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Are your welfare benefits in compliance with ERISA?

While most employers make sure they comply with the Employment Retirement Income Security Act’s (ERISA) plan documentation and disclosure requirements with respect to their retirement plans, few devote the same attention to their welfare benefit plans. The U.S. Department of Labor’s (DOL) plan to conduct more ERISA compliance audits should prompt employers to make sure they are in compliance with the law’s plan documentation, disclosure and annual reporting requirements for all applicable plans. A “wrap” document can help employers, large and small, meet their obligations.

What types of welfare benefits are subject to ERISA?

ERISA applies to “employee welfare plans,” which it defines as plans, funds or programs established or maintained by an employer for the purpose of providing specifically “listed benefits” to participants and their beneficiaries through the purchase of insurance policies or otherwise. These listed benefits include medical, dental, vision, life, accident, disability and many others.

What are the ERISA requirements for plan documentation?

Very simply, ERISA requires that all welfare benefit plans must have a written plan document. This applies to all plans, regardless of their size or the size of the sponsoring employer. If you sponsor a welfare benefit plan, you must have a written plan document that complies with ERISA requirements. ERISA requires that the written plan document must contain specific provisions, so it matters what your document says. Additionally, ERISA requires that a summary of the more important plan provisions, called a Summary Plan Description (SPD), must be furnished to all plan participants. The SPD must be written so that the average participant can understand it.

We have a written insurance contract/policy – isn’t that enough?

If a sponsoring employer is simply looking to their insurance policies or contracts to function as their plan documents, that’s not enough. Insurance contracts do not normally contain all of the specific details required by ERISA and is therefore not a plan document. While these contracts often include a detailed description of the benefits available under the plan, they rarely identify a named fiduciary or include the procedures for amending the plan. A well-drafted plan document and SPD specifies these things as well as eligibility requirements, the source of plan contributions, plan participation rules, length of coverage and employer’s rights relating to the plan such as the right to amend or terminate.

What is a “wrap” document and how does it work?

A “wrap” document is a legal document that “wraps” together, or combines, all welfare benefit plan arrangements and creates a single plan. The wrap document supplements any missing information from the actual policies and contracts. While a wrap document is not currently required, it is highly recommended.

A “wrap” document incorporates the existing welfare benefit plans by reference. This means the specific provisions of each underlying plan remain in the separate contracts or policies. Those plan-specific provisions are not addressed or listed in the “wrap” plan document. Rather, the “wrap” plan document supplements any missing, or lacking, information in the insurance contracts. Together, the “wrap” plan document and the separate contracts and policies comprise a complete plan document in order to fully comply with ERISA.

Are there other benefits to a “wrap” document?

One of the biggest benefits to incorporating your welfare benefits into a “wrap” document is that a compliant SPD is easily created from it. More often than not, the insurance carrier materials are not easily understood by the average participant, as they are often quite comprehensive. Accordingly, a “wrap SPD” will supplement those insurance carrier materials with any required information that is missing or lacking similar to the “wrap” document. The SPD is extremely important as the DOL cares a lot about what and how you are communicating to participants.

There is another large benefit to adopting a “wrap” document for those plans that cover 100 or more employees. By adopting to simplify ERISA’s reporting requirements, you’ll also be able to consolidate multiple Form 5500 filing requirements into one single Form 5500 filing requirement. This will reduce form preparation expenses and eliminate multiple filing deadlines.

One final word

Should the DOL determine you do not have the required plan documents for your welfare benefits plans, you can be assessed plan penalties up to $110 per day. Further, if you have filed one Form 5500 and it’s determined you have multiple, separate ERISA plans, you can also be penalized for late filings.

If you would like more information on implementing a wrap document, please contact author Kathy Doughten, ERPA, QPA via e-mail or phone (502.882.4390).

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