Wrap Documents 101

The Employee Retirement Income Security Act of 1974 (ERISA) requires most employers who offer health and welfare benefits to maintain and distribute Summary Plan Descriptions (SPDs) to all plan participants. This SPD must include certain disclosures and information, such as when the employer may amend or terminate the plan(s).

Plan participants must receive an SPD within 90 days of enrollment or within 30 days of their request for one. SPDs must also be distributed to participants within 120 days of the effective date of any new plan. Employers who don’t provide an SPD in a timely manner may be subject to a penalty of up to $110 per day for each violation.

Many employers are either unaware of this requirement, or they distribute documents that do not meet the SPD requirements laid out by ERISA. Certificates of Coverage (COC), Summaries of Benefits and Coverage (SBC) or general contracts issued by insurance carriers are not the same as ERISA-compliant SPDs.

Typically, these types of documents do not include all the required SPD provisions and disclosures. Insurance companies write their certificates and booklets to be compliant with insurance laws. It is the responsibility of the plan administrator (which is almost always the employer) to comply with the SPD requirements of ERISA.

So, if the information provided by the insurance company does not satisfy the ERISA requirements, then how do employers stay compliant with the law? That’s where wrap documents come in.

A wrap document “wraps around” all ERISA health and welfare benefits and includes required disclosures that are not typically found in other documents. These include details like the allocation of duties and responsibilities between the employer and the insurer or the rights participants are entitled to under ERISA. Wrap documents become the SPD which ensures that the required ERISA language is available in writing.

Having a wrap document helps employers minimize the risk of financial penalties and lawsuits, and keeps them compliant with demanding laws. These documents also help save time and money. Employers can consolidate all health and welfare plans under the same wrap document, so there’s no need to update or amend multiple documents in response to legislative changes, regulatory changes or changes made by the employer with respect to the benefits they offer.

In addition, wrap documents simplify the Form 5500 filing process for employers with plans that have 100 or more participants or are otherwise subject to the filing requirement. As opposed to filing a separate Form 5500 for each health and welfare plan, a wrap document allows the employer to file a single Form 5500 (and associated schedules A) for all benefits covered under the wrap document.

As a trusted benefits administrator for 30 years, Flex offers a simple solution to help you stay compliant with ERISA. Feel free to contact us for advice about wrap documents or request a proposal to find out more.