The Summary Plan Description (SPD) and Section 125 Cafeteria Plan Document are two different documents with different purposes. Thus, an employer should adopt and maintain these documents separately.
Under ERISA, private employers of any size are required to have an SPD that describes the participant’s rights and obligations under the ERISA-covered benefits. The SPD must be distributed to new participants within 90 days of employment. Governmental entities, Native American tribes and churches aren’t subject to ERISA and aren’t required to have an SPD.
Neither the certificate of coverage often supplied by the insurer for a fully insured plan nor a TPA for a self-insured plan is sufficient for this purpose. That document may include some of the information that is required by ERISA, such as a description of benefits available under the plan, benefit exclusions and terms of eligibility. However, it’s typically missing many other required elements, such as identification of ERISA fiduciaries, the employer’s right to amend or terminate the plan, the employer’s procedures for processing qualified medical child support orders, how rebates will be processed and the employer’s right to amend and terminate the plan.
This is where a wrap document is helpful. You won’t find the term “wrap document” anywhere in the regulations or federal guidance. It’s an industry solution that has been developed to assist group health plans with compliance. The wrap document leverages the information already contained in the certificate by simply supplementing the document with the missing ERISA elements. The wrap document isn’t intended to be a stand-alone document. It “wraps” the missing information around the certificate, so that the two documents combined together (wrap document plus the certificate of coverage) become the SPD.
It’s important to understand that the SPD requirement applies to all ERISA-covered benefits, not just to the medical plan. Thus, an employer plan sponsor would need to have an SPD for each benefit that’s subject to ERISA, which may include medical, dental, vision, group disability, group term life, health FSA and HRA. It could also include telehealth and employee assistance programs (EAPs), depending on how those programs are structured and the benefits offered. Importantly, ERISA doesn’t apply to dependent care FSAs or HSAs. For this reason, the wrap document serves another important purpose. It can be used to bundle all of an employer’s plan options into a single plan number and plan document. This eases the administrative burden of maintaining multiple documents and filing multiple Forms 5500.
Section 125 Cafeteria Plan Document
If an employer permits employees to contribute to the cost of certain coverages on a pre-tax basis via salary reductions, that employer has a Section 125 cafeteria plan. In order to take advantage of the tax savings, the IRS requires the employer to adopt and maintain a separate written Section 125 Cafeteria Plan Document. It applies to an employer of any size and any type (including governmental entities, Native American tribes and churches).
The document identifies which benefits are offered through the cafeteria plan, which may include medical, dental, vision, group disability, group term life (on employee life only), health FSA, dependent care FSA, HSA and other accident/health insurance policies (such as specific illness or AD&D). The document also identifies which qualifying events are recognized by the employer (since many of them are optional).
The Section 125 Document isn’t distributed to participants; it’s only maintained on file.
An SPD is required of an ERISA-covered employer who offers ERISA-covered benefits to employees. It must be distributed to new participants within 90 days of participation. It’s enforced by the DOL’s Employee Benefits Security Administration.
A Section 125 Cafeteria Plan Document is required of any employer whose employees contribute to the cost of qualified benefits from their paycheck on a pre-tax basis. The document isn’t distributed to participants; it’s enforced by the IRS.
While these documents may both describe an employer’s benefit plan offerings, they serve different purposes and have different requirements. Thus, they should be separate documents.