ERISA Wrap Services
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What Is ERISA?

ERISA, the Employee Retirement Income Security Act of 1974, is a Federal law that deals with employee benefit plans. ERISA addresses both Qualified Retirement Plans (e.g., pension and profit sharing plans) and Welfare Benefit Plans (e.g., group insurance and other fringe benefit plans). ERISA is intended to provide uniformity and protections to employees by imposing certain requirements on employers, including reporting to the Department of Labor (DOL) and disclosure to plan participants. ERISA compliance is enforced by the DOL. However, employee benefit plans may also be regulated by other government agencies, such as the Internal Revenue Service (IRS) and state Departments of Insurance (DOI). Failure to comply with ERISA can result in enforcement actions, penalties, and/or employee lawsuits.

What Employers are Subject to ERISA?

Nearly all private-sector corporations, partnerships, and proprietorships, including non-profit corporations, must comply with ERISA regardless of their size or number of employees. Churches and government employers are exempt from ERISA Welfare Benefit Plan provisions.

Why Should an Employer Comply With ERISA?

ERISA compliance is required under Federal law and employers can avoid costly DOL penalties if they comply. Plan compliance can also help an employer avoid a lawsuit and stiff penalties in state court, if a Plan Participant or Beneficiary brings a "bad faith" claim against insurers and Administrators who deny benefits. As a Federal law, ERISA trumps state law. Under ERISA, damages are limited to the unpaid benefits and does not provide for jury trials. Being out of compliance creates exposure in either state or federal court.

In state court, every aspect of a case is subject to a "de novo" review, including matters not even in dispute. However, ERISA has a higher standard of review for overturning decisions of a Plan Administrator. In Federal court, an Administrator's decision to deny a claim must be "arbitrary and capricious" before it can be overturned.

Which Benefit Plans are ERISA Plans?

The following Plans, whether fully insured or self-insured, are generally those to which ERISA applies:

  • Health, Medical, Surgical, Hospital, or HMO Plans
  • Health Reimbursement Arrangements (HRAs)
  • Healthcare Flexible Spending Accounts (FSAs)
  • Vision Plans
  • Dental Plans
  • Prescription Drug Plans
  • Sickness, Accident, and Disability Insurance Plans
  • Group Life and AD&D Insurance
  • Employee Assistance Plans (EAPs) (if counsel provided, not just referrals)
  • Executive Medical Reimbursement Plans
  • Wellness Plans (when medical care is offered)
  • Long Term Care Insurance Plans
  • Severance Pay Plans
  • Unemployment Benefit Plans
  • Prepaid Legal Services
  • Vacation Plans
  • Holiday Plans
  • Scholarship Plans
  • Housing Assistance Plans
  • Business Travel Accident Plans
  • Apprenticeship or other Training Plans
  • 419A(f)(6) and 419(e) Welfare Benefit Plans
  • Split Dollar Life Insurance Plans
  • Single/One Employee Plans

Some self-insured or uninsured plans like sick pay, short-term disability, overtime, vacation pay and other paid time off, and jury duty may be exempt if benefits are paid:

  • As part of a typical payroll practice;
  • To individuals currently employee (excludes retirees, COBRA participants and dependents);
  • Entirely from the employer's general assets without prefunding or using insurance, AND without employee contributions.

Voluntary group or individual insurance plans may be exempt from ERISA, depending on the extent of employer involvement. This is typically the case when participants pay all of the cost and the employer's role is only to withhold premiums through payroll deduction for remittance to an insurer. However, even minimal sponsorship or endorsement, like putting the company name on brochures could negate this exemption. A plan qualifies under the Voluntary Plan Safe Harbor if:

  • It's funded by group or group-type insurance;
  • It's totally voluntary;
  • Employers do not contribute, AND
  • Employers do not endorse the plan.

What Constitutes Endorsement?

Voluntary Plan Safe Harbor may be negated through implied employer endorsement in the following ways:

  • Selecting the insurer
  • Negotiating Plan terms/linking coverage to employee status
  • Using employer's name/associating Plan with other employee plans
  • Recommending Plan to employees
  • Saying ERISA applies
  • Doing more than permitted payroll deductions
  • Allowing use of employer Cafeteria Plan
  • Assisting employee with claims or disputes

Which Plans are Typically not ERISA Plans?

