General Faq

Internal Revenue Code allows for benefits to be paid to plan participants without such benefits becoming taxable income to participants. Section 105 allows employers to exclude income, for amounts paid for accident and health insurance benefits. There is also a section that describes non-discrimination testing that employers must comply with. This will ensure that highly compensated employees will not benefit more favorably in comparison to a company’s general population.

Section 125 will allow premiums for welfare benefits to be deducted on a pre-tax basis. Section 132 will also allow commuter benefits to be paid on a pre-tax basis. There are multiple code sections that similarly impact benefits. Benefit plans and SPD’s must take tax implications into consideration, alongside complying with ERISA regulations.

In most cases, NO. Plans must be for the exclusive use of employees and participants. A single employer is not permitted to cover an employee(s) of another company under a single employer plan. Plans that are currently or will be covering employees of multiple employers, are referred to as a “controlled group”, “affiliated service group” or multiple employer plan (which would include a Union plans that cover members of a particular union).

A Wrap Plan primarily refers to a document used for fully insured Summary Plan Description’s that “wrap” around an insurers Certificate of Coverage or plan document packet. A Wrap SPD without an affixed description of coverage is not a complete Summary Plan Description.

Self-funded plans do not have a Certificate of Coverage to wrap around, so creating a SPD for self- funded plans is a little more involved since it must include a complete description of the benefits provided.

A cafeteria plan may also be referred to a flexible benefits plan. Generally, this is a plan which offers participants a choice between one or more qualified benefits (options of nontaxable benefits) and cash. If an employee elects a voluntary salary reduction, the result is generally recognized as “cash”. “Pre-tax” benefits can then be offered to employees, while elections can be made both pre and post-tax.

As long as there is one non-taxable benefit offered to participants, a cafeteria plan exists (multiple benefits may also be offered). Employer “contributions” or “credits” do not have to be offered to be considered a cafeteria plan (non-discrimination rules apply).

Yes. However, a thorough review of claims procedures should be conducted for both benefit types as they may differ.

Premium-only plans were designed to provide employers with a means to offer pre-tax premiums for specific welfare benefits.

The Internal Revenue Code Section 125 specifically outlines where pre-tax deductions are applicable. Favorable tax treatment requires that Section 125 imposes certain limitations on when plan/benefits may be changed; otherwise, elections must remain in effect for the plan year. “Change in family status” is considered a circumstances for which a change can be made to your Section 125 election (there are alternative triggers; make sure to check with your employer to see which qualify).

Most welfare plans require a written Summary Plan Description (SPD) and/or plan document. Generally, it would make more sense to incorporate the cafeteria plan provisions within the SPD/Plan Document since these provisions are generally specific to each welfare plan. Some employers may consider a “wrap plan” that includes both SPD and the Section 125 cafeteria plan provisions combined into a single document. This would provider a simpler approach to the administration of plan benefits and/or provisions.

The employer or “plan sponsor” is ultimately responsible for establishing the written Summary Plan Description or plan document for its employees. The Fiduciary or plan administrator is generally responsible for administering the plan and ensuring that the provisions contained within are properly enforced. While a third-party administrator, insurance carrier, consultant, law firm, or other outside vendor may prepare the Plan Document or SPD, it is generally created by the insurance carrier, third party administrator, attorney, or other outside vendor; ultimate responsibility of its enforcement and accuracy remains on the Plan Sponsor.

State law generally dictates benefits that must be covered for the state in which an insurance certificate is issued. ERISA-required verbiage and/or other general provisions contained within an SPD are rarely outlined on a certificate of insurance.

ERISA Documents Inc. will create a “wrap” document along with a Summary Plan Description to incorporate your insurance certificate of coverage. This will ensure that employees receive ERISA-required verbiage along with any additional information pertaining to their rights and obligations under the plan.

Most importantly, a plan covered by ERISA must be established and maintained pursuant to a written document (i.e. the Plan Document and Summary Plan Description). The benefit plan must also identify the plan’s fiduciary (ies), who are responsible for the operation and administration of the plan. Finally, the plan must identify the procedure for amending the plan (and who may do so), the basis on which payments are to be made to and from the plan, and a claims procedure.

