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/.

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.

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.