Frequently Asked Questions about the BASE® ERISA Wrap.

What is a Wrap SPD?

ERISA (the federal Employee Retirement Income Security Act) requires employers who are plan administrators of their group health plans to maintain and distribute summary plan descriptions (SPDs) to plan participants. The SPD describes important information about the plan in language that can be understood by the typical participant. The SPD must accurately reflect the contents of the plan and must include specific information required under federal law, much of which is typically missing from the benefits summaries and insurance certificates distributed by insurance companies.

A Wrap SPD is designed to wrap around existing certificates of insurance and benefit plan booklets to provide the information necessary to comply with ERISA’s reporting and disclosure requirements. The Wrap SPD includes required ERISA provisions and recommended information to “wrap” around the benefit summaries or booklets, insurance certificates and other relevant plan descriptions for each fully insured or self-funded plan option or component plan. To be compliant with ERISA’s reporting and disclosure requirements, the Wrap SPD and accompanying benefit plan component documents must be distributed to plan participants.

What is a Wrap Plan Document?

All ERISA-covered benefit plans, including group health plans and other welfare plans, must, by law, be administered in accordance with a written plan document. ERISA, HIPAA and other federal laws require the plan document to contain certain specified provisions. Many employers assume that insurance contracts for fully insured products are written plan documents. Insurance companies, however, draft their contracts to comply with state insurance laws and, as a result, the contracts do not contain many of the required or recommended provisions that protect the plan, the employer and plan fiduciaries.

A Wrap Plan Document is designed to meet plan documentation requirements under ERISA and other federal laws and to incorporate all other welfare plans, insurance contracts and other relevant documents into a single plan. These materials can be kept together for administrative ease. The Wrap Plan Document provides additional legal protection for the employer and plan fiduciaries and can simplify plan administration.

What does it mean for an employee benefit plan to be "covered" by ERISA?

ERISA is a federal law that covers most private sector employee benefit plans, and which sets forth uniform minimum standards to ensure that such plans are established and maintained in a fair and financially sound manner. Among other things, ERISA requires plan administrators—the people who run plans—to give plan participants in writing the most important facts they need to know about their health benefit plans including plan rules, financial information, and documents on the operation and management of the plan.

One of the most important documents participants are entitled to receive automatically when becoming a participant of an ERISA-covered health benefit plan or a beneficiary receiving benefits under such a plan, is a summary of the plan, called the summary plan description or SPD. For other basic disclosure requirements under ERISA, please refer to the U.S. Department of Labor’s Reporting and Disclosure Guide for Employee Benefit Plans.

Isn't distributing the plan booklets or insurance certificates enough to be compliant with government requirements?
No. While carriers do provide plan information, they typically will not provide the required provisions that must be included in an SPD and plan document. So an employer/plan administrator will not be in compliance and faces the risk of penalties and other complications if participants only receive a benefits booklet/summary or certificate of insurance.

Who must provide the Wrap SPD?
The plan administrator (which is typically the employer) is the person specifically designated by the terms of the plan who is responsible for its management. If the plan does not make a designation, the plan sponsor (typically the employer that establishes or maintains the plan) is generally the plan administrator.

Who must receive the Wrap SPD?
The SPD should be distributed automatically to all plan participants. The employer/plan administrator also must furnish copies of the most current SPD and plan document to participants and beneficiaries upon written request and must have copies available for examination. Copies should be furnished no later than 30 days after a written request.

Are there penalties if an employer does not have an SPD or plan document?
Employers/plan administrators may be liable for serious penalties if they don't provide an SPD or have a current plan document:

  • Failure to provide an SPD or plan document within 30 days of receiving a request from a plan participant or beneficiary can result in a penalty of up to $110/day per participant or beneficiary for each violation.
  • Lack of an SPD could trigger a plan audit by the U.S. Department of Labor (DOL).
  • Having documentation in order protects against disgruntled employees if issues regarding coverage arise.

The only entities exempt from ERISA are government employers and bona fide church groups, but how do you decide if an employer is exempt as a governmental agency or church group?

Ultimately it is up to the employer to determine what constitutes a Government agency or Church group, as not all agencies or groups qualify for these exemptions. Below are some general guidelines to follow in determining the proper designation.

Governmental Plans

ERISA defines a governmental plan as any employee benefit plan established or maintained by the government of the United States, by the government of any state or political subdivision thereof, or by any agency or instrumentality of any of those.

While it has not been specifically addressed in the statue or regulations, courts have held that a plan established by a state sponsored public school or school district would constitute a governmental plan.

Church Plans

ERISA defines a church plan as a plan that is established or maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches that is exempt under IRC Section 501.

Whether the church is exempt under IRC Section 501 would depend of whether the church has received an Internal Revenue Service determination letter stating that the church is 501 exempt. The church must not have made an irrevocable election under IRC Section 410(d). If the church has made such an election, then plan is subject to all of ERISA’s requirements by virtue of the election.

Are nonprofits considered exempt under ERISA?
Nonprofits (501c-3) do not have an exemption under ERISA. They will need to have an ERISA Wrap Plan if they have any benefits.