ERISA generally does not apply to:

  • Cafeteria Plans, Section 125 Plans, Premium Only Plans (POPs), Premium Conversion Plans, or Pre-tax Premium Plans. If the benefits funded by any of these plans are subject to ERISA, these plans should be referenced in the Plan Document and SPD.
  • Health Savings Accounts (HSAs), if employers have limited involvement.
  • Dependent Care FSAs
  • Dependent Care Assistance Plans (DCAPs)
  • Transit and Parking Plans
  • Adoption Assistance Plans
  • Educational Assistance and Tuition Reimbursement Plans
  • Paid Time Off Plans
  • Medical Clinics on-site to provide first aide

What is a Plan Document?

The Plan Document describes the Plan's terms and conditions related to the operation and administration of a Plan. Each Welfare Benefit Plan that an employer provides that is subject to ERISA must have a written Plan Document. An ERISA Plan can exist without the required written document, but it is out of compliance. These documents do NOT constitute a Plan Document or Summary Plan required under ERISA:

  • Master Contract from an insurance carrier
  • Certificate of Coverage
  • Summary of Benefits Plan

To be in ERISA compliance, the Plan Document should contain:

  • Plan Administrator name
  • Designation of named fiduciaries under the claims procedure for deciding benefit appeals (other than the Plan Administrator)
  • Description of benefits provided and the standard of review for benefits decisions
  • Participant eligibility requirements and the effective date of participation
  • How the Plan is funded (employer and/or employee contributions), if the Plan has assets
  • How much the Participant must pay towards the cost of coverage
  • Details regarding the amendment and termination rights and processes for the Plan Sponsor, as well as what happens to any Plan assets if the Plan is terminated
  • Rules about the use of Personal Health Information (PHI), if the Plan Sponsor uses PHI
  • Information regarding COBRA, HIPAA, and other federal mandates like preexisting conditions exclusions, Women's Health Cancer Rights Act, special enrollment rules, mental health parity, coverage for adopted children, Qualified Medical Support Orders, and minimum hospital stays after childbirth.
  • Subrogation, coordination of benefits, and offset provisions
  • Allocation and designation of TPA or committee administrative duties
  • Process for allocation of insurer refunds to Participants (e.g., dividends, demutualization)

Any employer sponsoring health or welfare benefits must determine the best way to document benefits for legal compliance and to effectively communicate with employees. Employers sponsoring insured benefits must also worry about missing ERISA provisions in their insurance documentation. Sometimes using a "wrap document" to bundle benefits into one plan and/or supplement insurance documents is much easier for the employer.

Plan Document Compliance for Insured Plans
Special plan document considerations exist for insured plans. Insurers typically do not draft contracts with ERISA plan document requirements in mind because their principal focus is complying with applicable insurance laws. As a result, insurance policies often fail to include all of the provisions required for ERISA plan documents and don't always protect the plan sponsor and plan administrator. The best approach is to combine the insurance documents with a "wrap" document.

Plan Document Compliance for Other Third-Party Contracts
Similar plan document considerations exist where plan benefits are provided pursuant to a contract with a third party other than an insurer. For example, benefits under many employee assistance plans (EAPs) are provided through a contract with third-party service providers. The contract often is not designed to be the plan document for ERISA purposes and may lack many of the required elements and provisions intended to protect the plan sponsor and plan administrator. The wrap document supplements existing documentation to include required elements and other optional provisions that protect the plan.

Plan Document Compliance for "Bundled" Plans
Some plan sponsors may wish to combine two or more ERISA benefits into one plan for ERISA compliance purposes. The component plan benefits may be fully insured, self-insured, or a combination of both. The plan document for this kind of bundled plan consists of the insurance policies and self-insured plan descriptions combined to make a "mega-wrap" using a "mega" or "umbrella" document. A common use of a mega-wrap document is to collect all of the plan sponsor's welfare benefits under a single plan

What Information Should a Summary Plan Description (SPD) Contain?

The Summary Plan Description (SPD) is the primary document to communicate Plan rights and obligations to Participants and Beneficiaries. It's a summary of the main provisions of the Plan Document. However, for Health and Welfare Benefit Plans, the SPD is typically a combination of the complete description of the Plan's terms and conditions, such as a Certificate of Coverage, and the required ERISA disclosure language.

