Wrap Documents

Prepare a “wrap” plan document:

The purpose of the wrap plan document is to create a single, combined employee welfare benefit plan that includes all welfare benefits identified by the employer and to supplement the provisions of other documents, such as insurance contracts, that govern the terms of each wrap plan benefit to assist the employer with satisfaction of the plan document requirement set forth in ERISA Section 402.

Prepare a “wrap” summary plan description:

The purpose of the wrap summary plan description is to supplement the provisions contained in other summaries and/or certificates of coverage related to the wrap plan benefits to assist the employer with satisfaction of ERISA’s summary plan description requirements set forth in ERISA Sec. 102.

Form 5500 Filing

Form 5500 must be filed for each benefit plan with more than 100 participants on the first day of the plan year. O.C.A. will file Form 5500 on behalf of the client.

Few would dispute that ERISA-covered plans are subject to a certain amount of required compliance baggage. Among other things, each ERISA plan is required to: be maintained pursuant to a formal plan document; be described to participants through a summary plan description; have assets maintained in an ERISA-compliant trust, and file an annual Form 5500 (when applicable) each year. The theory behind an Umbrella Wrap is that the cost of the ERISA infrastructure can be spread across many benefits resulting in less costly administration for each benefit that is provided. Since ERISA does not prescribe a specific plan design for welfare benefits, the plan sponsor is free to wrap together one or more other wise unrelated welfare benefits into an Umbrella Wrap document.

That said, plan sponsors may unwittingly increase their Form 5500 obligations when adopting an Umbrella Wrap. For example, an employer that offers dental coverage with 70 participants and vision coverage with 40 participants (only 10 of whom also have dental coverage) may subject itself to Form 5500 requirements for the first time when the benefits are wrapped (i.e., because there are now 100 participants in a single plan). Likewise, an employer that offers unfunded benefits (such as a health FSA or HRA) that may otherwise be exempt from ERISA’s audit requirements may subject the unfunded benefits to the audit requirement when the benefit is “wrapped” with a funded benefit (e.g., primary health coverage).

Section 125 Premium Only Plans

A Section 125 Premium-Only-Plan (POP), is a cafeteria plan which allows employees to pay their health insurance premiums with tax-free dollars. OCA will provide employers will the Plan Document, Summary Plan Description, Board Resolution, and Adoption Agreement. These legal plan documents will allow employees to make pre-tax contributions, thus increasing the employees take-home pay. Employers benefit by reducing their tax liability.  With a Premium Only Plan, employers do not have to pay FICA/FUTA taxes (~7.65%) on dollars that employees use toward the cost of their group health insurance premiums.

Cafeteria plans are popular because they allow employees to receive health insurance coverage from their employers without having to pay taxes on it. Intending cafeteria plans to benefit the rank-and-file employee, Congress created rules to ensure that their tax-favored status would not be used to benefit only or primarily the highest-paid or owners of a company. These rules are referred to as nondiscrimination testing.

Cafeteria plans are not the only type of benefit plan that receives tax-favored status and must perform nondiscrimination testing. Self-insured plans, insured plans, Health FSAs, and DCAPs must also undergo testing. Testing for each of these will vary slightly, but although the details are different, overall concepts are similar.

Nondiscrimination testing is designed to ensure that the benefits are 1) generally available to a company’s employees and are 2) being utilized by a majority of rank-and-file employees. To measure this, testing rules distinguish between rank-and-file and highly compensated employees and create threshold percentages for rank-and-file participation. Also, “nondiscrimination testing” usually means that the plan must pass two or three different tests that each address either availability of benefits or utilization of benefits.

This introductory primer will first highlight some of the concepts that apply to all types of nondiscrimination testing, then detail testing requirements for each particular plan type (e.g., cafeteria plans, self-insured plans, etc.). To see a full description, please click here

OCA’s ERISA Summit offers a simple, inexpensive compliance solution!  Our ERISA Summit service provides a cost-efficient solution to avoid the headaches of lengthy audits and the fear of significant civil penalties! Our services includes Wrap Documents, Section 125 Premium Only Plans, Form 5500 Filing, Non-Discrimination Testing, and ERISA Assessment Tools!

