Wrap Documents: A Cost-Effective Means of Complying with ERISA's Plan Document and SPD Requirements
August 19, 2011

The Department of Labor recently announced plans to substantially increase the number of ERISA compliance audits it conducts each year. This is the first in a series of Client Alerts that Lewis and Roca LLP will publish over the coming months to help our clients evaluate their compliance with ERISA and related federal mandates, including COBRA, HIPAA and the Patient Protection and Affordable Care Act of 2010.

This alert addresses one of the most commonly misunderstood aspects of ERISA compliance – proper documentation and disclosure of health and welfare plans. While most employers have been careful to comply with ERISA’s plan documentation and disclosure requirements in connection with their retirement plans (i.e., pension, 401(k) and profit sharing plans), few have devoted the same level of attention to their health and welfare plans.

The Plan Document Requirement

Section 402 of ERISA provides that every employee welfare benefit plan must be established and maintained pursuant to a written plan document. Employee welfare benefit plans include medical, dental, vision, group term life insurance and disability insurance plans. The written plan document must identify the following: 

  • the named fiduciary who will have the authority to control and manage the operation and administration of the plan; 
  • the procedures for amending the plan; 
  • the basis on which payments are made to and from the plan; 
  • the procedure for establishing and carrying out the plan’s funding policy; and 
  • the allocation of responsibilities for the operation and administration of the plan.

Some employers incorrectly assume that the insurance policy, coverage certificate or plan booklet they receive from their insurance carrier or third party administrator satisfies the plan document requirement. While these documents often include detailed descriptions of the benefits available under the plan, they rarely identify a named fiduciary or the procedures for amending the plan. These documents also typically fail to allocate responsibilities for the operation and administration of the plan between the employer and the insurance carrier / third party administrator.

The Summary Plan Description Requirement

In addition to the plan document requirement, ERISA also requires that every employee welfare benefit plan be described in a summary plan description (“SPD”) that provides plan participants with an accurate and comprehensive summary of the plan. In addition to describing important plan rules and the benefits available under the plan, ERISA requires that every SPD include the following information about the plan: 

  • the plan name; 
  • the name and address of the employer; 
  • the employer’s EIN; 
  • the name, address and telephone number of the plan administrator; 
  • a name and address for service of legal process; 
  • the plan number for annual reporting purposes; 
  • the plan year; 
  • information about plan trustees; 
  • a claims procedure; 
  • information about eligibility for plan participation; and 
  • a statement of ERISA rights.

ERISA also requires that additional information be provided to participants in group health plans, including information about COBRA continuation coverage and HIPAA preexisting condition exclusions.

The importance of preparing an SPD that complies with ERISA cannot be overstated. Not only does the Department of Labor describe the SPD as “the primary vehicle for informing participants and beneficiaries about their rights and benefits,” employers are also legally obligated to provide each plan participant with a copy of the SPD, free of charge. Failure to provide a plan participant with a copy of the SPD within 30 days of the date the participant requests a copy can result in a $110/per day penalty imposed by the Department of Labor.

The Wrap Document - a Simple and Cost-Effective Solution

While large employers may have the resources to prepare customized plan documents and SPDs for each of the employee welfare benefit plans they offer, most employers lack the time, money and expertise necessary to prepare these documents and keep them up to date in this ever changing regulatory landscape. A simple and cost-effective solution to this problem is the wrap document.

A wrap document is a relatively simple document that incorporates (i.e., wraps itself around) the applicable insurance policy, coverage certificate or plan booklet. The benefits available under the plan continue to be governed by the applicable insurance policy, coverage certificate or plan booklet, while the wrap document simply supplements that governing document with the information necessary to comply with ERISA. In effect, a wrap document fills in the gaps left by insurance carriers and third party administrators without changing the benefits available under the plan.

In addition to easing compliance with ERISA’s plan document and SPD requirements, wrap documents can also be used by an employer to consolidate employee welfare benefit plans into a single plan (commonly referred to as an “umbrella” or “mega-wrap” plan). Consolidating employee welfare benefit plans into a single plan can reduce the costs associated with filing multiple annual reports, distributing multiple summary annual reports (SARs) and amending multiple plans in response to legislative or regulatory changes.

If you have any questions about the issues discussed in this Client Alert, or employee benefit plans generally, please contact Peter R. Wand at 602.262.5305 or David E. Manch at 602.262.5397.


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