Please note: there are no rules as to how the plan document is written, but it is a legal document and should be treated as such. Many organizations have the plan established by the board of directors, in which case the company is obligated to provide the benefits described. Typically, the plan is executed by an officer of the company, to whom the Board of Directors has designated such authority or by a company’s board of directors. The Plan Document itself is never required to be given to participants. However, an employee (or their representative), may request to see a copy at any time.

It is a 12-month period, for which benefits are being paid under the plan. For most plans, the period selected will be either a calendar year or the tax year of the plan sponsor/company. Due to the fact that the benefits usually represent a tax advantage of some sort, it’s convenient to have the plan match the company’s tax year, in doing so, there’s also the added advantage that the plan can use any corporate tax extension for filing the Form 5500.

Nevertheless, a plan year can be any 12-month period, and need not necessarily begin in January. If benefits are fully-insured, the plan year is ideally the term of the insurance contract. When creating a wrap plan that includes multiple insured benefits that have different contract years, one single plan year must be selected. Information for the Form 5500 (via Schedule A) is based on the plan year you specify rather than the contract year, and the insurers must provide the information

Each plan is designated a unique plan number, the plan number is also used for filing Form 5500. However, Even if you are not required to file a Form 5500, it is beneficial to assign each plan a separate number for identification purposes. Welfare plans typically begin with 5XX.

SMM is the instrument used for amending the SPD. Any time a plan is amended, employers have the choice of reissuing a new SPD or amending the current SPD by providing an SMM. This SMM summarizes the change(s) to the SPD that resulted from the plan amendment(s). It is required to distribute the SMM to any employee affected by the amendment(s), there is no set format for this.

Materials for open enrollment that indicate a change to the plan effective upon the new year are often used as the SMM. Keep in mind, any materials used should be clearly titled or identified as an SMM, and employees should be directed to keep these materials with their SPD for their records, at least until a new SPD is issued.

As previously mentioned, the plan document is the written instrument for administering the plan and for the payment of benefits. When a change to the plan is necessary, the plan must reflect the amendment accordingly.

Plan amendments generally require a designated officer of the company, or the board of directors to formally amend the written plan in writing, with a written document, signed and dated. That amendment should then be kept with the original plan document until the plan is restated and the amendment is reflected in the restated plan.

However, plan amendments do not amend the SPD. In order to amend the SPD, a summary of material modification is required (SMM). In other words, an SMM is the way to change the SPD, while an amendment is the way to change the plan. Conveniently, a single document can execute both changes, so long as the language clearly indicates what the change is, the effective date of the change, and who is impacted by said change.

Under Section 412 of The Employee Retirement Income Security Act of 1974 (ERISA), it is stated that:

“Every fiduciary of an employee benefit plan and every person who handles funds or other property of such plan shall be bonded.”

Under ERISA, a “fiduciary” is defined as a person who “(i) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) has any discretionary authority or discretionary responsibility in the administration of such plan…” (ERISA, Sec. 412, U.S. Code 1002(21)(A)

Generally, “every person who handles funds or other property” of an employee benefit plan is required to be bonded; this includes Fiduciaries that handle funds. These people, referred to as “plan officials”*, must be bonded for at least 10 percent of the amount of the funds he/she handles, to a maximum of $500,000 per plan. If the plan holds employer securities other than through a pooled investment vehicle, a max of $1,000,000 per plan is required. Minimum bond amount is $1,000.

It is possible for the DOL to impose a bond greater than the $500,000/$1,000,000 maximum, it can be as much as 10% of the funds handled. However, this can only be done after notice and an opportunity for hearing is provided; see ERISA §412, DOL Reg. §§ 2580.412-1 through -36, and 2550.412-1.

*”Plan officials” include the plan administrator, and the plan sponsor’s employees that handle plan funds (i.e. have authority to sign checks, and/or supervisory or decision-making authority, have physical contact, the power to transfer, and/or disbursement authority). Also included are the plan’s trustee(s) and (if applicable) the company officers. “Plan officials” may also include unrelated third-parties (i.e., service providers) that have access to plan funds or whose decisions could pose a risk of loss through fraud or unethical conduct.

