When it comes to ERISA compliance, many employers have misconceptions surrounding when they must have plan documents and SPDs for benefits they sponsor, who is responsible for creating documents and SPDs and what information must be provided to employees and when.
Myth #1 The Affordable Care Act (ACA) requires the Plan Document and SPDs.
This is not true. Although some believe that the Wrap plan document and summary plan description (SPD) requirement are a result of the Affordable Care Act (ACA), this has actually been a longstanding Department of Labor (DOL) rule for employers subject to ERISA. It is true that the ACA has elevated the attention placed on health plans in recent years, which may expose the non-compliance with the DOL requirement.
Myth #2: Benefit booklets are SPDs.
This is not true. The SPD requirement is often overlooked by employers who believe the benefit booklet provided by the insurance carrier is sufficient. Failure to provide an SPD to plan participants timely can result in financial penalties for the employer. The employer may use a Wrap plan/SPD to provide the supplemental wording that can act as a companion to the material provided by the insurance carrier to satisfy the SPD requirement.
Myth #3: The SPD requirement is only for large employers.
This is not true. All Employers subject to ERISA regardless of the number of employees or plan participants, that sponsor benefits subject to ERISA, must have a plan document and provide plan participants with an SPD. This would mean that an employer subject to ERISA, that sponsors ERISA benefits that has 2 employees must meet this requirement the same as an employer with 2,000 employees.
Now that we have dispelled some of the more common myths, let’s take a deeper dive and look at some of the more frequently asked questions (FAQ) regarding ERISA compliance and the solutions that are available to satisfy the DOL plan document/SPD requirements.
Which employers are subject to ERISA?
ERISA applies to most all employers regardless of size or business type (corporations, S corporations, LLC, sole proprietors, and nonprofits).
Which employers are exempt from ERISA overall?
The only employers exempt from ERISA are governmental employers (i.e. village, town, city, county, public school district, state government, etc.) and church plans. A church plan is an employee benefit plan that sponsored by a church or a convention or association of churches that are exempt from taxes under IRS §501 and has not elected to be subject to ERISA.
What compliance is required for employers subject to ERISA?
All Employers subject to ERISA have compliance obligations when they sponsor employee benefits subject to ERISA. Examples of some of these obligations include: written plan documents and summary plans descriptions that contain specific content and in some instances Form 5500 filing and Summary Annual Reports (SAR) to name a few.
Which health and welfare benefit plans are subject to ERISA?
Examples of employer sponsored plans subject to ERISA include: group health, dental, vision, group term life, group short term and long term disability, some voluntary plans and Employee Assistance plans (EAP), health care flexible spending accounts, health reimbursement arrangements (HRA) to name a few.
Some examples of plans/accounts not subject to ERISA include: adoption assistance plans, dependent care flexible spending accounts, health savings accounts (HSA) and some voluntary individual plans.
Will an employer with less than 100 employees or 100 participants be subject to the plan document and SPD requirement?
There is no small employer exception for this requirement. An employer that is subject to ERISA that sponsors ERISA benefits, regardless of the number of employees that participate in the coverage, is required to have a plan document and summary plan description (SPD) for ERISA benefits.
Will the insurance booklet or insurance certificate provided by the insurance carrier meet the SPD requirement?
Generally, no. The certificate of insurance/benefit booklets are provided by the insurance carrier and are based upon state insurance regulations. This information alone generally does not satisfy the ERISA plan document and SPD requirements, which a DOL requirement under federal law. Failure to provide plan participants with an SPD within 90 days of participation or within 30 days upon request may result in financial penalties for the employer.
How does a Wrap plan help satisfy the DOL plan document and SPD requirement?
Wrap plans are a function of complying with ERISA’s plan document and summary plan description (SPD) requirements. The “wrap” plan can bundle one or more lines of coverage together under one ERISA plan number and provide supplemental wording not found in insurance certificates or booklets. The wrap plan acts as a companion piece to the insurance certificates and/or booklets and the two together satisfy ERISA’s plan document and SPD requirement.
Want to learn more about Wrap plans? Please see our webinar page and review the webinar slides presented this February.