Quick Takes
Insurance policies and booklets don't have all the provisions needed to comply with ERISA, and they are written to protect the insurer or TPA, not the employer
Managing the risk of employee disputes and accidental self-insurance requires a well-written formal ERISA plan document (aka "wrap doc")
ERISA imposes daily penalties for failure to provide certain documents, including the formal ERISA plan document and its counterpart, the summary plan description (SPD)
Separately, the Internal Revenue Code (IRS) requires a written plan document for pre-tax premiums and other Section 125 cafeteria plan benefits
Bonus: ERISAfire's plan document combines the ERISA plan document, ERISA SPD and Section 125 pre-tax premium document into a single document for easier management of benefit terms (i.e., better risk management)
Bonus: With ERISAfire's plan document, employers can keep MLR rebates!
The Details
Benefits compliance can be a chore, which is why we're here—to help you manage your benefits compliance risk. The first, best risk management step is to make sure you have a formal plan document that not only complies with the Employee Retirement Income Security Act of 1974 (ERISA), but also addresses and manages common benefits risks.
What Is a Plan Document?
A plan document is a written, governing document that establishes important information for plan participants and beneficiaries including the responsibilities of plan sponsors and plan administrators. Also known as a "wrap doc," a formal ERISA plan document is a single document that wraps all health and welfare benefits together and can be used to satisfy multiple reporting and disclosure requirements. Benefits that are subject to ERISA are required to have a formal ERISA plan document, and it should include things like:
Whose employees are eligible (i.e., participating employers or subsidiaries)?
What benefits are available to which types of employees?
What rules are there for mid-year election changes?
How is the ERISA plan amended or terminated?
For government filing purposes, what is the ERISA plan year, plan name and plan number?
What claims and appeals procedures are there when the insurance policy or benefit summary doesn't say (often the case for vision, worksite and sometimes even dental)?
What powers does the employer-as-plan administrator have?
The ERISA plan document must also contain additional details required by the Affordable Care Act (ACA), Health Insurance Portability and Accountability Act (HIPAA) and the Internal Revenue Code (IRS).
Which Benefits Are Subject to ERISA?
Many benefit types are subject to ERISA's plan document requirement. Here are some of the more common (and a few not-so-common) examples:
Group medical, dental and vision
Life insurance, accidental death and dismemberment (AD&D)
Short-term and long-term disability
Healthcare flexible spending accounts (FSA)
Health reimbursement arrangements (HRA)
Prescription drugs
Telemedicine
Long-term care
Employee assistance programs (EAP)
Pre-paid legal products
Some severance arrangements
In short, an employer offering any of the above benefits to its employees needs a formal, ERISA-compliant plan document.
Isn't There a Small Employer Exception?
No. Whether an employer has two employees or 2,000, it is required to have a formal ERISA plan document, provide the required notices and make the required disclosures.
Why Won't an Insurance Certificate or Benefit Summary Work?
A common mistake most small employer groups make is assuming that an insurance certificate or benefit summary from the carrier or broker will suffice as an ERISA plan document, or at least provide sufficient disclosure of benefits terms and conditions to employees. This is incorrect.
The insurance policy and benefit summary prepared by the carrier or TPA is designed to manage the carrier's or TPA's risks, not the employer's, leaving a great many gaps, often including:
employee and dependent eligibility (new hire, rehire, domestic partner, etc.)
election changes
employer power to interpret and apply plan terms
what to do with premium rebates
other provisions required by law (e.g., Mothers and Newborns Act, COBRA continuation coverage, FMLA continuation coverage, etc.)
In addition, ERISA requires that employees be given this thing called a "summary plan description," or SPD, within 90 days of first being covered by a benefit provided under the ERISA plan, and the content requirements imposed by ERISA just can't be satisfied by an insurance policy or benefit booklet.
So What If There's No ERISA Plan Document?
Avoid Fines and Penalties
The ERISA plan document is the first item requested in any DOL audit. Also, employees can request benefits documents (including the wrap doc and SPD) from the employer at any point in time, and out-of-network providers and attorneys can also request those documents on behalf of employees. ERISA gives employers 30 days to respond. After that, both DOL and courts can impose a penalty of up to $110 per day per affected employee.
An ERISA Plan Document Provides Real Benefits
Pun most definitely intended. Without an ERISA plan document, certain default rules kick in that are not favorable for employers. One such default rule requires that MLR rebates be traced to employer versus employee contributions, forcing employers to painstakingly distribute sometimes minuscule amounts to employees.
There are other provisions that HR folks probably won't need to have handy every day, but like a good insurance policy if something ever does happen, you're sure going to be glad you had them. A discretionary clause, for instance, gives preferential treatment to the employer's interpretation of the plan and it can be a game-changer in disputes with employees, particularly if there's a real threat of litigation.
Questions?
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