ERISA Basics: Plan Documents, SPDs and Fiduciary Duties

If a private business offers health coverage, it almost always sponsors an employee benefit plan governed by ERISA, the Employee Retirement Income Security Act of 1974. That's true even when the coverage is a policy bought from an insurance company. ERISA sets rules on how the plan is written down, who is responsible for running it, and what employees must be told.

You don't need to become an ERISA lawyer to meet the basics. You do need to know which documents your plan must have, who the fiduciaries are, and when the summary plan description (SPD) has to reach employees.

This is general information, not legal advice. ERISA questions about your own plan belong with a benefits attorney or your plan's administrator. The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) also offers free benefits advisors at 1-866-444-3272.

Which plans ERISA covers

The DOL describes ERISA as a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry. ERISA requires plans to give participants information, sets fiduciary duties for those who manage plans, requires a claims and appeals process, and gives participants the right to sue for benefits and breaches of fiduciary duty.

ERISA generally does not cover group health plans of government entities or churches, or plans kept only to comply with workers' compensation, unemployment or disability laws. In its group health fiduciary guide, the DOL says an ERISA-covered group health plan can pay benefits through a trust, through insurance, or from the employer's general assets, and that medical coverage includes things like hospitalization, prescription drugs, vision and dental.

The plan document and the people behind it

The DOL's fiduciary guide lists the essential elements of a plan:

• a written plan that describes the benefit structure and guides day-to-day operations
• a trust to hold plan assets (the DOL notes that a plan set up through an insurance contract does not need to hold the contract in trust)
• a recordkeeping system
• documents that give plan information to employees and the government

The plan must have at least one fiduciary named in the written plan, or chosen through a process the plan describes, who controls the plan's operation. The DOL stresses that fiduciary status depends on what someone does, not their title. Anyone who uses discretion in managing the plan or its assets is a fiduciary to that extent.

Some decisions are business decisions, not fiduciary acts. The DOL lists setting up a plan, choosing the benefit package, adding features, amending the plan and ending it. Carrying out those decisions can be fiduciary work, though.

Employers should know their plan document well, the DOL says, "especially when it is drawn up by a third-party service provider." They should also review it from time to time. If a plan official named in the document changes, for example, the document must be updated.

What fiduciaries owe the plan

According to the DOL, fiduciaries must:

• act solely in the interest of participants and beneficiaries, for the exclusive purpose of providing benefits
• act prudently
• follow the plan documents, unless they conflict with ERISA
• hold any plan assets in trust
• pay only reasonable plan expenses

Prudence is about process. The DOL suggests documenting decisions and the reasons for them, and getting comparable information from several providers before hiring one. If you hire an administrator, you remain responsible for choosing and monitoring it. Fiduciaries who break the rules can be personally liable to restore plan losses.

Employee contributions need special care. The DOL says salary reductions must go to the plan as soon as they can reasonably be separated from company assets, and no later than 90 days after withholding. For plans with fewer than 100 participants, the DOL treats contributions deposited by the 7th business day after withholding as on time.

The summary plan description and related disclosures

The DOL calls the SPD the main way participants learn about their plan. It tells them what the plan provides and how it works, including when they can join and how to file a claim. It must be written for the average participant. The DOL's Reporting and Disclosure Guide (December 2022 edition) sets these timelines:

• SPD: to participants within 90 days of becoming covered. A new plan has 120 days after it becomes subject to ERISA. An updated SPD is due every 5 years if the plan has been amended, and every 10 years otherwise.
• Summary of material modifications (SMM): within 210 days after the end of the plan year in which a change is adopted. Handing out an updated SPD also satisfies this.
• Material reduction in group health benefits: generally within 60 days after the reduction is adopted.
• Plan documents on request: within 30 days of a written request.

The DOL's guides add that the SPD is where the plan describes COBRA rights, how to notify the plan of events like divorce, and the Newborns' Act rules on hospital stays after childbirth. Our guide to benefit notices and ACA reporting covers the other notices a group health plan sends.

Form 5500 and the small-plan exemption

Many ERISA plans file an annual report, the Form 5500. The DOL's guide explains an exemption that matters to most small employers: welfare plans that are unfunded, fully insured, or a mix of the two, and that cover fewer than 100 participants at the start of the plan year, are exempt from filing if they meet the conditions in the regulation (29 CFR 2520.104-20). A plan with 100 or more participants must file. If your plan is self-funded with a trust, or close to 100 participants, confirm your filing status with your administrator or adviser.

A caution about "association" or pooled plans

Pooled arrangements that cover the employees of several unrelated employers are called multiple employer welfare arrangements, or MEWAs. The DOL's reporting guide notes that plans required to file Form M-1, the MEWA report, must also file a Form 5500 regardless of size. Its MEWA guide warns that "a number of MEWAs have been unable to pay claims as a result of insufficient funding and inadequate reserves," and that in the worst cases operators drained assets through excessive fees and embezzlement. Before you join any arrangement that isn't a policy from a licensed insurer, ask your state insurance department whether it is licensed or registered to operate in your state.

Key takeaways

• Most private-sector health plans, including insured ones, are ERISA plans with a written plan document and at least one named fiduciary.
• Fiduciary duties come from what you do. Document decisions, follow the plan, and monitor the providers you hire.
• Give the SPD within 90 days of coverage, give SMMs within 210 days after the plan year of a change, and answer written document requests within 30 days.
• Small insured or unfunded welfare plans with fewer than 100 participants are generally exempt from Form 5500 if they meet the regulation's conditions.
• Check any pooled or association-style plan with your state insurance department before signing up.

Sources

• U.S. Department of Labor, Employee Retirement Income Security Act (ERISA)
• U.S. Department of Labor, EBSA, Understanding Your Fiduciary Responsibilities Under a Group Health Plan (September 2023)
• U.S. Department of Labor, EBSA, Reporting and Disclosure Guide for Employee Benefit Plans (December 2022)
• U.S. Department of Labor, EBSA, An Employer's Guide to Group Health Continuation Coverage Under COBRA
• U.S. Department of Labor, Plan Information
• U.S. Department of Labor, EBSA, MEWAs: Multiple Employer Welfare Arrangements under ERISA, A Guide to Federal and State Regulation