To ensure compliance with ERISA’s documentation and disclosure rules for health and welfare plans (medical, dental, vision, group term life insurance, and disability insurance plans), the plans must be set forth in written plan documents that meet specified content requirements. Although employers receive insurance policies or certificates of coverage from insurers or third party administrators, these documents rarely specify the named fiduciary, the procedures for amending the plan or the allocation of responsibilities for the operation and administration of the plan among the employer, the insurer, and the third party administrator.
ERISA also requires employers to provide to each employee a written summary plan description (SPD) of each welfare benefit plan that contains an accurate and comprehensive summary of the plan. ERISA’s regulations require that the SPD meet certain content requirements such as the contact information for the employer and the plan administrator, a statement of participants’ ERISA rights, and a description of the plan’s claim and appeal procedures and continuation coverage benefits. Again, insurance policies or certificates of coverage themselves seldom satisfy the SPD content requirements.
The failure to timely provide each employee an SPD that meets regulatory requirements can subject an employer to a penalty of $110 per day for each violation.
A cost-effective way of satisfying both the written plan document and SPD requirements is to use a “wrap” document that incorporates by reference the applicable insurance policy(ies). In effect, the wrap document supplements the applicable insurance policy or certificate of coverage by wrapping itself around the policy or certificate. The wrap document contains the ERISA required language that is not typically covered in a policy or certificate. Together the wrap document and the policy or certificate make-up the complete plan document and SPD.
Done properly, wrap documents can also reduce administrative time and costs caused by preparing and filing a yearly Form 5500 for each welfare plan sponsored by an employer. A wrap document can be used to combine employee welfare benefit plans into a single umbrella plan for annual report filing purposes.
The importance of implementing the wrap document approach for employer sponsored health and welfare plans cannot be understated.