Per the Employee Retirement Income and Security Act of 1974 (ERISA), all employers must have a written Summary Plan Description (SPD) for each separate welfare benefit plan (e.g., medical, dental, 125 plan, life, disability, etc.). The purpose is to inform participants of eligibility requirements, benefits, claims and appeals procedures, and rights under ERISA. How can an ERISA wrap document simplify meeting SPD requirements?
Let’s take a closer look at ERISA first.
What is ERISA?
The Employee Retirement Income Security Acts of 1974 (ERISA) protects individuals under voluntarily established pensions and health plans in private industries.
What ERISA Does Not Cover
ERISA does not cover group plans for government entities or churches. It also does not cover plans made only to comply with applicable workers’ compensation, disability, or unemployment laws and those maintained for the benefit of nonresident aliens outside America.
However, there is a difference between plan documents and summary plan descriptions. Plan documents explain the benefits participants are entitled to and provide guidelines to help administrators make informed decisions.
These consist of the following information:
Name of the fiduciary who holds the authority to administer the plan;
Process for amending and terminating the policy;
Source of plan contributions and the distribution of responsibilities between the employer and insurance carrier.
A summary plan description (SPD) contains the gist of the plan document, written in a way that beneficiaries will fully understand.
What does it regulate?
ERISA regulates fiduciary duties that cover retirement plans and employee benefits. When a business fails to comply with the requirements stated by ERISA, this may result in penalties, lawsuits, and possible enforcement actions by the Department of Labor.
What is an SPD?
If you offer group health insurance, you are required to distribute an ERISA Wrap SPD document to all Plan participants within 120 days of the Plan’s effective date.
- The sponsor of an insured plan (not the issuer) is responsible for providing the SPD.
- The insurance certificate typically does not meet all of ERISA’s requirements for SPDs.
- A compliance solution for insured plans is a “wrap document.”
What happens if I don’t have one?
Employers can face fines of up to $2,140/day for each Form 5500 that it files late. The penalty for late delivery of an SPD, SMM, or SAR to a participant is $147/day. These penalties apply to each plan, and they are cumulative and not subject to a statute of limitations.
ERISA eSolutions provides a web-based Summary Plan Description (SPD) Wrap service that allows clients and their broker to create, store easily, and update summary plan description documents, as needed. With the SPD Wrap, it creates one document and overall SPD required for all health and welfare benefits such as medical, dental, life, disability, FSA, etc.
Although insurance providers may provide some information required for compliance, it is a common mistake for employers to think that the summary insurance information they receive from their insurance provider meets their summary.
SPD Plan description requirements
A common approach is to combine all SPDs into one overall SPD Wrap notice, tying in the required ERISA language and simplifying the SPD notice process. Use ERISA Solutions to create and manage your SPD Wrap, making sure you pass ERISA Audits.
The service includes Summary Material Modifications (SMM) anytime you need to create this notice related to material changes to any of your health and welfare benefit plans.