The Basics of Plan Document Compliance
According to a local source, an employer in Upstate NY, acting as their own plan administrator, was recently fined over $17,000 for failure to comply with federal Employee Retirement Income Security Act (ERISA) Summary Plan Description (SPD) regulations.
Based on an estimate from a local employee benefits firm, only 10% of companies have the required plan documents. Here are some basics of plan document compliance.
What is a plan document?
The plan document describes the plan's terms and conditions related to the operation and administration of a Plan. It is required for each Welfare benefit plan (health, dental, vision, etc.) an employer maintains which is subject to ERISA and it must be in writing. An insurance company's Master Contract, Certificate of Coverage, or Summary of Benefits is not a Plan Document or SPD. According to the IRS, if you do not have a plan document, you must file a Form 5500 regardless of size. An ERISA Plan may exist without a written plan document; however it is out of compliance.
For group health plans, the plan document should include information regarding COBRA, HIPAA, and other federal mandates such as the Women's Health & Cancer Rights Act, preexisting conditions exclusion, special enrollment rules, mental health parity, coverage for adopted children, Qualified Medical Support Orders, and minimum hospital stays following birth.
What is an SPD?
A summary plan description is an outline of benefits provided to plan participants and beneficiaries-including, for example, health plans, profit-sharing plans, and 401(k) plans. ERISA, which regulates private pension and certain other benefit programs, requires that all plan participants receive an SPD.
The SPD should be written in plain English so that the average plan participant can understand it. While there is no prescribed format, ERISA does require the following information be included:
- general administrative information, such as the name of the plan, the type of plan including the plan number for ERISA Form 5500 purposes (e.g. 501, 502, 503, etc.), and the circumstances under which the plan can be terminated;
- information about covered benefits and eligibility requirements;
- claims procedures;
- funding and fiscal data; and
- a statement of participants' rights.
A new plan participant must be given a copy of the SPD within 90 days of joining the plan. The information in the SPD must be accurate as of no more than 120 days before the date of disclosure.
Am I required to have a SPD for my welfare benefit plan?
With few exceptions, an SPD is required regardless of how many participants are covered; there is not small plan exemption (less than 100 participants) like there is for the Form 5500 filing. If a beneficiary makes a written request for a copy of the SPD, it must be furnished within 30 days; otherwise the employer/plan sponsor can face a penalty of up to $110 per day.
Doesn't my insurance company prepare my SPD?
Insurance companies are not required to prepare or deliver SPD's.
Where can I get information about how to prepare a SPD?
You have some options when preparing a summary plan description. If your plan administrator is a third party administrator (TPA), check with them to see if this is a service they can provide. Otherwise, you can outsource SPD preparation or you can prepare the SPD yourself. If you decide to outsource the SPD preparation, you can assign it to a benefits consultant or to an attorney who specializes in benefits law. In either case, make sure they're experienced in SPD preparation for plans similar to yours.
It is possible to prepare the SPD on your own. However, if you do so, it's strongly recommended that you have the completed SPD reviewed by a benefits law attorney. This option can save money by preparing the SPD yourself, but you'll still have the advantage of an attorney reviewing your work to ensure compliance with ERISA, which regulates employee benefits plans.
If we have established a Health Savings Account (HSA) and deduct Health Savings Account contributions on a pre-tax basis, do we need to update our plan documents?
Yes. To have HSA contributions deducted on a pre-tax basis from payroll, you must amend your plan documents. You must also have an updated plan document for voluntary plan contributions (i.e. optional life, disability, and cancer coverage) that are deducted on a pre-tax basis from payroll.
