The Employee Retirement Income Security Act of 1974 (ERISA) regulates employee pension plans and welfare benefit plans, with the exception of government and church plans. It is required by ERISA that plan sponsors describe the terms and conditions of its welfare benefit plans on an official written plan document that is maintained in accordance with an official written instrument. Within this instrument, the fiduciaries that have the responsibility to control and maintain the plan must be named.
In order to comply with Section 402(b) of ERISA the Plan must fulfill certain requirements:
(1) provide a procedure for establishing and carrying out a funding policy and method consistent with the objectives of the plan and the requirements of this subchapter,
(2) describe any procedure under the plan for the allocation of responsibilities for the operation and administration of the plan (including any procedure described in section 405 (c)(1)
(3) provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan, and
(4) specify the basis on which payments are made to and from the plan.
The Plan may also provide, as an option:
(1) that any person or group of persons may serve in more than one fiduciary capacity with respect to the plan (including service both as trustee and administrator);
(2) that a named fiduciary, or a fiduciary designated by a named fiduciary pursuant to a plan procedure described in section 1105 (c)(1) of this title, may employ one or more persons to render advice with regard to any responsibility such fiduciary has under the plan; or
(3) that a person who is a named fiduciary with respect to control or management of the assets of the plan may appoint an investment manager or managers to manage (including the power to acquire and dispose of) any assets of a plan.
Compliance with Plan Document
Oftentimes employers with benefit plans that are solely funded through insurance contracts or service agreements fail to have either, 1) a separate written instruction that specifies the procedure for amending/terminating the plan, or 2) a named Plan fiduciary. Summary Plan Descriptions (SPDs) merely summarize the official Plan document and therefore do not contain all of the required information under ERISA.
In order to meet the Form 5500 filing requirement, some employers will consolidate their welfare plan benefits into one plan and then file one 5500 for the consolidated Plans. Without a wrap around plan document, the employer does not have an instrument with which to describe the consolidated welfare plan and, therefore, is out of compliance. One purpose of the wrap around plan document is to ensure that the filing requirements are met and the employer is in compliance.
Compliance with HIPAA Privacy Rules
The Department of Health and Human Services (HHS) requires the incorporation of a series of provisions relating to protected health information (PHI). Health insurers must also require certification that the plan documents have been amended as a condition prior to the release of any PHI, as per the HHS. The wrap around plan document meets these health plan documentation requirements, thus ensuring compliance for the employer.
Compliance with Summary Plan Description Requirements
Most booklets and EOCs don’t contain all of the required information in order to be compliant with ERISA and, therefore, a wrap around SPD must be distributed to employees. While the booklets and EOCs provide a full description of the plan benefits, including their limitations and eligibility rules, the wrap around SPD contains all of the remaining information that is needed for ERISA compliance.
The new Initial COBRA Notice, as promoted by the DOL’s May 28, 2003 proposed regulations, can also be provided using the wrap around SPD. While the initial COBRA notice must be provided within 90 days, Plan Sponsors that normally provide SPDs to participants at the time of their initial enrollment can meet the initial notice requirement without the additional mailing. The Plan Sponsor, under most circumstances, is also permitted to post the wrap around SPD on its website in order to satisfy the requirements.
