HR Blog

What’s Luck Got to Do with It?

By Dee Yingst

The Least You Should Know about Keeping your Benefits Plan Compliant

Keeping your plan compliant isn’t a matter of luck; it’s about finding out what you don’t know and making it happen.

I talk to a lot of companies about their health plan compliance. Often, the conversations go something like this:   Me: When was the last time you distributed your Summary Plan Description? Them: Oh, you mean that thing we get from the carrier? We do that every year. Me: No, that thing from your carrier doesn’t meet the definition of a SPD. It is part of your SPD, but it’s not the whole thing. Them: Oh, all we have is the stuff from the carrier. Or   Me: So your employees pay a part of the premiums with pre-tax deductions; do you have a Premium Only Plan document in place?  Them: A what?


The first thing you need to know is that it’s not the end of world; this is fixable. The second thing you need to know, is that you really do need to fix it and not rely on luck to keep you out of the crosshairs of the fine folks down at the Department of Labor or at the IRS.

A little background: The Employee Retirement Income Security Act of 1974 (what we fondly call ERISA) is a federal law that sets minimum standards for retirement and health benefit plans in private industry. ERISA does not require any employer to establish a plan (and before you get too excited, no this doesn’t get large employers out of the ACA rules of offering health coverage). It only requires that those employers who establish plans must do certain things. It’s a huge body of law.  If you’re up for a little light reading, here’s where you can find an overview and history of ERISA.

A major requirement of ERISA is that your plan must be in writing. The big-deal-document here is the Summary Plan Description or SPD.

The “Certificate of Coverage” aka booklet that you receive from the carrier does not satisfy the SPD requirement under ERISA.

The SPD incorporates the carrier documents but it needs other pieces to be compliant.  You might have heard the term Wrap SPD; this is a document that contains what is missing in the carrier’s booklet; it “wraps around” the carrier booklet and together they become the SPD.

It’s important that you don’t confuse the SPD with the SBC – the Summary of Benefits and Coverage. The SBC is a separate document requirement that came about with the ACA.

There are lots of requirements around the content and distribution of the SPD. Here are a couple highlights.

The SPD must:

  • Be written in plain language that the average participant can understand
  • Follow a set distribution schedule including w/in 90 days of enrollment; every 5 years if there are changes and every 10 years if not, and at any time upon request
  • Can be distributed electronically but certain rules apply. Must always be available in paper form if requested.

There are other requirements around notices you have to distribute at different times of the year; some of these are found in ERISA, some of these are in other bodies of law of like Medicare and FMLA. Things like:

  • HIPAA Notice of Special Enrollment Rights
  • CHIPRA Notice
  • Women’s Health & Cancer Rights (WHCRA) Act
  • Grandfathered Plan Disclosure/Notice
  • Summary of Benefits and Coverage (SBC)
  • SBC Notice of Modification
  • Notice Regarding Designation of a PCP
  • Employer Notice to Employees of Coverage Options (aka Marketplace Notice)
  • Wellness Program Disclosure

Some notices tend to be incorporated into the SPD but you need to check to be sure. Notices like:

  • Newborns’ Act Description of Rights
  • Michelle’s Law Enrollment Notices
  • Mental Health Parity and Addiction Equity Act (MHPAEA) (there are actually a few of these)

Keep in mind:

  • Some of these notices may not apply to your plan; it’s important it know which ones do.
  • These don’t all have to be given out together; some disclosures you can include with the annual open enrollment materials; others are included in the carrier’s certificate of coverage (just be sure you keep copies of all the notices together in the overall SPD document). Some have to be given to all employees, not just those who are benefits eligible.
  • Some of these notices have multiple versions depending on the circumstances and timing (COBRA, for instance).
  • These lists don’t include all the notices; there are a few others under ERISA and there are requirements under other regulations such as FMLA and Medicare

There are other disclosure rules and forms such as Form 5500 (which may or may not apply to your plan) which is a whole other conversation.  See why I said it was huge?

Next let’s talk about those pre-tax deductions. Strictly speaking, you’re dealing with the Internal Revenue Code on this one and not ERISA but that doesn’t make it any less important.

The only lawful way of allowing pre-tax benefits deductions is by having a Section 125 Plan (sometimes called a Cafeteria Plan) and the only lawful way to have that plan, is by having a written document that meets the requirements as outlined under Section 125 of the Internal Revenue Code.

Still with me??

Here’s what you need. You’ll need a Plan Document and an Adoption Agreement.  You’ll need to decide whether participating in the underlying benefits makes participation in the Premium Only Plan mandatory or if you want to make it optional. Typically, you will have all of your health insurance-related benefits (medical, dental, vision) and your savings accounts (Flexible Spending, Dependent Care, Health Savings Accounts, etc.) done as pre-tax; post tax tends to be for things like voluntary life or disability and worksite benefits like accident or cancer plans.

I generally advise you make participating in the underlying plans predicated on participation in the pre-tax plan. It makes administration much cleaner and neater, and ensures your employees are getting the tax advantage of the plan.  

So how do you get all this stuff? Well, your carrier really can’t help you with this stuff but your broker should be able to help you. Careful with internet searches – not everything you find is accurate.

Educate yourself and don’t rely on luck to keep your plan compliant – after all, there are two kinds of luck…let’s make sure you have the good one.