Bonding applies to a plan if, 95%* or more of plan assets are:

• Qualifying employer securities
• Participant loans
• Assets held by regulated financial institutions (e.g., banks, insurance companies, registered broker dealers)
• Mutual fund shares
• Assets in the individual account of a participant over which the participant may exercise control.

* Measured at the beginning of the year
Fidelity bonds are different from fiduciary liability insurance. A fidelity bond is designed to make a benefit plan “whole” from losses resulting from unethical conduct and/or fraudulent acts by employees when handling other people’s securities/money. Often, it is referred to as a “dishonesty bond”. F.L. insurance protects fiduciaries from breaches in responsibility, which often requires restitution of damages. In other words, a fidelity bond protects the plan, and fiduciary insurance protects the individual.

A fidelity bond is different from fiduciary liability insurance. ERISA mandates that all fiduciaries, or those who handle funds, be covered by a fidelity bond unless otherwise exempted.

Fiduciary liability insurance insures against plan losses due to breach of fiduciary duty. FLI is optional and not required by ERISA, any policy purchased by the plan must permit recourse by the insurer against a breaching fiduciary. Fiduciary insurance may not be purchased with plan assets.

It is an ERISA fiduciary duty to confirm that the plan is bonded appropriately. The Department of Labor enforces the requirement for retirement plans to have in place a fidelity bond.

Many individuals may simultaneously be burdened with the responsibility of ensuring that the “plan officials” are properly bonded. Additionally, each “plan official” is directly responsible for complying with his/her own bonding requirement, ERISA § 412(b) states it is unlawful for any plan official to permit any other plan official to “receive, handle, disburse, or otherwise exercise custody or control over plan funds or other property” without being properly bonded.

It is part of the fiduciary’s responsibility, to review ERISA Section 412 to ensure that the fidelity bond is in compliance with statute requirements.

In 2008, the Department of Labor issued “Field Assistance Bulletin 2008-04” (FAB), which provides the statutory and regulatory requirements for ERISA bonding. FAB defined who is exempt from the bonding requirement:

The bonding requirement does not apply to plans that are not subject to Title I of ERISA, for example, governmental plans, church plans, worker’s compensation plans, and excess benefit plans or to plans that are unfunded. A plan is unfunded if it pays benefits exclusively from the general assets of the employer or union. By definition, a plan is not considered unfunded, and will remain subject to the bonding requirement if:

• benefits are provided through insurance,
• contributions are made to – or benefits are paid from – a trust,
• employees contribute to the plan, or
• a separate bank account is maintained (or separate books are maintained to administer a separate fund out of which benefits are to be paid).

In other words, bonding requirements apply if employee contributions are made to an employee benefit plan. However, FAB clarifies that the Department of Labor will treat a Code § 125 Cafeteria employee welfare plans, as unfunded and thereby exempt from the bonding requirement; even though it includes employee contributions, as long as it satisfies the requirements of Technical Release 92-01. (i.e., the employee contributions are used within three months of receipt for payment of premiums as provided in § 2520.104-20 and § 2520.104-44). Based on these same terms Department of Labor exempts such Code § 125 affiliated welfare plans from the ERISA reporting requirements.

Please note, contributory employee welfare plans not associated with a Code § 125 plan remain subject to the bonding requirement.

Insured plans are also subject to the bonding requirement. FAB indicates that a bond is not required if no person “handles” funds of the plan; No bonding is required with respect to the bare existence of the contract obligation to pay benefits, nor the payment of premiums, or other payments made to purchase such benefits, directly from general assets.

Such insured arrangements would not normally be subject to bonding except to the extent that monies returned by way of benefit payments, cash surrender, dividends, credits or otherwise, and which by the terms of the plan belong to the plan (rather than to the employer, employee organization, or insurance carrier), were subject to “handling” by a plan official.

Here the dental plan is an employee reimbursement program which reimburses a specific amount yearly. This could easily be included as an appendix to the fully insured plan SPD. Since the claims are reimbursed, all claims are considered a post service claim. The appendix could be a 1 or 2 page addition to the fully insured plan or SPD. The appendix would state the payment provisions, covered benefits, excluded benefits, eligibility, funding and post-service claims procedure. It should be made clear that the coverage is self-funded and paid from general assets. All other information in the fully-insured SPD would be the same; including COBRA, ERISA rights, dependents, administrative Info, etc.

