Question of the Month

Question: Our employer has just terminated participation in a professional employee organization (PEO) and will now be providing medical benefits to its employees through a stand-alone group health plan that it sponsors. Do we need to prepare a plan document if we are subject to ERISA?

Answer:  In short, yes. ERISA requires that every benefit subject to ERISA have a plan document, which is the legal instrument governing the plan. A summary plan description (SPD) must also be provided to each participant within 90 days of enrolling in the plan, regardless of the number of participants. The SPD summarizes the terms of the plan in laymen’s language. For additional information regarding these documents and additional disclosure requirements under ERISA, including a Summary of Material Modification (SMM) to amend an SPD and a Summary of Benefits and Coverage (SBC), please refer to the Department of Labor’s Reporting and Disclosure Guide for Employee Benefit Plans, available here. The plan document and SPD requirements are briefly summarized below.

Written Document Requirement

Under ERISA, welfare benefit plans must “be established and maintained pursuant to a written instrument.” Thus, an employer’s welfare benefit plans must be described in a written plan document. There is no small employer exception to ERISA’s plan document requirement.

ERISA does not require that a plan document be in any particular format. However, there are several topics that must be addressed in the document for a welfare benefit plan. For example, the plan document must address benefits and eligibility, funding, procedures for allocating and delegating plan responsibilities, plan amendment and termination procedures, the designation of the named fiduciary, as well as specific required provisions for group health plans, such as COBRA rights, and certification of its compliance with HIPAA.

In general, the detailed coverage document (or certificate of coverage) provided by an insurance carrier for a welfare benefit does not contain all of the information required by ERISA for a plan document. For example, while carrier certificates include detailed benefit information, they generally do not designate plan fiduciaries or provide procedures for amending or terminating the plan. Thus, the carrier’s certificates, on their own, are not ERISA-compliant plan documents. Benefit booklets provided by the third-party administrator (TPA) for self-insured welfare benefits may also fail to include the ERISA-required information for plan documents.

A wrap document is a relatively simple document that supplements existing documentation for a welfare benefit plan (for example, an insurance certificate or benefit booklet). This document is called a wrap document because it essentially wraps around the certificate or booklet to fill in the missing ERISA-required provisions. Because the wrap document incorporates the insurance certificate or benefits booklet by reference, the plan’s benefit provisions continue to be governed by the terms of those documents.

When a wrap document is used, the ERISA plan document is comprised of two pieces (1) the insurance certificate or benefits booklet, reflecting many of the plan’s important terms and requirements; and (2) the wrap document that fills in the ERISA-required information that is missing from the insurance certificate or benefits booklet.  Thus, the wrap document and the carrier certificate (or TPA booklet), together, make up the legal plan document.

SPD Requirement

Virtually all welfare benefit plans that are subject to ERISA must provide participants with an SPD, regardless of the size of the sponsoring employer. An SPD is a document that is provided to plan participants to explain their rights and benefits under the plan document. ERISA also includes detailed content requirements for welfare benefit plan SPDs.

As with the plan document requirement, in general, a carrier’s insurance certificate will not include all the information that must be included in an SPD under ERISA. A benefit booklet prepared by a TPA may also fail to include the ERISA-required information for SPDs. To create an SPD in this situation, an employer can use a wrap document (wrap SPD) that includes the ERISA-required information that the certificate or booklet prepared by the insurer or TPA does not include. In this scenario, the wrap SPD and the insurance certificate or booklet, together, make up the plan’s SPD. To comply with ERISA, both the wrap SPD and the insurance certificate or booklet must be distributed to plan participants by the appropriate deadline.

More Information

For questions regarding this Legislative Update or any other related compliance issues, please contact your Burnham Benefits Consultant or Burnham Benefits at 949‐833‐2983 or inquiries@burnhambenefits.com.

This Legislative Update was prepared by the Baldwin Regulatory Compliance Collaborative (the “BRCC”), a partnership of compliance professionals offering client support and compliance solutions for the benefit of the Baldwin Risk Partners organization, which includes: Jason Sheffield, BRP National Director of Compliance; Richard Asensio, Burnham Benefits Insurance Services; Nicole L. Fender, the Capital Group; Bill Freeman, AHT Insurance; Stephanie Hall, RBA/TBA; Caitlin Hillenbrand, AHT Insurance; Paul Van Brunt, Baldwin Krystyn Sherman Partners (BKS); and Natashia Wright, Insgroup.

Burnham Benefits and the BRCC do not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with applicable federal and state law requirements, and is based on our interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.