Do you have an ERISA compliant Summary Plan Description (SPD) document? Many employers are unaware of the SPD requirements under the Employee Retirement Income Security Act (ERISA) of 1974. And many who have SPDs don't have all of their bases covered either.
If you fail to comply with U.S. Department of Labor (DOL) regulations regarding SPDs, you can be subject to fines for non-compliance as well as greater exposures during an audit. If you have not done so already, add SPD preparation to your list of compliance items to be sure you have in place.
An ERISA compliant SPD: can you summarize that?
A Summary Plan Description must accompany each welfare benefit plan that an employer maintains. ERISA states that plan administrators (employers) are required to provide plan participants—in writing—the most important facts and procedures about their retirement and health benefit plans.
SPDs are one of the most important documents employers are legally obligated to maintain and provide to employees. The SPD must explain to plan participants the benefits, rules, claims and appeals procedures, participant rights and other compliance notices along with general and basic information about the employer and the plan(s).
Plan participants must receive a SPD free of charge within 90 days of enrollment or within 30 days of a request to receive one. In addition, SPDs must be distributed to participants within 120 days of the effective date of any new plan. Penalties from $10,000 to $18,000 have been levied upon employers for failing to provide a SPD within 30 days of a request.
Certificates of Coverage and Certificates of Insurance are not SPDs.
Certificates of Coverage (COC), Certificates of Insurance (COI) or general insurance contracts issued by insurance carriers are not SPDs.
Typically, COCs and COIs are not ERISA compliant and are meant to be supplemental to the plan's SPD. Insurance companies write their certificates and booklets in order to be compliant with insurance laws; complying with ERISA regulations is the job of the plan administrator.
If your employees are receiving certificates or booklets from your insurance companies but not ERISA compliant SPDs, you could be subject to serious fines if you are audited by the DOL.
Wrap documents to the rescue.
There is some good news. The DOL allows employers to prepare SPD wrap documents to help minimize the amount of time, money and resources spent on preparing and updating individual SPDs. Ordering the "wrap" is a healthy option for your organization and bottom line.
A wrap document wraps around the insurance policy or coverage certificate, ensuring that employees receive all of the information that is required by ERISA. The insurance policy still governs the plan, and the wrap document allows it to also be ERISA compliant. In addition, employers can consolidate several individual SPDs under a single wrap document.
Why does an employer need a wrap document?
An employer would need a SPD wrap document for the following reasons.
- ERISA compliance: An insurer's main focus generally is compliance with state laws regulating insurance and not ERISA regulations. Even when insurers atempt to satisfy ERISA's requirements, the resulting document often does not contain all of the provisions designed to protect the plan, the plan administrator and other plan fiduciaries. The use of a SPD wrap document ensures ERISA compliance.
- Consolidation: Employers may use SPD wrap documents to consolidate employee welfare benefit plans into a single plan, commonly referred to as an "umbrella" or "mega-wrap" plan. Consolidating employee benefit welfare plans into a single plan could reduce the costs associated with filing multiple annual reports, distributing multiple summary annual reports, and amending multiple plans in response to legislative or regulatory changes.
- State law: In order for an employer to legally make any payroll deduction from an employee's paycheck pre-tax, there must be a written mechanism showing the deduction and the employee must have approve the deduction (e.g., by signing the benefit election form).
Why does compliance matter?
The DOL has stated that it intends to audit all group health plans, and it has significantly increased its staffing levels enabling it to conduct more audits. One of the standard audit information requests is for the production of all SPDs and wrap documents. If you do not have or produce the appropriate SPD(s) or wrap document(s), it raises a red flag to the auditor. If the auditor suspects that you are not in compliance, it might result in a more stringent review of your records and documents. If you are audited, the best outcome for you is a quick ending with no penalties, not a drawn out audit process that results in fines for non-compliance.
Does employer size matter?
Employer size does not matter when it comes to preparing SPDs and wrap documents. In fact, small employers more often find the need to utilize wrap documents. Larger employers often have more resources or personnel to customize their benefit packages and documents, while small employers might prefer to take advantage of the efficiencies offered by using a wrap.
Under ERISA, all plans must produce and provide to employees a written Summary Plan Description, regardless of the number of employees.
SPDs, wrap documents and ERISA compliance are complicated. We typically conduct a compliance review for new benefits clients to ensure that your compliance efforts are on the right track.
