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ERISA requires group health plans to have a written plan document in place, and to provide a summary plan description (SPD) to plan participants upon enrollment in the plan, among other times. The written plan document is the instrument by which the plan administrator must operate the plan. The SPD, on the other hand, is the instrument by which the plan notifies the participants of the plan’s terms, such as plan eligibility, funding, contributions and benefits. While the plan document and the SPD should be consistent, they are two separate documents and are both separately required by ERISA.
ERISA places the burden of satisfying the plan document and the SPD requirements on the plan administrator, which is generally the employer. With respect to the SPD, fully insured plans may think that they can rely on the insurance carrier’s contract, policy or certificate booklet (collectively, the certificates) with the plan sponsor to satisfy the SPD requirement. However, while the carrier certificates may contain much of the information that is required to be contained in the SPD, most certificates will not likely satisfy the SPD requirement in and of itself.
The employer may contract with the carrier or a third-party administrator (TPA) to provide the SPD. However, unless the carrier or TPA has been designated as plan administrator (and even then it’s not entirely clear), the employer as plan administrator is still liable if the carrier or TPA fails to furnish an adequate SPD. While a carrier or TPA that contracts to provide SPDs and/or become “plan administrator” may be liable to the employer as a matter of contract law for failure to do so, the employer will remain liable under ERISA for the carrier or TPA failure. A plan administrator may draft an SPD by itself or engage an outside entity to assist.
Oftentimes, in conjunction with the carrier certificates, the plan administrator will use a “wrap” document, which basically means that the employer will take the insurance carrier’s certificate and add (or “wrap”) any required ERISA language (and any additional items that are needed) to the certificate.
There are two types of wrap documents. The first is called a mega-wrap document, which has two purposes. The first purpose of the mega-wrap document is to wrap the required ERISA language around a carrier’s certificate of coverage. The second purpose of the mega-wrap document is to combine or bundle many employer-sponsored plans into a single plan. The main reason that an employer would want to combine multiple plans into a single plan is that it simplifies their Form 5500 filing. If the employer is large and has several separate plans subject to filing, it has to file multiple Forms 5500. If the employer uses a mega-wrap document to combine them into one plan, it only files a single Form 5500. However, there are other considerations with using a mega-wrap document. If an employer is close to 100 participants on one or more plans, the employer may not want to combine plans into a single plan, because it may have to file a Form 5500 for a plan that would otherwise not be subject to filing.
Another consideration with using mega-wrap documents is in relation to HIPAA. Fully insured plans are exempt from many of HIPAA’s privacy and security requirements. If a plan sponsor uses a mega-wrap document to combine a fully insured plan with a self-funded plan, the sponsor would have to comply with HIPAA’s full measure of requirements for all of their plans, including the fully insured plans that would otherwise be partially exempt.
The second type of wrap document is used solely to wrap the required ERISA language around a single policy or plan. This would be used by a fully insured client that simply wants to wrap the ERISA language around a medical certificate of coverage (or dental, vision, disability, life). Carriers often include state-mandated provisions regarding coverage, but do not always include the required federal ERISA requirements. Both a wrap and a mega-wrap document may be useful, depending on whether the plan has multiple benefits it wishes to bundle.
Based on the above, while carrier contracts, policies and certificate booklets may function as the written plan document, such documents will usually not include required ERISA language and specifics about the plan itself. When this happens, adding a wrap document or mega-wrap document will be necessary for compliance with the written plan document and SPD requirements under ERISA.