Wrap Documents: What You Need to Know
November 25, 2019
At the end of a rehearsal you may hear the words, “That’s a wrap!” On a cold day you may scramble to find your favorite wool wrap. Or for lunch you may order a tasty wrap from your favorite deli. But in the Health and Benefits space, you might hear about a wrap document and wonder what it is. Here’s an overview highlighting what you need to know about wrap documents.
As the US Department of Labor is planning their upcoming audit season, it is important for employers to be in compliance with ERISA rules, plan documentation, disclosure, and reporting requirements. Many employers offer a variety of benefits including Health Savings Accounts (HSA) or Flexible Spending Accounts (FSA) to supplement major medical plans. But as employers expand the buffet of options, this adds complexity and additional reporting requirements per plan each year.
Large employers may have the resources to prepare custom plan documents and summary plan descriptions for each employee benefit plan they offer. Most smaller employers, however, lack the time, money and expertise to prepare these documents and keep them up-to-date. One simple and cost-effective solution is the wrap document.
What is a wrap document?
A wrap document is a relatively simple document that “wraps” around the insurance policy, coverage certificate or plan booklet. The benefits available under the plan continue to be governed by the insurance policy, coverage certificate or plan booklet, while the wrap document supplements with the information necessary to comply with ERISA. By using a wrap document, an employer can satisfy the ERISA Summary Plan Description (SPD) requirement, and many other disclosure requirements, by using one document for all of the health and welfare benefits offered.
A wrap document “wraps around” all ERISA health and welfare benefits and includes required disclosures that are not typically found in other documents. These include details like the allocation of duties and responsibilities between the employer and the insurer, or the rights participants are entitled to under ERISA. Wrap documents become the SPD, which ensures that the required ERISA language is available in writing.
A wrap document may cover benefits not subject to ERISA as well as ERISA benefits. For example, the wrap SPD indicates that the plan includes under its umbrella the cafeteria plan and dependent care assistance program (DCAP), which are not subject to ERISA. Wrapping non-ERISA benefits with ERISA benefits under a single wrap document will not cause the non-ERISA benefits to become subject to ERISA. All that is necessary is to be clear when drafting documents which are subject to ERISA and which are not. The documentation should also clearly explain different procedures for claims that apply to different benefits.
What are the benefits of a wrap document?
Having a wrap document helps employers minimize the risk of lawsuits and financial penalties, and keeps them compliant with demanding ERISA, Internal Revenue Code, and COBRA noncompliance laws. These documents also help save time and money. Employers can consolidate all health and welfare plans under the same wrap document, so there’s no need to update or amend multiple documents in response to legislative or regulatory changes, or changes made by the employer with respect to the benefits they offer.
In addition, wrap documents simplify the Form 5500 filing process for employers that have 100 or more plan participants or are otherwise subject to the filing requirement. Instead of filing a separate Form 5500 for each health and welfare plan, a wrap document enables the employer to file a single Form 5500 (and associated schedules A) for all benefits covered under the wrap document.
Using a wrap document is an easy, cost-effective way for employers to show auditors that they are attentive to their health and welfare benefits plans, and in compliance with ERISA and other laws affecting the employee benefits they offer.