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Wrap Document to Comply With ERISA Summary Plan Description (SPD) Requirement

The Employee Retirement Income Security Act (ERISA) was signed into law in 1974. ERISA, and its later amendments, sets standards for employee benefit plans. Among other things, ERISA establishes rules for private-sector employer sponsored health and welfare plans.

ERISA Documentation Requirements

Every employer which sponsors an ERISA health or welfare plan is subject to ERISA's Documentation Requirements. Examples of these plans are medical benefits (dental, healthcare, prescription drug, vision, etc.) and insured benefits (accidental death/dismemberment, disability, term life, etc). Among ERISA's many documentation rules is the requirement to provide each participant with a Summary Plan Description (SPD). Both insured and self-funded group health plans must comply with the federal laws governing SPDs. While ERISA contains an exception for group health plans with less than 100 plan participants, that exception only applies to reporting requirements (e.g., 5500 filings). Caution: even if you employ only 1 person, you must still satisfy ERISA documentation requirements. Many employers mistakenly believe they are compliant with this requirement when in fact, they are not.

SPD Requirements

The SPD is a document that communicates plan rights and obligations. The SPD must explain the benefits of each program sponsored, claim review procedures, and the participant’s ERISA rights. Caution: it must be written in a manner that is easily understood by participants. This means the document must be plainly written and free of excessive technical jargon. Employers are also under a time crunch, as the SPD must be distributed timely. Specifically, participants must receive an SPD:

• Within 120 days of the plan becoming subject to ERISA;
• Within 90 days of enrollment for new participants;
• Every 5 years if material modifications are made during that period; or
• Every 10 years if no amendments occur.

Common SPD Compliance Problem

Many employers offer healthcare benefits through an insurance carrier. Often the insurance carrier provides employers with benefit booklets or certificates of coverage. Many employers wrongly presume these documents meet ERISA's SPD requirement. Caution: generally, insurance company documentation will not satisfy ERISA SPD requirements. Sadly, the burden falls on the sponsoring employer to supplement any deficient documentation.

Failure to Comply Consequences

Failing to comply can be costly for employers. If an employer fails to provide an SPD within 30 days of a participant's request, fines of $156 per day can accrue. Without a fully compliant SPD, how can an employer respond to such requests? In addition, the U.S. Department of Labor (DOL) has jurisdiction over these matters. The DOL may subject employers to labor investigations if workers elevate benefits compliance complaints to regulators.

The Solution - ERISA Wrap Document or Wrap SPD

To meet the SPD requirement, an employer can use an ERISA Wrap Document or a Wrap SPD, which includes the ERISA required language. This document supplements insurance carrier benefit summaries or certificates of coverage. 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. In this case, the ERISA Wrap Document or Wrap SPD, plus the insurance carrier documentation, collectively make up the required plan documentation.

Key Takeaways

Employers sponsoring plans which are subject to ERISA should revisit their plan documentation to ensure they are compliant with ERISA SPD requirements. For more information on the SPD requirement, its required content, or how to utilize an SPD wrap document – contact a Spectrum Consultant or your Account Manager.