The Employee Retirement & Income Security Act of 1974 (ERISA) was enacted to protect the rights of participants and beneficiaries in employee benefit plans. ERISA regulations are issued and enforced by three separate federal agencies – the Internal Revenue Service (IRS), the Department of Labor (DOL), and Pension Benefit Guaranty Corporation (PBGC).

Under ERISA, employers who sponsor group welfare benefit plans are generally required to disclose plan details to participants and report certain plan information to the DOL. Most retirement plans are also subject to ERISA and may have different and/or additional reporting and disclosure requirements.

What Welfare Plans Are Subject to ERISA?

The following welfare benefit plans are subject to ERISA reporting and disclosure requirements:

  • Group medical plans, including: health care flexible spending accounts (FSAs) and medical reimbursement plans
  • Group dental and vision plans
  • Group life insurance plans
  • Group short-term disability plans (insured only)
  • Group long-term disability plans
  • Employee assistance plans (EAPs) that provide medical benefits
  • Prepaid legal plans
  • Travel accident plans
  • Funded scholarship plans
  • Formal severance plans

Voluntary group plans with no employer contributions may not be subject to ERISA reporting and disclosure. However, a voluntary plan may become subject to ERISA if the employer has active involvement in administering the plan, including offering pre-tax contributions.

Reporting to the Department of Labor

Plan sponsors must file the Form 5500 for any welfare plan with at least 100 participants at the beginning of a plan year. Smaller plans must file only if the plan is funded (e.g., trust). The Form 5500 is due within 7 months after the end of the plan year unless an extension has been filed prior to the due date. Beginning with the 2009 plan year, Form 5500s must be filed electronically. Keller prepares any required welfare plan Form 5500s for our clients.

Disclosure Requirements to Plan Participants

Summary Annual Report (SAR)

Once the Form 5500 has been filed, employers must distribute a Summary Annual Report for each filed plan summarizing the information reported on the Form 5500. The SAR must be distributed to plan participants within 9 months after the end of the plan year.

Welfare plans that are not subject to Form 5500 reporting are exempt from the SAR. In addition, unfunded and uninsured welfare plans that may be required to file a Form 5500 (i.e. healthcare FSA or EAP) are exempt from the SAR.

Summary Plan Description (SPD)

ERISA requires distribution of a Summary Plan Description (SPD) to covered participants within 90 days after becoming covered by the plan or within 120 days of establishing a new plan. The purpose of the SPD is to describe the plan in easy to understand language.

ERISA has detailed requirements of the information that must be contained in the SPD. The benefit booklets or certificates of coverage that insurers provide for welfare benefit plans may not include all the SPD requirements. Since the employer is responsible for ERISA compliance, the employer may need to prepare a separate SPD that includes all the pertinent information and refers to the insurer’s “certificate of coverage” or other material for detailed benefit information.

The SPD is required to be updated every 5 years to reflect any changes. If the employer has not amended the plan, SPD must be redistributed within 210 days after the end of the tenth plan year.

Summary of Material Modifications (SMM)

The SMM describes any change in the plan that materially affects the plan design or any change in information required to be included in the SPD. The SMM must be distributed to plan participants within 210 days after the end of the plan year in which a material modification was made.

In the event of a material reduction in benefits (e.g. increase in premium contribution, increase in co-pay or deductible, reduction in service area covered by an HMO, imposition of new requirements such as pre-authorization), an SMM must be provided within 60 days after the date of adoption of the change.

Summary of Benefits and Coverage (SBC)

The SBC requirement was added in 2012 as a result of health care reform. The SBC is a uniform four-page summary describing the benefits and coverage available under the applicable plan. The SBC must be distributed to plan participants and beneficiaries by the first day of their open enrollment period each plan year.

Welfare benefit plans that are excepted benefits, such as most health care FSAs and certain HRAs, are exempt from the SBC requirement. Information regarding FSAs and HRAs that are not excepted benefits may be added to the SBC for the major medical coverage if the benefits are integrated.

Insurance carriers are responsible for preparing SBCs for fully-insured plans. Self-insured plan sponsors are responsible for their own SBCs. A template has been provided by DOL to ensure uniformity.

Other ERISA Requirements

  • Plans must be in writing; therefore a plan document is required (SPD and insurance contract together may constitute the plan document).
  • Plans must follow fiduciary standards.
  • Plans with plan assets/funded plans must purchase fidelity bonds to cover individuals who handle the funds.
  • Copies of certain documents, such as the latest SPD, SMM, plan document, or Form 5500, must be furnished to participants upon request.
  • ERISA has been amended by other major federal legislation, including COBRA, HIPAA, Women’s Health & Cancer Health Rights Act (WHCRA), and the Mental Health Parity Act.