The Employee Retirement Income Security Act (ERISA) is a federal law enacted in 1974 that sets minimum protection standards for individuals participating in most employer-sponsored group health and benefit plans. Employers that sponsor ERISA group plans must comply with these set standards or open themselves to potential plan disqualification and/or penalties. For many years, the enforcement of these set standards lacked and noncompliance became the norm. Times have changed though, in large part due to The Affordable Care Act. The Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL) has been tasked to ensure the integrity of the private employee benefit plan system. As a result, noncompliance now equals fines! In fact, EBSA’s audits resulted in a total of 1.6 billion in monetary collections in 2013, which makes it critical for employers to get there house in order sooner than later!


Is your plan subject to ERISA?

Below is a simple Test to determine if your plan is an ERISA plan which needs to be wrapped.

The DOL has a 5 part test which exempts insured arrangements if:

  1. There is no employer contribution;
  2. Employee participation is completely voluntary;
  3. Employer receives no compensation from the insurer;
  4. Employer’s involvement is limited to permitting the insurer to publicize the program, collecting premiums through payroll deduction, and remitting premiums to the insurer by single check; and
  5. Employer does not endorse the program.

It is the final requirement that trips up most employers. The DOL provides that the following actions constitute endorsement:

  1. Putting employer’s names on materials;
  2. Referring to the plan as the employer’s plan;
  3. Encouraging employees to participate;
  4. Selecting and negotiating with insurers;
  5. Assisting employees with claims or disputes;
  6. Allowing payment of premiums with pre-tax dollars through cafeteria plans.

Now that you have determined your plan needs to be wrapped, it’s time to decide if your plans be wrapped under one wrap document? This can be done but you must consider a few items in order to create what we call an Umbrella Wrap Document.

Do the plans have the same:

  • Effective Date
  • Waiting periods
  • Eligible Employees

How does the eligibility language read under each plan?

  • Same group of employees eligible for all plans; carve out’s
  • Same Dependant definition
  • Minimal age to enroll
  • Hours worked to be eligible

Does the plan have over 100 participants or not?

  • When wrapping 2 plans you count the “belly buttons” in the plan as a whole thus a medical plan with 95 enrolled and a dental plan with 45 different people enrolled for a total of 140 “belly buttons” would trigger the requirement to file a 5500 when one was not necessary before.
Form 5500 Filing

Form 5500, Annual Return/Report of Employee Benefit Plan, is the form used to file an employee benefit plan’s annual information return with the Department of Labor (“DOL”). Form 5500 Schedule A comes from the insurance carriers.

Who has to file?

Only groups with 100 or more enrolled at the anniversary date each year, except for government and church groups. You must file a Form 5500 for every Health and Welfare Plan of a 100+ group with Schedule A.

How is it filed?

The Form 5500 must be filed electronically using the EFAST2 system at www.efast.dol.gov.

What must be filed?

Form M-1 is required to be filed by certain MEWAs (Multiple Employer Welfare Arrangements) and entities claiming not to be MEWAs due to the exception for collectively bargained plans (i.e., entities claiming exemption). The 2013 Form 5500 for a welfare benefit plan must include an attachment indicating whether the plan was subject to the Form M-1 filing requirement for the 2013 plan year. Plans required to file Form M-1 must provide information about their Form M-1 filing compliance. Even though most plans will not be required to file Form M-1, they must include the attachment and state that it was

How can I obtain an extension for filing?

An extension is only available if applied for on or before the Form 5500 due date. Form 5558 can be filed for an automatic 2½ month extension (e.g. for a calendar year plan, to October 15th). The Form 5558 must be filed with the IRS in paper format on or before the due date of the Form 5500. Once your due date has passed, the Form 5500 must be filed through the DFVC program.

The IRS, DOL, and PBGC may announce special extensions of time under certain circumstances, such as extensions for Presidentially-declared disasters or for service in, or    in support of, the US Armed Forces in a combat zone. Recently, tax relief has been granted for Pulaski, Randolph, White and Faulkner counties in Arkansas. Victims of the severe storms, tornadoes  and  flooding  that took place in parts of Arkansas on April 27, 2014  may qualify for tax relief from the Internal Revenue Service.

Penalties for failure to file can be costly.

In addition to possible criminal penalties for willful Form 5500 failures, the plan administrator is subject to penalties of up to $1,100 for every day a Form 5500 is missing or incomplete.