By Barry Fields, Vice President – Employee Benefits
The US Department of Labor has been conducting frequent ERISA compliance audits and, in many cases, imposing significant penalties for noncompliance. This should spur employers to make sure that they are in compliance with that law’s plan documentation, disclosure, and annual reporting requirements for all applicable plans.
Unfortunately, most employers are not in compliance with the Summary Plan Description (SPD) requirements. Why? Many companies mistakenly assume that insurance contracts, certificates of insurance, SBCs, and benefits summaries fulfill the ERISA requirements for an SPD. Those documents do not include the required or recommended provisions that protect the plan, the employer, and plan fiduciaries.
All group health plans subject to ERISA (and all size groups) are required to provide participants with an SPD. An SPD must be written in a manner calculated to be understood by the average plan participant and must be sufficiently comprehensive to explain the following: the plan’s benefits, its claims review procedures, and the participant’s rights and obligations under the plan.
A “wrap” document will help meet these obligations. A wrap document is a relatively simple document that “wraps” around the insurance policy, coverage certificate, or plan booklet. The benefits available under the plan continue to be governed by the insurance policy, coverage certificate, or plan booklet, while the wrap document provides the supplementary information necessary to comply with ERISA. In effect, the wrap document fills the gaps left by insurance carriers and third-party administrators.
The Wrap SPD should describe all of the important plan rules and the benefits available under the plan as well as key information about the plan, including:
- The plan name
- The employer’s name, address, and employer identification number (also known as
- A federal tax identification number)
- The name, address, and telephone number of the plan administrator
- The name and address of the plan’s agent for service of legal process
- The plan number for annual reporting purposes
- The plan year
- The source of plan contributions
- Information about plan trustees
- A claims procedure
- Information about eligibility for plan participation
- A statement of ERISA rights
In addition to easing compliance with ERISA’s plan document and summary plan description requirements, wrap documents may be used by employers to consolidate employee welfare benefit plans into a single plan, commonly referred to as an “umbrella” or “mega-wrap” plan. Consolidating employee welfare benefit plans into a single plan could reduce the costs associated with filing multiple annual reports, distributing multiple summary annual reports, and amending multiple plans in response to legislative or regulatory changes.