HB Counsel Client Alert: “Time to Review Employee Benefit Plan Documents and Disclosures with 2020 Vision”
The old adage goes, “out with the old, and in with the new.”
However, for employee benefits compliance, the old requirements under the Employee Retirement Income Security Act of 1974 (“ERISA”) for disclosing plan benefit information to participants and beneficiaries remain ever intact.
Plan document failures may result in steep penalties by the Department of Labor (“DOL”) and may result in costly health and welfare plan administration failures, such as covering ineligible individuals, payment of claims that should not be paid, and litigation.
At the outset of 2020, let’s take time for a close review of the ERISA disclosure rules, and freshen up our plan documents where necessary, instead of making it a New Year’s resolution.
How Does ERISA Apply?
ERISA applies to most employee health and welfare benefit plans offered by private-sector employers, regardless of the size of the employer.
An ERISA plan is any plan, fund, or program established or maintained by an employer or employer organization that provides certain benefits. It is very easy to create an ERISA plan.
Generally, most health and welfare plans offered by private-sector employers, whether fully insured or self insured are subject to ERISA. Common types of health and welfare plans, subject to ERISA are:
- Medical, surgical or hospital benefits;
- Dental benefits;
- Vision benefits;
- Prescription drug benefits;
- Health reimbursement arrangements (“HRAs”);
- Health flexible spending accounts (“FSAs”);
- Accidental death and dismemberment (“AD&D”) benefits;
- Group life insurance benefits;
- Death benefits (other than life insurance);
- Wellness programs (when medical benefits are included, e.g. biometric screenings, flu shots, nurse help-line, and certain tobacco cessation programs);
- Employee assistance plans (“EAPs”) (when medical are included, e.g. counseling with a mental health professional);
- Disability benefits, both short-term disability and long-term disability, if insured or funded other than as a payroll practice; and
- Disease-specific benefits (for example, cancer policies that provide medical benefits).
What are ERISA Disclosure Requirements?
All employers subject to ERISA, regardless of the number of employees or plan participants that sponsor benefits subject to ERISA, must have a plan document and provide plan participants with a summary plan description (“SPD”).
While other basic disclosure requirements exist for ERISA health and welfare plans, we will focus this alert on the very basic documents every ERISA plan must have – the plan document and the SPD.
The Plan Document
The plan document consists of several different documents. These documents include the latest Form 5500 filing, a trust agreement (when applicable), the most recently updated SPD, and any other instruments under which the plan is established or operated. Other instruments may include the Summary of Benefits and Coverage (“SBC”), employment agreements, or open enrollment guides containing information regarding enrollment or plan administrative guidance.
A plan administrator must provide a copy of the plan document to a participant or beneficiary no later than 30 days after a written request. A plan administrator must also make copies available at its principal office and certain other locations.
The Summary Plan Description
The SPD is the primary vehicle informing participants and beneficiaries about their plan and how it operates. The SPD must be written for the average participant and be sufficiently comprehensive to apprise covered persons of their benefits, rights, and obligations under the plan.
Often the Form 5500 filing requirements are mistaken for the requirements to furnish an SPD. Note that even where a welfare benefits plan has less than 100 participants and is exempt from the Form 5500 annual reporting requirements, the plan administrator is still required to furnish the SPD.
The SPD must contain certain information that cannot be substituted in whole by another summary of benefits, an insurance policy or an insurance certificate of coverage not containing all of the required information for the SPD.
In order to prepare an ERISA-compliant SPD, the document must include the following:
- Certain details about the plan, including plan name, plan number, type of welfare or retirement plan, the last day of the plan’s fiscal year, the type of administration and a summary of benefits;
- Employer details, such as name, address and employer identification number (“EIN”);
- Plan administrator details, such as name, address and telephone number;
- Eligibility requirements for participants and beneficiaries;
- When benefits will terminate for participants and beneficiaries;
- Claims procedures, including the heightened disabilities claims procedures effective after April 1, 2018;
- A statement of a participant’s rights under ERISA; and
- Additional information, including COBRA continuation coverage and Health Insurance Portability and Accountability Act (“HIPAA”) pre-existing condition exclusions, Newborns’ Act Description of Rights, Michelle’s Law Enrollment Notice, and other required notifications are often included in the SPD for group health plans.
|Note:||This list is not comprehensive for all plans but is provided as an example of required SPD components for plan administrators.|
For a new plan, the SPD must be furnished to participants and beneficiaries within 120 days of the plan’s effective date.
For existing plans, the SPD must be provided to each participant within 90 days of the date that the participant begins coverage. Thereon, each participant must receive a revised SPD every 5 years when changes are made to a plan (every 10 years if there has been no change).
If material changes are made to a plan, a Summary of Material Modifications (“SMM”) must be provided to participants within 210 days after the end of the plan year in which the change has been made. If plan benefits are materially reduced, then the plan administrator must provide 60 days’ advance notice of any material modification to the plan or coverage that takes effect mid-plan year and affects the contents of the SBC. The 60-day advance notice may be provided to participants through an updated SBC or by issuing an SMM.
What is a Wrap Document?
If a plan administrator wants to simplify the ERISA disclosure and Form 5500 reporting requirements by combining, or bundling plans, then a wrap document is required.
The wrap document includes all the required SPD information and wraps around, combining disclosure for the employer’s health and welfare plans. The wrap document supplements the required information that is typically not included in insurance company-provided summaries or benefits booklets for fully insured plans.
A wrap document tends to be a cost-efficient alternative to having multiple SPDs – one for each of the individual health and welfare plans.
What are the Penalties for ERISA Disclosure Failures?
The penalty for failing to provide participants with a plan document or an SPD in a timely manner, or within 30-days of a written request, can be up to $110 per day, per request, as adjusted for inflation.
Additionally, the U.S. Department of Labor may penalize a plan administrator up to $152 per day (up to a maximum of $1,527 per request), if it does not provide plan documentation to the DOL upon request.
Courts have discretion to impose more significant penalties for a breach of fiduciary duty when a plan administrator purposively withholds an SPD from a participant.
What to Do Next?
Now that you have revisited the ERISA disclosure rules, it is time for a fresh review of your plan document and SPD. The time spent reviewing these documents is well worth the avoidance of penalties or litigation. Time is of the essence in remedying an ERISA disclosure failure! Do not wait for the penalties to pile up.
The content herein is provided for educational and informational purposes only and does not contain legal advice. Please contact our office if you have any questions about ERISA compliance requirements applicable to your health and welfare plans.
Dated: January 23, 2020
 ERISA does not apply to government employers and churches; however, these employers often voluntarily provide disclosures to plan participants and beneficiaries, for plan administration purposes.