What is a “wrap document”?
A wrap document describes the basics of an employer’s health and welfare plan and incorporates (or “wraps around”) the existing, more detailed benefit documents like insurance brochures, policies, and evidence of coverage.
A key advantage of a wrap document is the ERISA compliance that’s usually lacking in existing provider materials. Specifically, a good wrap document provides the ERISA claim procedures and other SPD components required, but nowhere to be found, in the typical participant materials prepared by insurers, brokers, and TPAs.
A wrap document can also reduce administrative expenses significantly, by creating a single ERISA plan that incorporates several component benefit plans, thereby reducing the number of annual 5500 filings to just one.
A wrap document can be used for:
- Multiple benefit coverages or a single benefit coverage
- Fully-insured and/or self-insured benefits
- Plan documents and/or summary plan documents
Here are some of the ERISA-required elements missing from most existing documents and provided by a wrap document:
- Specific eligibility provisions and exclusions
- General description of all benefits offered under a single plan
- Description of how different benefits interact with other benefits
- Employer’s reservation of right to amend or terminate the plan (not just the insurance policy)
- Governance provisions such as specifying who has the power to interpret plan provisions, decide eligibility claims, etc.
- ERISA-required information that may be missing from insurer-prepared documents
- Other information affecting the plan as a whole and that is specific to the employer, such as benefit coverage during a leave of absence
Why does an employer need a wrap document?
Primarily because your plan may be out of compliance without it. If plan documents are incomplete or missing, ERISA invokes several enforcement provisions (see section below).
Secondly, provider-prepared documents are written from the insurers’ perspective and generally do not contain language that is important or desirable to include from the employer’s perspective.
What are the potential consequences of not having a wrap document?
- ERISA provides for penalties of up to $110 per day that may be assessed where an employer fails to provide plan documents to an employee who has requested such documents in writing within 30 days of the request. Provision of an inadequate plan document can be considered a failure to provide a plan document at all.
- Without a wrap document establishing a single ERISA plan, an employer could be determined to have multiple, separate ERISA plans, each with its own Form 5500 filing requirement and applicable late penalties.
- Without complete information specific to the employer and the employer’s health and welfare plan, there is more exposure to liability for participant claims and lawsuits due to inconsistent administration resulting from missing, vague, conflicting or inaccurate plan language.