You can create an SPD for that benefit only and distribute solely to the eligible/covered employees. If your objective is to have one ERISA Plan, you can include the separate SPD by reference in your Combined SPD/Plan Document. Alternatively, you could create a separate SPD/Plan Document for the separate benefit offered to the specific group of employees. The only drawback is that this establishes a second ERISA Plan, which if includes more than 100 participants, would require a separate 5500 filing.

The Department of Labor requires SPD’s in order to disclose the source of contributions to the plan. However, it is not required to include the contributions or the specific rates. This would often require annual updates when contributions change. Included in our documents is the source of contributions, we also reference the plans enrollment materials for specific information necessary. A change in contribution amount does not constitute a change in the plan.

There is an option for exceptions in the eligibility section, you can include a sentence for STD that explains who is not eligible (example: New York and New Jersey are not eligible for Short Term Disability described here). If a reason exists for the non-eligible status it would help to include it. When you request this open-ended language, you will need to check it with Section Preview to ensure that it reads correctly with the rest of the language and punctuation.

Generally, the same content is required for fully-insured and self-funded ERISA Plans and an SPD’s. Fully insured plans are issued benefit booklets or certificates of coverage. These booklets describe the coverage being purchased from the carrier and outlines the deductible, coinsurance, exclusions, coverage limitations and more. Eligibility requirements are typically not listed; instead the reader is directed to the employer for more information.

Complete ERISA required language may also not be included in most self-funded arrangements. In most self-funded arrangements, the Sponsor/Employer are the insurance carrier. In fully-insured plans, the named fiduciary and plan administrator are the insurance carriers. The SPD that ERISA Documents Inc. provides, addresses the items that are generally not included in the carrier booklets. Self-funded SPD’s will include all of the necessary and required information including the details of coverage, definitions, limitations, and more.

No, if no contributions are required, Section 125 language will not appear in your document.

No, it is not necessary for the dates to coincide. Your plan can be set up to begin any month; the 12 month period will not be affected by the 15 month renewal by the insurer. If a Form 5500 is filed, the insurer will proved Schedule A premium information for the plan year being filed. Information on the Schedule A is a maximum of a 12-month period. However for purposes of creating the plan, the employer selects the year and it need not be changed if a policy year changes. A plan can have multiple policy years without having an effect on the actual plan year.

Yes, and there are a few ways to do this. This question emphasizes why it is convenient for groups of employers to offer the same benefits to all employees transferring among the different employers. Reason being, it would be a complicated situation if an employer would have to take away a benefit from an employee that transferred, but technically still works for the same employer.

One way to do this is to indicate on the final document who each section applies to, for example in the vision section one could type “this section applies only to Employees of Acme Corp.”. Similarly, one may manually indicate in the Appendix which benefits apply to what employees. (e.g. Vision benefits apply only to employees of The Munster Corp.).

Although they are not commonly ERISA Plans, it is possible for a severance policy to be an ERISA plan. These plans fall under Pension or Health & Welfare. If that is the case, then an SPD is required. Considering the rarity of the situation, we do not include the necessary language to support this; but should the employer determine that their plan falls under Title I of Health and Welfare plans, then the option is available of adding the language to the document.

The SPD does not specify each employee or employer contributions. Listed below is the standard language found in our documents.

“The Employer and employees both contribute to the Plan. Premiums are paid to the Insurers for fully insured Benefit Programs and benefits will be paid by the Insurer in accordance with the applicable insurance contract/policy.”

Yes it is possible to establish a Single Employer Plan if the companies are in the same control group, and under common control. To be considered under common control, there must be at least 25% common ownership interest. Regulations further provide that common control will fall under one of the following categories:

1. Sibling group
2. Parent/Subsidiary Group, entities which are connected through at least 80% common ownership
3. A group with 5 or less individuals that own at least 80% interest in each company AND; the same group of 5 or less, together own more than 50% interest in each entity, only calculating the individuals ownership where the ownership is identical in each organization.

Responsibility for fiduciary obligations and compliance are remitted to the control group. Premium payment being managed by two separate offices is an administrative task and does not become a determining factor for establishing a Single Employer Plan.

