New to administering employee benefit plans? Here’s some important information you’ll need to know.
Under ERISA, an employer that provides certain benefits to its employees, such as medical insurance or other types of coverage mentioned later, is considered to have established an “employee welfare benefit plan.” Providing these benefits to employees requires the employer to comply with ERISA, regardless of employer size, number of employees or whether the benefits are paid for by the employer or its employees. However, not all employers are covered by ERISA, such as government entities and churches, which are considered nonprofits.
First, the basics. The Employee Retirement Income Security Act (ERISA) is a federal law from way back in 1974 that governs how employers provide benefit plans to employees. Here is a great primer on ERISA from our partners at Mineral.
Now for that important information we mentioned: ERISA dictates that benefit plans have both a plan document and a Summary Plan Description (SPD). But how do they differ, and what must they include? These are common questions we get from those who are unfamiliar with employee benefits.
Plans that are subject to ERISA (including, but not limited to, group health, life, dental, vision and disability insurance plans, and pension plans) must establish and maintain a written plan document. It describes the plan’s terms and conditions related to the operation and administration of the plan. It spells out, among other things, what benefits are available, who is eligible, how benefits are funded, who is the named fiduciary, how the plan can be amended and the procedures for allocating plan responsibilities.
Again, this plan must be in writing to be considered in compliance with ERISA. The plan document is sometimes included with the SPD all in one document or broken out. The plan document is also known as a “wrap document.”
A group health plan document should contain:
ERISA also requires employee health and retirement benefit plans to have an SPD. The SPD must convey this information in an understandable summary. The SPD must include specific items, such as plan eligibility information, a description of plan benefits and circumstances causing loss or denial of benefits, benefit claim procedures, and a statement of rights under ERISA.
The SPD must contain the following details of the benefit plan:
It must also include:
From an employer’s perspective, here are some of the questions that an SPD should answer:
Pertaining to retirement plans:
The SPD must be furnished (for free) to participants when they become covered by the plan. A separate SPD does not need to be provided to beneficiaries, such as spouses or dependents.
Participants and beneficiaries may request copies of both the plan document and the SPD. Failure to furnish these documents within 30 days after the request may expose the ERISA plan administrator (again, that’s typically the employer) to penalties of up to $110 per day, even if the document was already provided.
Again, as ERISA puts it, “the SPD must be written for the average plan participant and be sufficiently comprehensive to apprise covered persons of their benefits, rights, and obligations under the plan.” In other words, unlike the previous sentence, it must be written in plain language.
Did you know? We can create SPDs for our clients in Mineral for free. Give us a call if you need some assistance!
And, here’s a helpful resource from Mineral: Summary Plan Description Checklist