An SPD must include the following information:

  • Plan name
  • Plan sponsor/employer name, address, and EIN
  • Plan Administrator's name, address, and phone number
  • Designation if the employer is a participating employer or member of a controlled group
  • Designation of whether the Plan is maintained pursuant to one or more collective bargaining agreements and that a copy of the agreement can be provided if requested
  • Named Fiduciaries designation, if not the Plan Administrator (a Claim Fiduciary, for example)
  • If the Plan has a trust, each trustee must be named, along with their title and principal business address
  • Plan agent name and address for service of legal process, along with a statement that service may be made on a Plan Trustee or Administrator
  • Identity of insurer(s), if any
  • Plan type and/or description of benefits
  • Plan Year end date (may not be the same as the insurance policy year)
  • Plan number for ERISA Form 5500 purposes and each ERISA Plan should be assigned a unique number
  • The type of Plan administration - administered by contract, insurer, or Sponsor
  • Participant eligibility and the effective date of participation
  • Process for allocation of insurer refunds to Participants (e.g., dividends, demutualization)
  • Details regarding the amendment and termination rights and processes for the Plan Sponsor, as well as what happens to any Plan assets if the Plan is terminated
  • Summary of Plan provisions governing the benefits, rights and obligations of Participants under the Plan on termination, amendment of the Plan, or elimination of benefits
  • ERISA model statement of Participants' rights
  • Summary of Plan provisions regarding the allocation and disbursement of assets upon Plan termination
  • Claims' procedures may be furnished separately in a Certificate of Coverage, if the SPD explains that claims procedures are furnished without charge in the separate Certificate of Coverage document and sets time limits for lawsuits, if the Plan imposes them.
  • Clear identification of the circumstances that may result in loss or denial of benefits
  • Process and standards for review of benefit decisions
  • How the Plan is funded (employer and/or employee contributions) and the method to calculate contributions
  • Interim SMMs since the SPD was adopted or last restated
  • Offer of assistance in languages other than English, depending on the number of participants who require assistance in a non-English language

Additional requirements for Group Health Plan SPDs include:

  • Description of Plan provisions and exclusions - copays, deductibles, coinsurance, eligible expenses, network provider provisions, prior authorization and utilization review requirements, dollar limits, day limits, visit limits, and coverage related to new drugs, preventive care, and medical tests and devices.
  • Easy access to network provider information should be provided.
  • Plan restrictions, limits and exceptions must be clear.
  • Information regarding COBRA, HIPAA, and other federal mandates like preexisting conditions exclusions, Women's Health Cancer Rights Act, special enrollment rules, mental health parity, coverage for adopted children, Qualified Medical Support Orders, and minimum hospital stays after childbirth.
  • Identity and address of insurer(s), if applicable, along with a description of the role health insurers play (administrative services or other)
  • Although not required, it is advisable to also attach a Summary of Benefits
  • For self-insured plans, information on the TPA providing claims payment, benefits administration and other services is advisable (name, address, phone)
  • It's advisable to specify which document controls in case of conflict (Plan Document, SPD, or Certificate of Coverage).

How Must the Plan Administrator or Employer Provide the SPD to Plan Participants?

The Plan Administrator/Employer is responsible for preparing and delivering the SPD to Participants within 90 days of them becoming covered whether or not they request the SPD. Plan Administrators of a new Plan must provide the SPD within 120 days after the Plan is established. An updated SPD must be provided to all covered Participants every 5 years. Even if the SPD has not changed, it must be provided every 10 years. Fines can be imposed by the DOL for failure to provide the SPD as required and proof can be important in situations of litigation. SPDs can be sent to Participants in a variety of ways, including electronic delivery, first-class mail, and hand delivery.

Participants are defined as:

  • Covered employees (not required separately for dependents of covered employees)
  • Terminated COBRA Participants
  • Parents/guardians of minors covered under a qualified medical support order
  • Dependents of a deceased retiree under a retiree medical plan

What Are the Penalties Associated with Non-compliance?

There are Department of Labor penalties for not distributing plan documents to their Participants in a timely basis but just as important, having a compliant ERISA Wrap or Mega-Wrap document ensures that your plan falls under federal regulations and not the state. ERISA is a federal law that trumps state law. Some states allow Participants and Beneficiaries to bring "bad faith" lawsuits against administrators and insurers who have denied benefits.

If you have your ERISA language in the Plan Document, state lawsuits are bypassed. There have been many cases where a jury has awarded large sums of money through the state courts for non-compliance. The ERISA law limits damages to the unpaid benefits and does not allow for jury trials which often favor the insured over the insurer.

You will never be able to prevent all complaints from Participants who feel they have been wrongly denied benefits, but an ERISA compliant Plan Document provides layers of protection to mitigate any penalty potential.