First, you need to decipher whether these are included in the Health and Welfare plan (subject to ERISA) or if they are individualized voluntary policies purchased at the workplace. Worksite policies are frequently individual policies that fall under a safe Harbor, and are therefore not subject to ERISA regulations. If the policies are not subject to ERISA regulations, they do not need to be included in the SPD.

Yes, it is common to have separate SPDs that can be issued for multiple benefits within a plan. However, be sure you are not referencing a “plan document” as opposed to a separate summary plan description. Employers often prefer separate SPDs for FSA benefits, due to the fact that many employees are not participating in the FSA. Distribution of the SPD for the FSA is in that case limited to the participants in this program. Another alternative to this is to provide and maintain the FSA plan separately, and to not reference it in the SPD or combined Plan Document. This would require a separate ERISA plan number, and exempt the FSA plan with fewer than 100 participants from filing form 5500.

Even if a form SPD had not been issued, they most likely distributed some plan information regarding the carrier to the participants. It is possible that it was not sufficient to be a compliant SPD, and/or may be construed that way. We recommend distributing the new SPD as soon as possible and not relying on the 120 day time frame for future ERISA plans. If there happened to be a plan change, the new SPD could be considered a SMM, in which case the time frame is 210 days after the end of the plan year the changes took effect. If however it was a reduction in benefits, the summary must be distributed within 60 days of the change.

Yes, the administrator is entitled to make a reasonable charge to cover the cost of furnishing duplicate SPDs, it is advised that if doing so you request a written request from the participant for a duplicate copy.

Yes, it is advised you keep the language for 2014-2015. Although the late entrant can no longer be subject to pre-existing condition limitations, the plan can still impose enrollment requirements for any late enrollees. Such requirements include not permitting them to elect coverage until open enrollment, unless they have a special right designated to them by HIPAA guidelines. Note, HIPAA does not require a plan to have this late entry language, however if the language is included, it must also have the Special enrollment rights listed.

Many plans are offering benefits through a cafeteria plan; which offer pretax payroll deductions and do not permit midyear election changes without qualifying events (in accordance with IRC §125.) However, recently there has been a transition rule issued for non-calendar year plans for a single year that permits them to amend their plans in order to allow for mid-year election changes, without qualifying events. This is a temporary transition rule for one year and excludes non calendar year plans.

Also, if they are not offering pretax contributions, they could remove the late entry provision, nevertheless, if they are fully insured it is advised that they check with the insurer first. The Public Health Service Act specifically lists that health insurance issuers are permitted to limit enrollment to only open enrollment/special enrollment.

Yes, you are correct! The provision is no longer applicable for the complete implementation of the PPACA changes. 12/1/2014 is the last plan year that will need to comply, tet he have heard that some carriers which offered earlier renewals with effective dates of 12/31/2013, could potentially extend the final compliance date to 12/31/14. Note that until all plans are compliant, it is necessary to issue Portability Certificates.

To clarify, you would like one plan under ERISA that includes the self-funded medical, along with the fully insured benefit programs. The Administrator provided you with a SPD but not a plan Document.

In Determining what type of benefits are included in the ERISA plan, you must refer to the plan document instead of the SPD. It is possible to have multiple SPDs included within one single Plan Document. The Wrap SPD you have serves as the SPD as well as the Plan Document. Note this is along with insurance carrier certificates of coverage, booklets and policy literature. If you were to amend your existing plan and remove the fully insured medical part, while incorporating the separate SPD for the medical benefits, it would still be considered one plan for ERISA purposes.

If the plan years are not the same, then there would be separate plans and would not be included in the same SPD. However, if the policy years are different from the plan year, then it is possible to be included. As an example, if a plan year runs from January to December (that is used for the 5500 filing), and the plan includes a medical policy that runs January to December, and a Dental policy that runs February to January, these can all be included in the same SPD.

Carriers will often refer to policy periods as “plan” years and use the terms interchangeably. However, the Plan Sponsor (ERISA), sets the Plan Year and it needn’t coincide with policy anniversary dates, nor must all policies renew simultaneously. However, for administrative purposes it is more convenient to have them all renew simultaneously.