As we speed through the 4th quarter, towards the start of a new plan year in 2025, employers should begin their periodic review of employer-sponsored insurance plan documents. This is a practice we encourage for employers to ensure they’re compliant with ERISA and other laws, regulations, and guidelines as they pertain to employee benefits. One of the most common and essential tools for complying with numerous employee benefits plan requirements is something called a “wrap document.”
A wrap document describes the basics of an employer’s health and welfare plan and incorporates (or “wraps around”) the existing, more detailed benefit documents, like insurance brochures, policies, evidences of coverage, model notices, etc. A good wrap document provides the ERISA claim procedures and other Summary Plan Description (SPD) components that are required in the typical participant materials prepared by insurers, brokers, and TPAs. Having a wrap document in place can also reduce administrative expenses significantly, by creating a single ERISA plan that incorporates several component benefit plans, thereby reducing the number of annual 5500 filings to just one.
A wrap document can be used for:
- Multiple benefit coverages or a single benefit coverage;
- Fully insured and/or self-insured benefits; and
- Plan documents and/or summary plan documents.
When we talk about some of the aforementioned ERISA-required elements that might be missing from plan documents and other carrier-provided materials that can (and, in many cases, should) be included in a wrap document, we need to mention:
- Specific eligibility provisions and exclusions the employer has established;
- A general description of all benefits offered under a single plan;
- A description of how different benefits interact with other benefits;
- An employer’s right to amend or terminate the plan (not just the insurance policy); and
- Governance provisions, such as specifying who has the power to interpret plan provisions, decide eligibility claims, etc.
Employers often wonder why they need a wrap document. One reason, as we’ve implied in the above list, is that provider-prepared documents are written from the insurer’s perspective. Because of this, they generally do not contain adequate or complete language that is important or desirable to include from an employer’s, and in some cases, a plan participant’s perspective.
We also encourage employers to put a wrap document in place because an employer-sponsored plan may be out of compliance without it. There are several potential consequences at play for an employer when their plan documents are incomplete or missing.
ERISA allows for penalties of up to $110 per day to be assessed where an employer fails to provide plan documents to an employee who has requested such documents in writing within 30 days of the request. For purposes of our conversation, it’s important to note that an inadequate plan document can be considered a failure to provide a plan document at all, putting employers at risk of receiving these penalties.
Without a wrap document establishing a single ERISA plan, an employer could be determined to have multiple, separate ERISA plans, each with its own Form 5500 filing requirement, associated administrative burden, and applicable late penalties.
Finally, the potential exposure to liability for participant claims and lawsuits due to inconsistent administration increases when complete information specific to how the employer’s health and welfare plans functions (which a wrap document should provide) is unavailable.
Lumelight can assist in providing the necessary documents for a well-constructed, compliant wrap document. Feel free to reach out to us.
