Revisiting ERISA Plan Documents and SPDs in the New Year

The Employee Retirement Income Security Act of 1974 (ERISA) governs employee benefit plans maintained by private-sector employers. ERISA requires that employer-sponsored welfare benefit plans, such as group health plans, be described in a written plan document. Employers must also provide participants with a Summary Plan Description (SPD) that explains the plan’s terms. Note, however, that insurance certificates or benefit booklets provided by an insurance carrier or third-party administrator (TPA) usually do not meet ERISA’s content requirements for plan documents and SPDs.

ERISA Applicability

ERISA applies to nearly all private-sector employers that provide welfare benefit plans for their employees, regardless of the employer’s size. This includes corporations, partnerships, LLCs, sole proprietorships, and non-profits. There are two key exceptions to ERISA:

• Government Employers: Employee benefit plans maintained by governmental employers, such as federal, state, or local governments (e.g., city, county, or township), are exempt from ERISA requirements.
• Church Plans: Church plans are also exempt. A church plan is any employee benefit plan established or maintained by a church or a tax-exempt religious organization under Section 501 of the Internal Revenue Code unless the church elects to be subject to ERISA under Code Section 410(d).

Welfare Benefit Plans

Many employee benefit plans that provide non-retirement benefits to employees are considered welfare benefit plans under ERISA. The non-retirement benefits employers offer are generally referred to as welfare benefit plans. ERISA typically applies to the following employee welfare benefits:

• Medical, surgical, or hospital benefits
• Dental and vision benefits
• Prescription drug benefits
• Health reimbursement arrangements (HRAs)
• Health flexible spending accounts (FSAs)
• Group life insurance
• Wellness programs (if medical care is provided)
• Employee assistance plans (if medical care is provided)
• Disability benefits (if insured or funded other than as a payroll practice)
• Disease-specific coverage (e.g., cancer policies)

Written Plan Document

ERISA mandates that welfare benefit plans be established and maintained in writing. This means the plan must be described in a written plan document, with no exemption for small employers.

While ERISA does not prescribe a specific format for the plan document, it must address several key elements, including:

• Benefits and eligibility
• Funding of benefits
• Allocation and delegation of plan responsibilities
• Procedures for amending or terminating the plan
• Designation of the named fiduciary
• Provisions for group health plans, including COBRA rights and HIPAA compliance

Insurance Certificates and TPAs

Generally, an insurance certificate or benefit booklet provided by a carrier or TPA does not meet all of ERISA’s requirements for plan documents. These documents typically outline benefit details but fail to include necessary information such as the designation of fiduciaries, procedures for plan amendments, and termination guidelines. Therefore, they usually do not qualify as ERISA-compliant plan documents by themselves.

Wrap Documents

A wrap document fills in missing ERISA-required provisions in the existing plan documentation. It “wraps” around an existing benefits document, such as an insurance certificate or benefits booklet provided by a third-party administrator (TPA) or insurance carrier, to fill in missing ERISA-required provisions that are not typically included in those documents.

Employers can use wrap documents to combine multiple welfare benefits under a single ERISA plan. For instance, a wrap document can bundle medical, dental, disability, and HRA benefits into one ERISA plan. The wrap document would incorporate all relevant third-party documents (such as insurance certificates or benefit booklets) and provide the missing ERISA provisions, creating a unified plan. The decision to bundle welfare benefits often depends on the implications for Form 5500 filing:

• Larger employers may choose to combine benefits to simplify their annual reporting, as only one Form 5500 would be needed for the bundled plan.
• Smaller employers, however, may face Form 5500 filing requirements if they exceed the threshold for small plans, which is based on having fewer than 100 covered participants and having insured or unfunded benefits (Small welfare plans with fewer than 100 participants and insured or unfunded benefits are exempt from the Form 5500 filing requirement).

Summary Plan Descriptions

All ERISA-regulated welfare benefit plans must provide participants with an SPD. This document explains the plan’s terms, rights, and benefits. ERISA sets detailed content requirements for SPDs. Insurance certificates or TPAs generally do not contain all the information required for an SPD. To meet these requirements, employers can use a wrap document (wrap SPD), which includes the missing information. The wrap SPD and the insurance certificate or benefit booklet together form the complete SPD. To comply with ERISA, both documents must be distributed to plan participants by the specified deadline.

Noncompliance

While ERISA does not prescribe specific penalties for failing to maintain a plan document or SPD, noncompliance can lead to serious consequences, including:

• Failure to Provide Documents: Employers who do not provide the plan document or SPD within 30 days of a participant’s written request may face penalties of up to $110 per day.
• Benefit Lawsuits: Without a written plan document, employers may struggle to defend their benefit decisions in legal disputes. Courts may use past practice or other evidence to support a participant’s claim, and the standard of review may be less favorable to the employer.
• Department of Labor (DOL) Audits: The DOL has broad authority to audit employee benefit plans for ERISA compliance. If an employer is unable to provide the required documents during an audit, the DOL may impose penalties of up to $190 per day (up to $1,906 per request).