The Rap on Wrap Plan Documents

David Vandeveer, CEBS

Jan 4, 2010

The Rap on Wrap Plan Documents

Let’s start with the basics. A “wrap” plan document is legal document that combines and incorporates, by reference, all group insurance policies and contracts that provide welfare benefits to employees. A summary plan description (SPD) is not a wrap plan document.

Most welfare benefit plans are subject to the requirements of the Employee Retirement Income Security Act (ERISA). In fact, ERISA language clearly requires that all welfare benefit plans must be established and maintained pursuant to a written document. ERISA also requires specific, express provisions to be part of the plan document.

Oftentimes, sponsoring employers (often referred to as Plan Sponsors) look to their insurance company policy or contract as their “plan document.” This erroneous belief creates problems for Plan Sponsors because contracts and policies are almost always incomplete regarding the specific information required by ERISA. Those group insurance policies are written to cover the legal needs of the insurance carrier, not to satisfy the requirements of ERISA, or to provide legal protection to the Plan Sponsor.
Now what are the practical reasons for adopting a “wrap” plan document: First, the wrap plan document will contain important and explicit language clarifying the Plan Sponsor’s position on its legal obligations, discretionary powers, benefit limitations compared to the policy, entitlements to amend/terminate provisions, etc. Additionally, adopting a wrap plan document enables the Plan Sponsor to collapse 5500 filings [life, LTD, medical, dental, vision, etc.] into a single filing, eliminating much of the form preparation expense.

Some Plan Sponsors believe that they can file all welfare benefit plans on a single 5500 filing simply because the benefits are similar or because it is convenient. Without a written wrap plan document combining the benefits into a single plan, this is mistaken thinking. If caught in audit or review, the IRS or DOL can impose missed filing penalties and take corrective action, by rejecting the filing and requiring that each of the plans refile separately for all prior years. In the absence of a plan document that combines the benefits into a single plan, the DOL will assess penalties based on each policy or program separately.

The benefits of documenting your welfare plans into a written plan document are numerous, but the top reasons are, in summary:

> It is required by law
> It maximizes the Sponsor’s flexibility and operational discretion
> It allows combining 5500s, improving efficiency and reducing expense

By David Vandeveer, CEBS, Managing Director of ABV Welfare Plan Advisors, Inc.

To learn more about wrap plan documents, services and related health & welfare compliance, visit