Adopting a Wrap Document Decreases Plan Administration Costs, Streamlines Reporting and Disclosure Obligations, And Helps Employers Satisfy Their Compliance Obligations.

Wrap Documents Are A Cost-Effective Approach To Help Ensure Compliance With ERISA and Mitigate Risks of Department of Labor Penalties and Participant Lawsuits.

Employers are continuously looking to cut costs while retaining talent in the workforce. Attracting and retaining talent often requires offering meaningful employee benefits. Yet, offering employee benefit plans adds to an employer’s administrative costs and compliance obligations. A cost-effective fix to decrease an employer’s administrative expenses and satisfy IRS and Department of Labor compliance obligations is for an employer to adopt a wrap document.

What is a Wrap Document?

A “wrap” document wraps around an insurance certificate or benefits booklet to fill in the gaps of the insurance certificate or benefits booklet by including benefit plan provisions required by ERISA. The wrap document and the insurance certificate (or third-party booklet), together make up the plan document.
Employers that adopt a wrap plan document for their welfare benefit plan(s) are able to satisfy ERISA’s plan document and Summary Plan Description (SPD) requirements. Each welfare benefit plan can have a separate plan document and a separate SPD, or only one wrap document that serves as both the plan document and the SPD.

“Umbrella” Wrap Plans Decrease Plan Administration Costs

A wrap document is also used to reduce the costs of filing multiple annual reports, such as IRS Form 5500s. By combining each welfare benefit plan into an “umbrella” wrap plan, only one Form 5500 has to be filed, eliminating the need to file multiple Form 5500s for each welfare benefit plan. For example, assume an employer sponsors a medical plan, vision, dental, and life insurance, flexible spending account, disability, and a severance pay plan. If the employer adopts a wrap document that “wraps” all these welfare benefit plans into an umbrella plan, it generally has to file only one IRS Form 5500 Annual Report, rather than seven separate IRS Forms 5500 for each plan every year.

Compliance Obligations Under ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) requires that employer-sponsored employee welfare benefit plans satisfy certain compliance obligations. Employee welfare plans subject to ERISA include group health plans, health reimbursement accounts, plans providing dental, vision, prescription drug benefits, health flexible spending accounts, employee assistance plans and wellness programs (when medical care is provided), group term life, and group short term and long term disability plans. An employer’s welfare benefit compliance requirements include maintaining written plan documents and distributing a SPD to plan participants that describes the plan’s terms and includes required information. ERISA’s plan document and SPD requirements apply to employers with as few as two employees. In addition, many employers are required to file an IRS Form 5500s and Summary Annual Report with respect to each welfare benefit plan (see discussion above).
Insurance certificates or benefit booklets provided by an insurance company or other third party rarely satisfy ERISA’s content requirements for plan documents and SPDs because they do not include all the provisions required by ERISA. For example, plan documents that employers receive from their insurance carriers or third-party administrators often do not adequately explain which employees are eligible to participate in the plan, and omit several other provisions that are required to be included in the plan and SPD. Importantly, under ERISA, employers are fiduciaries and are ultimately responsible for compliance with ERISA, not insurers.
Employers who fail to provide an SPD or plan document within 30 days of a participant’s request may trigger a fine of $110 day per day per participant. These penalties are subject to cost-of-living adjustments. As you can imagine, employers who have multiple plans subject to ERISA can run up significant fees for each plan’s failure to satisfy ERISA’s plan document and SPD requirements.
Employers without plan documents/SPDs, may also be vulnerable to lawsuits from plan participants who claim past practice or other evidence to support their claims for benefits. Without ERISA-compliant plan documents, an employer/plan administrator may not be able to prove that the terms of the plan support benefit decisions.

The attorneys at Day Rettig Martin, P.C. provide a full complement of affordable employee benefit plan services. If you have any questions about creating a wrap plan, or any questions concerning your compliance obligations under ERISA, please contact Attorney Teresa Domek at (319) 365-0437 or at Tdomek@drpjlaw.com.

1. ERISA welfare plans generally must file an annual Form IRS 5500 but some plans are exempt from this requirement. A welfare plan that covers fewer than 100 “participants” at the beginning of the plan year is exempt if it is unfunded, fully insured, or a combination of the two. “Participants” include individuals covered under the plan and former employees receiving continuation coverage.
2. Private sector employers that sponsor certain employee benefits are subject to ERISA. However, governmental and church employers are exempt from ERISA’s welfare benefit plan provisions.