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Aug 10, 2020

Wrap Documents: Everything You Need to Know

ERISA, or the Employee Retirement Income Security Act of 1974, is a federal law that applies to most private employers and establishes basic standards for group health benefits, retirement, and other welfare plans such as life and disability insurance. 

These standards were established to protect both employees and employers and do not oblige the latter to offer any plans. Additionally, a Summary Plan Description (SPD) for each plan must be written by the employer explaining the essential facts. For example, when the employer may modify or terminate a particular plan, since the Certificate of Coverage, provided by the broker or insurance carrier does not satisfy ERISA requirements for plan documents. 

At the same time, wrap documents may be accompanied by the Certificate of Coverage to correspond to ERISA standards. This document is referred to as a "wrap document" because it "wraps" around all disclosures mandated by ERISA and include details like the distribution of duties between employer and carrier or other third-party and the rights that plan participants are given according to ERISA.

Common self-funded or insured employee benefit plans that ERISA applies to are:

  • Medical
  • Dental
  • Vision
  • Prescription drugs
  • Group life
  • Flexible spending accounts
  • Employee assistance
  • Disability benefits

ERISA obliges small and large employers to maintain benefit plans in accordance with a written plan document and does not require plan documents to be in any specific format. However, certain fields need to be addressed. These are:

  • Name of the plan administrator
  • Benefit plan details
  • Eligibility rules
  • Procedures of plan termination and amendment
  • COBRA and HIPAA information for group plans

If large employers possess resources to create plan documents and SPDs, smaller employers lack them. A wrap document is an efficient and straightforward way to prepare plan documents.

What is a wrap document?

A wrap document is a package that holds supplemental documentation to an existing Certificate of Coverage of a benefit plan to fill in the gap in ERISA requirements. It also provides a wrap-up that essentially merges all call benefits into a single plan.

ERISA plan document consists of two elements:

  • Certificate of Coverage, provided by the insurance carrier (A document that contains the plan information)
  • Wrap Document (A document that fills in the gap in the information requested by the ERISA requirements)

Mega Wrap Plans

Often, multiple welfare benefit plans are bundled under a single legal document called a Mega Wrap Plan. The fundamental cause to bundle numerous plans into one is that it makes filing a Form 5500 much simpler. It is mostly applicable to large employers that have several plans to be filed in separate Forms 5500. 

If a mega-wrap document is used, a single Form 5500 is required, simplifying the annual reporting requirements. Smaller employers, however, may want to refrain from bundling several plans into a single one because that might trigger the Form 5500 filing requirement for a plan that would not be subject to filing under other conditions.

If an employer or a plan sponsor uses a mega-wrap to merge a fully-insured and a self-funded plan, it would have to be in full compliance with HIPAA rules for each plan, even for those that would otherwise be exempt.

Summary Plan Description

Every benefit plan, regardless of the sponsor size, that is subject to ERISA is obliged to provide a guide to the benefits program that explains in plain language how benefits are calculated, paid and who is eligible to participate.

SPD should always answer the following questions:

As a rule, the Certificate of Coverage provided by the insurance carriers and benefit booklets provided by the TPA's do not include all the necessary information that is required in an SPD according to ERISA standards. To create a plan SPD, an employer should use a wrap SPD that bundles all the ERISA-required information missing in the Certificate of Coverage or a benefits booklet.

The plan SPD becomes ERISA compliant only after the plan sponsor distributes it and the Certificate of Coverage to plan participants on time.

The plan sponsor should provide an SPD within 90 days of enrollment or 30 days after the request. Plan sponsors that fail to do that promptly are subject to a $110 fine per day for each violation.

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