By definition, a plan document is a written tool that includes the establishment and operation of plans. For businesses, it may be an employee benefits insurance plan that details all of the provisions of the insurance. It is a legal statement that contains a description of the benefits that employers must provide for their employees.
Who Are Required to Have Plan Documents?
Based on the Employee Retirement Income Security Act (ERISA), an employer who provides medical, insurance or any other coverage is assumed to establish an employee welfare benefit plan. This plan means that they have to comply with ERISA no matter the company size, number of employees, or whether the employer or employee pays for the benefits.
Under ERISA, benefits that qualify for compliance include employers who provide:
- Medical, dental, and vision insurance plans,
- Health care reimbursement accounts
- Prescription drug plans
- Accidental death and dismemberment insurance plans
- Short-term and long-term disability plans
- Group term life insurance plans
What Does a Plan Document Contain?
Plan documents are a requirement for each welfare benefit that employers offer their employees. It must be in writing and must follow provisions set by ERISA.
When writing a plan document, include:
- The Name of the Plan Administrator
- Positions of Fiduciaries (if there are individuals other than the plan administrator)
- Detailed Description of Benefits
- Standard of Review for Deciding Benefits
- Eligibility (employee class, waiting period, and weekly hours)
- Effectivity of Participation
- Contribution of Participant towards the Cost of Coverage
- Plan Sponsor’s Amendment and Termination of Procedures (include the progression of assets in case of plan termination)
- Regulations on the Use of Personal Health Information, if necessary.
- Coordination of Benefits and Offset Provisions
- Procedural Process for Allocation and Designation of Administrative Duties
- Source of Funds (employer/employee, or both)
- Insurer Refunds Allocation
- COBRA, HIPAA, and other condition exclusion (for group health plans)
What is a “Wrap” Plan Document?
In general, a “wrap” document is a drafting tool that supplements existing documentation. It contains all the necessary information the ERISA required by “wrapping” itself around the insurance policy or other third party contracts. When using a wrap document, the insurance policy becomes an integral part of the plan document. In essence, combining a wrap document with an insurance contract completes a plan document.
Why Is It Important to Have a “Wrap” Document?
The insurance contract or policy rarely meets ERISA compliance for a plan document. An insurance company’s primary concern is to comply with state laws for insurance policy and not ERISA. There may be instances when insurers will try to satisfy the ERISA requirements, but they would still fail to include provisions that protect the plan, the plan administrator, and other plan fiduciaries. In the absence of a Master Contract from the insurance, the Certificate of Coverage will suffice to “wrap” the plan document.
Plan Documents vs. Summary Plan Documents
Employers should not confuse a plan document with a summary plan document. A summary plan document is only a summary of the plan document. It must be written in a way that will make all participants of the benefit plan understand it. While plan documents are not required for distribution, the summary plan document must be distributed to all participants.
ERISA provides specific guidelines as to what must be included in the content. It also has a required style and format. Since the SPD is merely a summary, the plan document must hem in the content that the SPD requires.
Employers need to distinguish between the two documents so they can ensure that they craft it consistently. Of the two, the plan document contains more detail and must be the basis for plan administration.
Some employers with fully insured plans often find the two documents confusing since insurers do not provide ERISA plan document or the SPD. These documents will fall under the responsibility of the plan administrator.