Welfare Benefit Plan ERISA News & Views
March 2011

Five Common Misunderstandings and Mistakes
A common misperception held by even experienced insurance brokers, consultants, Human Resources and Benefits personnel, accountants, and attorneys is that an insurance company's group insurance policy or Certificate of Insurance is an SPD. However, Certificates of Insurance are generally not SPDs because they rarely contain all of the required ERISA language. An employer must prepare an ERISA "wrapper." The wrapper can integrate one or more component benefit plans. Together, the SPD wrapper and the Certificate(s) of Insurance constitute a compliant SPD.

A second common misbelief is who is responsible for preparing, filing, and delivering SPDs and Form 5500s. Most employers believe their broker, insurance carrier, accountant, or perhaps even their lawyer is taking care of this. However, ERISA compliance is solely the employer's responsibility. Employers certainly expect their advisors to at least make them aware of their compliance requirements and potential liability. Misunderstandings like these can result in some very unhappy clients.

Third, many employers and insurance brokers share the misimpression that small plans (<100 participants on the first day of the Plan year) and fully insured plans are not subject to ERISA disclosure requirements. Consequently, they do not prepare and distribute SPDs. Without an SPD, they expose themselves to unnecessary lawsuits and government penalties. ERISA applies to employers of any size or number of employees, every business form (e.g., Corporation, Partnership, or Proprietorship), every industry (except Churches and Government Plans), and many benefit plans, whether insured or not.

Fourth, most practitioners believe that small Plans are automatically exempt from filing Form 5500. However, the general rule is that all ERISA Plans must file an annual Form 5500. One of the requirements for the small Plan exemption is that contributing participants are informed upon entry into the plan of the provisions concerning the allocation of refunds. Our experience indicates that this is rarely done, leaving most employers out of compliance and subject to a fine of up to $1,100/day.
See Title 29 CFR 2520.104-20.

Last, insurance carriers routinely provide Schedule A information to their ASO, or self-funded, customers to use in preparing Form 5500. However, we find that most non-insured Plans are not even required to report on Schedule A. If a stop-loss policy is owned by the employer, rather than the Plan or a Trust, and stop-loss premiums are paid exclusively out of the employer's general assets, the stop-loss policy is generally not a Plan asset and is not reportable on Schedule A. See Instructions for Form 5500, Part III, Line 8i, page 20. Large insured plans are required to file Schedule A, but they may be exempt from filing Schedule C under certain conditions.

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© 2017 ERISAPros, LLC, All rights reserved. Information on ERISAPros' website, its newsletter, “News & Views,” and its blog, “ERISA Wonk,” is published as a general informational source. Information and articles are general in nature and are not intended to constitute legal or tax advice in any particular matter. Blog posts and comments reflect the personal views of their respective authors - not those of ERISAPros. Transmission of this information does not create an attorney-client relationship. ERISAPros, LLC is not a law firm and is not giving legal or tax advice. It does not warrant and is not responsible for errors or omissions in the content on its website or in its newsletters. ERISA is a complicated and confusing law. Summary Plan Descriptions (SPDs), Wrap Plan Documents, and Form 5500s require review and updating by qualified ERISA compliance professionals.


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