As part of our Form 5500 and ERISA work, we are receiving a high volume of questions right now regarding Wraparound Summary Plan Descriptions (“Wrap SPDs”). To confirm, the federal rules in this area – specifically, the ERISA disclosure regulations – have not changed. However, there is of course an additional focus on all benefits compliance issues, including SPD compliance, as part of the legal landscape in light of the Affordable Care Act.
This is a practical refresher on SPD compliance. For a detailed look at SPDs overall, you may access our 2014 webinar on this topic here.
The short story is that every employer health and welfare benefit plan needs a compliant SPD. ERISA includes specific content requirements for SPDs, including a list of 33 items that must be in a compliant SPD. This content requirement applies to all ERISA plans, ranging from group health insurance plans to supplemental group benefits subject to ERISA. Since most carrier booklets or plan summaries cover some but not all of the content requirements (typically 25-28 of the 33 required items), Wrap SPDs are legal documents that are designed to supplement the carrier booklet(s) to ensure compliance. Wrap SPDs also serve the purpose of document non-standard plan design items, including eligibility requirements or exclusions.
By way of context, the term “wraparound” as it relates to SPDs originally came from old DOL guidance suggesting that the supplemental document had to be formally bound to the plan booklet. The combination of the two documents would upon distribution to participants represent a joint, compliant SPD for a particular benefit plan. Obviously times have changed, and many of these documents are now provided electronically. Thus, the “wraparound” concept no longer applies in the literal sense, but the concept remains. Wrap SPDs are typically not long or overly complicated documents, but they are valuable in the sense that they supplement the carrier booklet and fill in any necessary gaps.
An advanced version of the Wrap SPD, a Consolidated Wrap SPD, not only supplements the carrier booklet for a single plan, but also formally merges multiple plans (all ERISA plans sponsored by an employer) into a single ERISA plan, including plan name and number. A Consolidated Wrap SPD allows an employer to file a single Form 5500 filing for all health and welfare plans, rather than individual Form 5500s for each ERISA benefit. Many employers prefer the Consolidated Wrap option to multiple, individual Wrap SPDs so that they only have to maintain a single Wrap document and are able to simplify the Form 5500 filing.
For large employers (100+) subject to Form 5500 reporting, Wrap SPDs are largely a necessity. This especially for employers already filing a single Form 5500 for health and welfare plans, since those employers have represented to the Department of Labor that they have a consolidated, single ERISA plan. For small employers not subject to the Form 5500 requirement, Wrap SPDs are a best practice but not as commonly used.