Prior to joining Neider and Boucher, I served as a compliance officer for an insurance broker helping employers implement and manage their companies’ non-retirement employee benefits plans such as health, vision, dental, life, long-term and short-term disability insurance, etc. These “Employee Welfare Benefit Plans” or “Welfare Plans” as defined by the Employee Retirement Income Security Action of 1974 (ERISA) (29 CFR § 2510.3-1(a)(2)) are very different and provide distinct benefits from employer provided retirement plans such as 401(k)s and 403(b)s (“Qualified Retirement Benefit Plans” (QRBPs) under ERISA). However, both Welfare Plans and QRBPs are subject to the legal requirements of ERISA.
One often overlooked requirement of Welfare Plan administration is the need to have a “Plan Document” and “Summary Plan Description” for each Welfare Plan that an employer offers. The reason this requirement is overlooked is typically that (a) employers are not aware of the requirement and (b) they think that the documentation from their insurance carrier or broker makes them compliant. When I would ask customers of the insurance broker I worked for whether the client had the necessary SPDs and Plan Documents in place, they would invariable say “yes, our 401k broker provided all of that,” or “yes” and then hand me the insurance plan’s Certificate of Coverage or Benefits Summary. Time and time again employers would be shocked to learn that they were not, in fact, in compliance with the regulatory requirements. Unfortunately, the consequences for not having these documents in place can range from employer frustration to extremely harsh regulatory liability.
The good news is that these documents can be easily drafted by legal professionals, benefits consultants, and employers themselves with proper research. The bad news is that the consequences of having substandard documents in place can be similarly harsh as not having them drafted altogether.
Take, for example, the recent case out of New York, which hinged on whether contractual language outside of a health insurance plan’s SPD could remove liability from an insurance company (and by extension the employer who held the policy). The court in Long Island Neurological Assocs., P.C. v. Highmark Blue Shield held that an Administrative Services Agreement (ASA) did not prohibit a patient from assigning her health insurance plan rights to a third party in order to challenge the plan administrator’s denial of benefits because the non-assignability language in the ASA was not part of the plan’s SPD. The ruling essentially cleared the way for the plaintiff to expose the health insurance plan to hundreds of thousands of dollars in damages and attorneys’ fees. While seemingly involving a highly technical question, the take-away is simple: As a plan sponsor, your Plan Document and SPD govern your plan, and the decisions employers and third-party administrators make with regards to enrollees’ rights under the plan must be in line with those documents. What’s more, this is not an uncommon law suit, and the holding matches with how the federal courts governing Wisconsin (the 7th Circuit) have interpreted ERISA’s SPD and Plan Document mandates.
A good rule of thumb for employers is to periodically review and refresh the Plan Document and Summary Plan Description of every Welfare Plan offered to employees with a trained employee benefits professional. The employer may be able to simplify the document requirement through the use of a “Wrap” Summary Plan Description and “Wrap” Plan Document. These documents pose their own challenges and consequences, so it’s important to do your research or reach out to legal professionals or benefit consultants.
This article does not constitute legal advice, and the reader should consult legal counsel to determine how this information applies to any specific situation. If you have any questions regarding your Plan Documents or SPDs, please contact Joe Camilli at Neider & Boucher, S.C. at 608-661-4500.