due to an employment status change.  Policies may vary, so one needs to refer to their specific policy for clarification.

  • Portability –  When an employee ports coverage, they keep the group term life coverage offered by their employer along with some, but not all of the optional benefits that were included.
  • Conversion – When an employee converts coverage, they are converting to an individual whole life (or permanent life) insurance policy. The converted policy only provides life insurance and does not include the optional benefits such as Waiver of Premium, Accidental Death and Dismemberment.

In the case of, Erwood v. Life Insurance Company of North America and WellStar Health System, Inc., a federal district court awarded $750,000 in damages to Patricia Erwood, the wife of a deceased former employee of WellStar Health System whose life insurance lapsed while he was out on disability, and the employer failed to notify him of his conversion rights.

Even though the employer had sent the employee an FMLA leave packet that included information about it being possible to continue his life insurance benefits, the court noted that the FMLA packet did not include the materials necessary to convert, where to find the materials nor when the materials would be due if he was interested in continuing his coverage. 

This is just one of several cases which demonstrates relying on the benefit plan documents or a generalized communication may not be sufficient. Employers need to be mindful they have an ERISA fiduciary duty to adequately inform participants of their benefits and provide complete information regarding the steps necessary to keep their insurance benefits, including portability and conversion.

 

 

Qualified Medical Child Support Order (QMSCO) & National Medical Support Notices (NMSN)

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The Employee Retirement Income Security Act (ERISA) requires employment-based group health plans to extend health care coverage to the children of a parent-employee who is divorced, separated, or never married when ordered to do so by state authorities.

Generally, a State court or agency may require an ERISA-covered health plan to provide health benefits coverage to children by issuing a medical child support order. The court order forces coverage under the plan, even if the employee is not interested in obtaining plan coverage for the child.

Under ERISA §609(a), the group health plan must have procedures established to determine whether the medical child support order is “qualified”. Such an order is referred to as a Qualified Medical Child Support Order (QMCSO).

In addition, a State child support enforcement agency may obtain group health coverage for a child by issuing a National Medical Support Notice (NMSN). A NMSN is treated like a QMSCO if the group health plan determines it to be qualified (i.e. it’s appropriately completed by the agency).

Under the terms of the law, child support or other court orders which do not meet all the qualification requirements, are not “qualified” and plans are not required to provide any benefits to child, unless the deficiencies are later corrected.

Once a medical child support order has been determined to be a QMCSO, then the plan administrator must act in accordance with the order’s provisions as if it were part of the plan. (Qualified Medical Child Support Orders, Q/A 1-25)

Thus, plan administrators must comply with general QMCSO requirements when processing and administering benefits.  For instance: 

  • If the employee is eligible to participate in the plan, the child must be covered.
  • If, the employee is not enrolled in the plan, but as a condition for covering his dependents, the employee must be enrolled, the plan must enroll both.
  • If the employee named in a medical child support order has not satisfied the plan’s generally applicable waiting period, the administrator should have procedures in place so that the child will begin receiving benefits upon the employee’s satisfaction
    of the waiting period.
  • If a group health plan does not provide any dependent coverage, an order may not require a plan to provide dependent coverage when that option is not otherwise available under the plan
  • A child covered pursuant to a QMCSO is a “qualified beneficiary” with the right to elect continuation coverage under COBRA, if the plan is subject to COBRA and if the child loses coverage as a result of a qualifying event.

Employers are required to have written procedures for assessing and responding to QMSCOs/NMSN notices and may be subject to sanctions or penalties imposed under State law and/or ERISA for failure to respond and/or for non-compliance with a QMSCO/NMSN notice.

For additional information, check out:

  1. The DOL’s QMCSO Compliance Guide
  2. HHS Office of Child Support Enforcement Medical Support FAQs