ERISA, Wrap Documents, and 5500s: A Smorgasbord of What, How, and Why?
We all know the value of employee benefits for both employers and employees. We also know the significant compliance responsibilities attached to those benefits and the employer’s role in complying with the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA established federal rules for many private sector, employer‑sponsored benefit plans. There has, however, always been this lingering question that employers have posed to their broker/advisors: Which benefits plans are subject to ERISA and the accompanying regulations?
As a general rule, ERISA governs both employee pension benefit plans and employee welfare benefit plans. We’ll focus our attention on the ERISA welfare benefit plans and tell you that those include, for example:
- Medical, dental, and vision plans
- Prescription drug plans
- Health FSAs and HRAs
- Group life insurance
- Fully insured short and long‑term disability coverage
- Accidental death & dismemberment (AD&D)
- Certain wellness programs and employee assistance programs (EAPs)
What Benefits Are and Aren’t Subject to ERISA?
For a variety of legal, structural, and practical reasons, employers seem to struggle to determine which benefit plans are covered by ERISA and which are not. This isn’t because employers are careless or uninformed; it’s because ERISA is one of those laws where the line between “covered” and “not covered” is skewed by how benefits are actually bought and administered.
Many employers think ERISA coverage depends on factors like who pays for the benefit, whether the plan is fully insured or self‑funded, and company size. This often leads to misconceptions like:
- “if a plan is fully insured, the carrier handles all ERISA obligations,” or
- “small employers don’t have ERISA obligations.”
To set the record straight, any group plan maintained by an employer to provide any of the benefits listed below is subject to ERISA:
- Medical, surgical, or hospital care or benefits;
- Benefits in the event of sickness, accident, disability, death, or unemployment;
- Vacation benefits;
- Apprenticeship or other training programs;
- Day-care centers;
- Scholarship funds; or
- Prepaid legal services.
There are certain statutory exemptions to ERISA for governmental plans, plans maintained by Indian tribal governments/tribal entities, church plans, plans maintained by employers solely to comply with state disability laws, workers’ compensation, or unemployment compensation laws, and plans established and maintained outside of the U.S. primarily for the benefit of nonresident aliens. Along similar lines, the Department of Labor (DOL) provides that certain payroll practices and voluntary benefits can qualify for an ERISA exemption if they satisfy a series of safe harbor criteria. When applicable benefits don’t satisfy these safe harbors, however, it’s often the case that ERISA will apply.
Wrap Documents
ERISA has a documentation requirement; we all know this. Plans that are established and maintained are done so via a written plan document, and participants in that plan must receive a Summary Plan Description (SPD) that clearly explains their rights and benefits. Insurance carriers distribute documents to employers, which are typically either benefit summaries, coverage descriptions, or actual policy contracts. However, these documents often omit many of the ERISA-required elements.
To solve for this, employers have the option of adopting a wrap plan document that “wraps around” the insurance carrier materials and incorporates them by reference, filling in the ERISA‑required language that those carriers do not provide. Together, they form a wrap document, completing the more comprehensive ERISA plan document. These documents can be structured as either single‑benefit wraps or, more commonly, mega‑wraps that bundle multiple welfare benefits under a single ERISA plan.
Is there a benefit to having a mega-wrap plan? There sure is. The mega-wrap document:
- Ensures ERISA compliance by closing any potential documentation gaps;
- Consolidates multiple benefits (medical, dental, vision, etc.) into one plan, which:
- Makes the document less cumbersome to read and distribute upon request
- Means there’s just one plan number (e.g., Plan 501) for all of the “wrapped” benefits
- Significantly streamlines the administrative burden, and sometimes cost, of Form 5500 filings (more about them in a minute); and
- Reduces legal risk in litigation, as a properly drafted wrap plan creates clarity, avoids conflicting terms, and strengthens the employer’s fiduciary position.
As a reminder, wrap documents only need to include welfare benefit plans that are subject to ERISA.
Form 5500 Filings
As promised, let’s now turn our attention to Form 5500 filings. These annual filings exist to give the federal government visibility into employer-sponsored benefit plans subject to ERISA.
A Form 5500 filing captures key information about the plan’s structure, funding, service providers, and overall financial framework, creating a standardized disclosure that regulators can use to monitor the benefits landscape and identify potential compliance concerns.
Interestingly, not all employers have to file 5500 reports. As a general rule, an employer must file if:
- The plan has 100 or more participants at the start of the plan year; or
- The plan is funded.
The most common exemption to a 5500 filing is a single welfare plan that is fully insured, unfunded, and has less than 100 participants.
Before going further, it’s helpful to define a few key terms related to Form 5500 filing requirements:
- A “participant” is a current or former employee covered on the first day of the plan year or a former employee eligible to elect COBRA on the first day of the plan year.
- Spouses and dependents should be excluded from the 5500 participant counts.
- A plan is “funded” when the plan assets are held separately in a trust.
Notably, if an employer has a wrap document bundling multiple benefits together, they together qualify as a single ERISA plan. Therefore, the participant count is based on the number of unique participants across all benefits wrapped together. So, in order to determine if and how many health and welfare 5500 filings are required each year, employers need to know:
- Which of the plans they offer are subject to ERISA;
- Which, if any, of those benefits are “wrapped” together;
- Which, if any, of those benefits are funded; and
- How many participants, using the 5500 filing definition, were enrolled in each plan at the beginning of the plan year?
The legal responsibility for filing 5500s ultimately lies with the plan administrator, which could be the employer or the party named in the plan document.
The deadline for filing via the DOL’s online EFAST2 system is the last day of the 7th month after the plan year ends, though there are options for requesting extensions and submitting delinquent filings. For example, 5500 filings for 2025 calendar-year plans are due by July 31, 2026. There are stiff fines for not filing altogether, and potentially severe repercussions, including the risk of audit, civil penalties, etc.
Summary
Hopefully, we’ve made it clear that establishing which benefits are subject to ERISA is a great step employers can take towards tightening up their overall ERISA compliance strategy. Once this has been settled, employers can decide which benefits they want to include in a wrap document; a best practice we strongly recommend for ensuring complete and consistent ERISA plan documentation.
Implementing a wrap plan document not only helps close compliance gaps but also directly impacts Form 5500 filing requirements, including whether a filing is needed and how many filings may apply.
Please reach out to sales@lumelight.com if you’d like more information about how Lumelight can assist with wrap documents and 5500 filings.
