Find answers to common questions and eligibility requirements below
ERISA, the Employee Retirement Income Security Act of 1974, is a Federal law that deals with employee benefit plans. ERISA addresses both Qualified Retirement Plans (e.g., pension and profit sharing plans) and Welfare Benefit Plans (e.g., group insurance and other fringe benefit plans). ERISA is intended to provide uniformity and protections to employees by imposing certain requirements on employers, including reporting to the Department of Labor (DOL) and disclosure to plan participants. ERISA compliance is enforced by the DOL. However, employee benefit plans may also be regulated by other government agencies, such as the Internal Revenue Service (IRS) and state Departments of Insurance (DOI). Failure to comply with ERISA can result in enforcement actions, penalties, and/or employee lawsuits.
Nearly all private-sector corporations, partnerships, and proprietorships, including non-profit corporations, must comply with ERISA regardless of their size or number of employees. Churches and government employers are exempt from ERISA Welfare Benefit Plan provisions.
ERISA compliance is required under Federal law and employers can avoid costly DOL penalties if they comply. Plan compliance can also help an employer avoid a lawsuit and stiff penalties in state court, if a Plan Participant or Beneficiary brings a “bad faith” claim against insurers and Administrators who deny benefits. As a Federal law, ERISA trumps state law. Under ERISA, damages are limited to the unpaid benefits and does not provide for jury trials. Being out of compliance creates exposure in either state or federal court.
In state court, every aspect of a case is subject to a “de novo” review, including matters not even in dispute. However, ERISA has a higher standard of review for overturning decisions of a Plan Administrator. In Federal court, an Administrator’s decision to deny a claim must be “arbitrary and capricious” before it can be overturned.
The following Plans, whether fully insured or self-insured, are generally those to which ERISA applies:
Some self-insured or uninsured plans like sick pay, short-term disability, overtime, vacation pay and other paid time off, and jury duty may be exempt if benefits are paid:
Voluntary group or individual insurance plans may be exempt from ERISA, depending on the extent of employer involvement. This is typically the case when participants pay all of the cost and the employer’s role is only to withhold premiums through payroll deduction for remittance to an insurer. However, even minimal sponsorship or endorsement, like putting the company name on brochures could negate this exemption. A plan qualifies under the Voluntary Plan Safe Harbor if:
Voluntary Plan Safe Harbor may be negated through implied employer endorsement in the following ways:
ERISA generally does not apply to:
The Plan Document describes the Plan’s terms and conditions related to the operation and administration of a Plan. Each Welfare Benefit Plan that an employer provides that is subject to ERISA must have a written Plan Document. An ERISA Plan can exist without the required written document, but it is out of compliance. These documents do NOT constitute a Plan Document or Summary Plan required under ERISA:
To be in ERISA compliance, the Plan Document should contain:
Any employer sponsoring health or welfare benefits must determine the best way to document benefits for legal compliance and to effectively communicate with employees. Employers sponsoring insured benefits must also worry about missing ERISA provisions in their insurance documentation. Sometimes using a “wrap document” to bundle benefits into one plan and/or supplement insurance documents is much easier for the employer.
Plan Document Compliance for Insured Plans
Special plan document considerations exist for insured plans. Insurers typically do not draft contracts with ERISA plan document requirements in mind because their principal focus is complying with applicable insurance laws. As a result, insurance policies often fail to include all of the provisions required for ERISA plan documents and don’t always protect the plan sponsor and plan administrator. The best approach is to combine the insurance documents with a “wrap” document.
Plan Document Compliance for Other Third-Party Contracts
Similar plan document considerations exist where plan benefits are provided pursuant to a contract with a third party other than an insurer. For example, benefits under many employee assistance plans (EAPs) are provided through a contract with third-party service providers. The contract often is not designed to be the plan document for ERISA purposes and may lack many of the required elements and provisions intended to protect the plan sponsor and plan administrator. The wrap document supplements existing documentation to include required elements and other optional provisions that protect the plan.
Plan Document Compliance for “Bundled” Plans
Some plan sponsors may wish to combine two or more ERISA benefits into one plan for ERISA compliance purposes. The component plan benefits may be fully insured, self-insured, or a combination of both. The plan document for this kind of bundled plan consists of the insurance policies and self-insured plan descriptions combined to make a “mega-wrap” using a “mega” or “umbrella” document. A common use of a mega-wrap document is to collect all of the plan sponsor’s welfare benefits under a single plan
The Summary Plan Description (SPD) is the primary document to communicate Plan rights and obligations to Participants and Beneficiaries. It’s a summary of the main provisions of the Plan Document. However, for Health and Welfare Benefit Plans, the SPD is typically a combination of the complete description of the Plan’s terms and conditions, such as a Certificate of Coverage, and the required ERISA disclosure language.
An SPD must include the following information:
Additional requirements for Group Health Plan SPDs include:
The Plan Administrator/Employer is responsible for preparing and delivering the SPD to Participants within 90 days of them becoming covered whether or not they request the SPD. Plan Administrators of a new Plan must provide the SPD within 120 days after the Plan is established. An updated SPD must be provided to all covered Participants every 5 years. Even if the SPD has not changed, it must be provided every 10 years. Fines can be imposed by the DOL for failure to provide the SPD as required and proof can be important in situations of litigation. SPDs can be sent to Participants in a variety of ways, including electronic delivery, first-class mail, and hand delivery.
Participants are defined as:
There are Department of Labor penalties for not distributing plan documents to their Participants in a timely basis but just as important, having a compliant ERISA Wrap or Mega-Wrap document ensures that your plan falls under federal regulations and not the state. ERISA is a federal law that trumps state law. Some states allow Participants and Beneficiaries to bring “bad faith” lawsuits against administrators and insurers who have denied benefits.
If you have your ERISA language in the Plan Document, state lawsuits are bypassed. There have been many cases where a jury has awarded large sums of money through the state courts for non-compliance. The ERISA law limits damages to the unpaid benefits and does not allow for jury trials which often favor the insured over the insurer.
You will never be able to prevent all complaints from Participants who feel they have been wrongly denied benefits, but an ERISA compliant Plan Document provides layers of protection to mitigate any penalty potential.