The Employee Retirement Income Security Act of 1974 (ERISA) is an American statute that establishes minimum standards for pension plans in the private sector. Additionally, it provides rules for income tax effects on transactions linked to employee benefits. Enforced by the Department of Labor and the Department of the Treasury, ERISA was created to protect employee benefit plan participants and their beneficiaries by requiring the full disclosure of financial details of the plans by employers. Codes of action for fiduciaries and access to federal courts are also required under the Act.
If you are the employee of a private-sector company, chances are you are affected by ERISA. You may have heard the name before, and you may even be familiar with what it is and how it works. However, many employees who are affected by it every day are still unaware of how it works and what it does for you. Even business owners have questions and need help with its compliance.
There are two types of wrap documents. The first is called a mega-wrap document, which has two purposes. The first purpose of the mega-wrap document is to wrap the required ERISA language around a carrier’s certificate of coverage. The second objective of the mega-wrap document is to combine or bundle many employer-sponsored plans into a single plan. The main reason that an employer would want to combine multiple plans into a single plan is that it simplifies their Form 5500 filing. If the company is large and has several separate plans subject to filing, it has to file multiple Forms 5500. If the employer uses a mega-wrap document to combine them into one plan, it only presents a single Form 5500. However, there are other considerations with using a mega-wrap document. If an employer is close to 100 participants on one or more plans, the employer may not want to combine plans into a single plan, because it may have to file a Form 5500 for a plan that would otherwise not be subject to filing.
Another consideration with using mega-wrap documents is about HIPAA. Fully insured plans are exempt from many of HIPAA’s privacy and security requirements. If a plan sponsor uses a mega-wrap document to combine a fully insured plan with a self-funded plan, the sponsor would have to comply with HIPAA’s full measure of requirements for all of their plans, including the fully insured plans that would otherwise be partially exempt.
The second type of wrap document is used solely to wrap the required ERISA language around a single policy or plan. This would be utilized by a fully insured client that only wants to wrap the ERISA language around a medical certificate of coverage (or dental, vision, disability, life). Carriers often include state-mandated provisions regarding coverage, but do not always include the required federal ERISA requirements. Both a wrap and a mega-wrap document may be useful, depending on whether the plan has multiple benefits it wishes to bundle.
Based on the above, while carrier contracts, policies, and certificate booklets may function as the written plan document, such documents will usually not include required ERISA language and specifics about the plan itself. When this happens, adding a wrap document or mega-wrap document will be necessary for compliance with the written plan document and SPD requirements under ERISA.