The ERISA Wrap Summary Plan Description (SPD) requirement has been around for years.
It is the Department of Labor’s document for communicating plan rights and obligations to participants and
beneficiaries of employer-sponsored group health insurance plans.
It wasn’t until the Affordable Care Act added several new employee notification
requirements, and stiff new $110 per day/per participant fines for non-compliance, that most employers
became aware of and motivated to meet the requirement. Here, we answer common questions about this important
document.
What is a Wrap SPD?
An employer must prepare an ERISA Wrap SPD plan document to supplement the Certificate of Insurance (benefit
booklet).
As the name suggests, the ERISA Wrap SPD is a summary of the material provisions of the plan documents. However,
in the context of health & welfare benefit plans, it is not uncommon for the SPD to be a combination of a
complete description of the plan’s terms and conditions, such as a Certificate of Coverage (benefit booklet),
and the required ERISA/ACA disclosure language. Together, the Wrap SPD and Certificate of Insurance (benefit
booklet) comprise a proper Wrap SPD.
Wrap SPDs are typically not long or overly complicated documents, but they are valuable in the sense that they
supplement the carrier booklet and fill in any necessary gaps, and must be drafted in language that is easily
understandable to the average participant in the employer’s group health plan.
When is an employer required to have one?
If you offer group health insurance you are required to distribute a Wrap Summary Plan Description (SPD) to all
Plan participants within 120 days of the Plan’s effective date.
Why is it called a “Wrap” SPD?
The term “wraparound” comes from old DOL guidance suggesting that the supplemental document had to be formally
bound to the benefit plan booklet. The combination of the two documents would upon distribution to participants
represent a joint, compliant SPD for a particular benefit plan. Obviously times have changed, and many of these
documents are now provided electronically; thus, the “wraparound” concept no longer applies in the literal
sense, but the concept remains.
Does this rule apply to small employers?
The requirement for a Wrap SPD applies to all employer sponsored group health insurance offerings, including a
one-person plan.
For small employers not subject to the Form 5500 requirement, the Wrap SPDs has always been the best practice but
not as commonly used … until the ACA $110 per day, per participant fines for non-compliance took effect.
For large employers (100+) subject to Form 5500 reporting, Wrap SPDs are largely a necessity. This is especially
true for employers already filing a single Form 5500 for health and welfare plans, since those employers have
represented to the Department of Labor that they have a consolidated, single ERISA plan.
Doesn’t my plan document package include a SPD?
Yes, but it is not the DOL- and ACA-required ERISA Wrap SPD document.
A Section 125 or HRA Plan Document and the SPD therein do not constitute an ERISA Wrap SPD Document for the
employer group health insurance plan.
Also, the insurance company’s Master Contract, Certificate of Coverage, or Summary of Benefits may be part of but
are not a formal and complete Wrap SPD.
What has to be in the ERISA Wrap SPD?
Here’s what ERISA SPD law requires:
- The plan name
- The plan sponsor/employer’s name and address
- The plan sponsor’s EIN
- The plan administrator’s name, address, and phone number
- Designation of any named fiduciaries, if other than the plan administrator, e.g., claim fiduciary
- The plan number for ERISA Form 5500 purposes, e.g., 501, 502, 503, etc. (Note—each ERISA plan should be
assigned a unique number.)
- Type of plan or brief description of benefits, e.g., life, medical, dental, disability
- The date of the end of the plan year for maintaining the plan’s fiscal records (which may be different from
the insurance policy year)
- Each trustee’s name, title, and address of principal place of business, if the plan has a trust
- The name and address of the plan’s agent for service of legal process, along with a statement that service
may be made on a plan trustee or administrator
- The type of plan administration, e.g., administered by contract, insurer, or sponsor
- Eligibility terms, e.g., classes of eligible employees, employment waiting period, and hours per week, and
the effective date of participation, e.g., next day or first of the month following satisfaction of an
eligibility waiting period
- How the insurer refunds (e.g., dividends, demutualization, and medical loss ratio (MLR) refunds) are
allocated to participants.
Note: This is important for obtaining the small plan (<100
participants) exception for filing Form 5500.
- The plan sponsor’s amendment and termination rights and procedures, and what happens to plan assets, if any,
in the event of plan termination
- A summary of any plan provisions governing the benefits, rights, and obligations of participants under the
plan on termination or amendment of the plan or elimination of benefits
- A summary of any plan provisions governing the allocation and disposition of assets upon plan termination
- Claims procedures—may be furnished separately in a Certificate of Coverage, provided that the SPD explains
that claims procedures are furnished automatically, without charge, in the separate document (e.g., a
Certificate of Coverage), and time limits for lawsuits, if the plan imposes them
- A statement clearly identifying circumstances that may result in loss or denial of benefits (e.g.,
subrogation, coordination of benefits, and offset provisions)
- The standard of review for benefit decisions (We recommend consideration of granting full discretion for the
plan administrator or authorized fiduciary to interpret the plan and make factual determinations.)
- ERISA model statement of participants’ rights
- The sources of plan contributions, whether from employer and/or employee contributions, and the method by
which they are calculated
- Interim SMMs since the SPD was adopted or last restated
- The fact that the employer is a participating employer or a member of a controlled group
- Whether the plan is maintained pursuant to one or more collective bargaining agreements, and that a copy of
the agreement may be obtained upon request
- A prominent offer of assistance in a non-English language (depending on the number of participants who are
literate in the same non-English language)
- Identity of the insurer(s), if any
- Additional requirements for Group Health Plan SPDs:
- Detailed description of plan provisions and exclusions (e.g., copays, deductibles, coinsurance,
eligible expenses, network provider provisions, prior authorization and utilization review
requirements, dollar limits, day limits, visit limits, and the extent to which new drugs, preventive
care, and medical tests and devices are covered) A link to network providers should also be
provided. Plan limits, exceptions, and restrictions must be conspicuous.
