What are the three most common errors during Plan Document and SPD preparation? Considering this is the time of year when many Plan Documents and SPDs are prepared, we wanted to highlight solutions for you to help bring clarity.
Mistake #1: Listing “New” Instead of “Restate”
Every time we ring in the new year and the requests for updated Plan Documents for a current plan arrive, many expect to see “new,” as a subtitle. However, “new” is reserved for a plan’s inception, its very first Plan Document and SPD. When a plan carries forward into a new year, the word to use for the subtitle is “restate.” Many have some changes like different carriers and/or adding new or subtracting benefits for the new plan year, although, in this case, you use “amended and restated.”
In contrast, if the previous plan for a client has been terminated and they have a new plan number going forward, the Plan Document in this case would have the word “New” added to its subtitle.
Mistake #2: Not Handling Multiple Plan Numbers Correctly
At times, a Plan Sponsor will have multiple Plans: Plan 501 Medical, Plan 502 Dental, Plan 503 Life, etc. Each Plan Number has its own corresponding Plan Document. If the Plan Sponsor wishes to have all the benefits bundled under one Plan number going forward, the Plan Sponsor needs to have amended the other Plan Documents to show a terminated plan. (The Form 5500 to be filed for the terminated plan is to have checked the “final” report). In addition, a Summary Materials Modification needs to be distributed to the Plan Participants alerting them of the change that all benefits are to be found within one plan vs multiple within 210 days after the end of the plan year in which the change is adopted; if there are to be fewer benefits though, then the Plan Administrator needs to alert within 60 days of the date of the adoption of the reduction of benefits.
As a reminder, if there are to be multiple plans, each will need its own SPD for Plan Participants, the various disclosure statements, SARs for the Form 5500s if filed, etc.
Mistake #3: Not Including All the Benefits or Including Benefits That Are Not Under ERISA Within the Wrap Plan Document
Some benefits are often overlooked, and if they are not included, they technically cannot be listed in the 5500 for the Plan Year. The Plan Document and Form 5500 would need to be amended. In addition, there are those that may be included but are not under ERISA. For those, you need to include a paragraph stating that these are not to be under ERISA. Otherwise, there can be misunderstandings and incorrect assumptions.
Below is a list of benefits commonly considered under ERISA when they are not in this arena. In addition, there is a second list of benefits that are often overlooked and therefore mistakenly omitted.
Benefits Not Subject to ERISA
- Most short-term state-mandated disability plans
- Dependent daycare
- Most HSAs (traditional HSAs that are owned by the employee and not orchestrated by the employer)
- Section 125-Premium Only Plan (POP) also known as a Premium Conversion Plan
- Virtually all educational assistance and vacation plans
- Pet insurance
- Benefit under a payroll practice
- Identify theft
Overlooked Benefits That Are Subject to ERISA
- Teladoc and Telehealth
- Healthcare FSAs and HRAs
- Employee Assistance Program (EAP) – including those embedded in LTD or life policies
- Business travel accident (BTA)
- Pre-paid legal
- Long-term care (LTC)
- Plans covering participants in the US Territories: American Samoa, Marianas, Guam, Puerto Rico, and U.S. Virgin Islands
- Smoking cessation
- International policies
- Formal severance plans
- Voluntary benefits (even if the employee pays 100% of the premium; if the Plan Sponsor endorses it such as allowing the Section 125 plan used for pre-tax dollars; voluntary benefits could be under ERISA)
All in all, learning Plan Documents and SPDs takes time to gain clarity and understanding. For questions on Plan Documents and SPDs please contact Ann McAdam at email@example.com