Wrap Documents for Welfare Benefit Plans
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans maintained by private-sector employers. Under ERISA, employer-sponsored welfare benefit plans, such as group health plans, must be described in a written plan document. In addition, employers must explain the plans’ terms to participants by providing them with a summary plan description (SPD).
The insurance certificate or benefit booklet provided by an insurance carrier or other third party for a welfare benefit plan typically does not satisfy ERISA’s content requirements for plan documents and SPDs.
However, employers may use wrap documents in conjunction with the insurance certificate or benefit booklet in order to satisfy ERISA’s requirements. This document is called a “wrap document” because it essentially wraps around the insurance certificate or benefit booklet to fill in the missing ERISA-required provisions. When a wrap document is used, the ERISA plan document or SPD is made up of two documents— the insurance certificate or benefit booklet and the wrap document.
More about wrap documents a little later.
Welfare Benefit Plans
Many employment plans or programs that provide nonretirement benefits to employees are considered employee welfare benefit plans that are subject to ERISA. To qualify as an ERISA plan, there must be a plan, fund or program that is established by the employer for the purpose of providing ERISA-covered benefits (through the purchase of insurance or otherwise) to participants and their beneficiaries.
ERISA generally applies to the following common employee benefits, regardless of whether they are insured or self-funded:
- Medical, surgical or hospital benefits;
- Dental and vision benefits
- Prescription drug benefits;
- Health reimbursement arrangements (HRAs);
- Health flexible spending accounts (FSAs);
- Group life insurance benefits;
- Wellness programs (when medical care is provided);
- Employee assistance plans (when medical care is provided);
- Disability benefits, if insured or funded other than as a payroll practice; and
- Disease-specific coverage (for example, cancer policies).
Written Plan Document
ERISA requires welfare benefit plans to “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 written plan document for a welfare benefit plan. For example, the plan document must address:
- Benefits and eligibility
- Funding of benefits;
- Procedures for allocating and delegating plan responsibilities;
- Plan amendment and termination procedures;
- Designation of named fiduciary; and
- Required provisions for group health plans, such as COBRA rights and HIPAA compliance.
Does the Booklet Prepared by the Insurer or TPA Qualify as a Plan Document?
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 TPAs 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 continued 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 Certificated or Benefits Booklet
The insurance certificate or benefits booklet, reflecting many of the plan’s important terms and requirements; and
2. The Wrap Document
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 plan document.
Mega Wrap Plans
Wrap documents can be used to combine more than one welfare benefit under a single plan, which is sometimes referred to as a “mega wrap plan” or an “umbrella plan.” For example, a wrap document could be used to bundle medical benefits, dental benefits, disability coverage and an HRA under one single ERISA plan. This document would wrap around all the third-party documentation (for example, insurance certificates or benefit booklets) to include the missing ERISA provisions and combine the benefits into one plan.
The decision of whether to combine (or bundle) welfare benefits often depends on how it will affect the Form 5500 filing obligation.
- For larger employers, combining different benefits together may simplify the annual reporting requirement because only one Form 5500 will be required for the bundled plan.
- For smaller employers, however, each benefit offered as a separate plan may qualify for the Form 5500 exemption for small plans. Combining the benefits together under a bundled plan might cause the plan to exceed the threshold for small plans, which would trigger the Form 5500 filing requirement.
Summary Plan Descriptions (SPDs)
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.
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.
Thus, a welfare benefit plan can have a wrap plan document and a wrap SPD, with both of these ERISA documents being comprised of the underlying insurance certificate or benefits booklet and also a wrap document that fills in the missing ERISA-required information.
Also, some ERISA welfare benefit plans only have one wrap document, which serves as the plan document and is also distributed to plan participants as the SPD. When one wrap document is used, it must comply with ERISA’s content requirements for plan documents and SPDs, and it must be written in a manner that is understandable to plan participants. Also, the document should prominently state that it is intended to serve as both the plan document and the SPD.
Alper Services can now provide wrap SPDs and Plan Documents which wrap around your groups’ existing insurance policies, insurance certificates, and benefit plan booklets to provide the information necessary to comply with ERISA.
The fee includes not only the documents, but ongoing updates as requirements change, as well as an easy-to-use employee dashboard to access the wrap documents. Please contact your Account Manager or any member of the Alper Services Employee Benefits Team at EBTeam@AlperServices.com to learn more about obtaining a wrap document for your group.