- Information regarding COBRA, HIPAA, and other federal mandates such as the Women’s Health Cancer
Rights Act, preexisting condition exclusion, special enrollment rules, mental health parity,
coverage for adopted children, Qualified Medical Support Orders, and minimum hospital stays
following childbirth.
- Name and address of health insurer(s), if any
- Description of the role of health insurers (i.e., whether the plan is insured by an insurance
company or the insurance company is merely providing administrative services)
Recommended, but not required, provisions:
- For insured arrangements, attach the Summary of Benefits provided by the insurance companies to help ensure you have provided an understandable summary of the Certificate of Coverage
- For self-insured arrangements, provide the name, address, and phone number of any Third Party Administrator (TPA) paying claims or benefits.
- Language that in the event there is a conflict between the plan document, the SPD, and a Certificate of Insurance, which document controls
Health Care Reform – Notices/Disclosures (additional information)
Summary – The health care reform law makes many changes to health coverage requirements, such as extending coverage for young adults up to age 26, prohibiting rescissions of health coverage (except in cases of fraud or intentional misrepresentation), eliminating preexisting condition exclusions for children under the age of 19 (applicable to adults in 2014), prohibiting lifetime limits on essential health benefits and restricting annual limits, and requiring coverage for preventive care without cost sharing. The law has staggered effective dates. Many of its changes are effective now, and others will become effective in future years.
Notices/Disclosure – The health care reform law created a number of notice and disclosure obligations for group health plans, such as:
Statement of Grandfathered Status – Plan administrator or issuer was required to provide the first statement before the first plan year beginning on or after Sept. 23, 2010. The statement must continue to be provided on a periodic basis with participant materials describing plan benefits. This requirement only applies to grandfathered plans.
Notice of Patient Protections and Selection of Providers – Plan administrator or issuer must provide a notice of patient protections/selection of providers whenever the summary plan description (SPD) or similar description of benefits is provided to a participant. These provisions relate to the choice of a health care professional and benefits for emergency services. The first notice should have been provided no later than the first day of the plan year beginning on or after Sept. 23, 2010. This requirement does not apply to grandfathered plans.
Documenting method for Identifying Full-time Employees
Beginning in 2015, the Affordable Care Act (ACA) imposes a penalty on applicable large employers (ALEs) that do not offer health insurance coverage to substantially all full-time employees and dependents. An ALE may also be subject to a penalty if it offers health insurance coverage to full-time employees and dependents, but the coverage is unaffordable or does not provide minimum value. An ALE is only liable for a penalty if one or more of its full-time employees receives a health insurance subsidy for coverage under an Exchange.
The ACA’s employer penalty rules are often referred to as “employer shared responsibility” or “pay or play” rules. The pay or play rules will take effect for many ALEs on Jan. 1, 2015.
This Legislative Brief includes a brief overview of the two methods for identifying full-time employees, and it provides guidelines for documenting the method an employer decides to use. It also includes sample language for describing the look-back measurement method. This sample language, which requires customization, could be incorporated into an employer policy, health plan document or summary plan description (SPD).
Methods for identifying Full-time Employees
On Feb. 12, 2014, the Internal Revenue Service (IRS) published final regulations on the employer shared responsibility rules. The final regulations provide two methods for identifying full-time employees for purposes of offering health plan coverage and avoiding a pay or play penalty—the monthly measurement method and the look-back measurement method.
A full-time employee is an employee who was employed, on average, at least 30 hours of service per week. The final regulations treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours per service per week.
Monthly Measurement Method
The monthly measurement method involves a month-to-month analysis where full-time employees are identified based on their hours of service for each calendar month. This method is not based on averaging hours of service over a prior measurement period. Month-to-month measuring may cause practical difficulties for employers, particularly if there are employees with varying hours or employment schedules, and it could result in employees moving in and out of health plan coverage on a monthly basis.
Look-back Measurement Method
To give employers flexible and workable options and greater predictability for determining full-time employee status, the IRS developed an optional look-back measurement method as an alternative to the monthly measurement method.
Under the look-back measurement method, an employer counts an employee’s hours of service during one period (called a measurement period) to determine his or her full-time status for a future period (called the stability period). The details of this method are complex, and vary based on whether the employees are ongoing or new and whether new employees are expected to work full time or are variable, seasonal or part-time employees.
Read 29 CFR 2520.102-3 – Contents of summary plan description here or on the Federal Register.
Avoid the Affordable Care Act $110 per Day per Employee Fine with a Wrap SPD for Your Group Health Plan
$99 one-time fee in PDF via email
$149 one-time fee in PDF email + Deluxe Binder via USPS
As the name suggests, it is a summary of the material provisions of the plan documents, and it should be understandable to the average participant of the employer. Get yours today from Core Documents, the Trusted Source in cost-effective benefit plan documents.
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Core Documents is the country’s leading provider of cost-effective, tax-saving benefit plan documents for Section 125 Cafeteria plans and Health Reimbursement Arrangements. The Trusted Source since 1997, thousands of satisfied agents and employer groups nationwide rely upon Core Documents for free plan design consulting services, plan document updates, ERISA Wrap SPDs, and administration services.