What Is a Wrap Plan and Why Should I Care?

Your company may be familiar with Employee Retirement Income Security Act (ERISA) of 1974 as it relates to 401(k) and other retirement plans, but may not be aware that ERISA also applies to other types of benefit plans.  Employee welfare benefit plans, such as medical, dental, life insurance, etc. are also subject to the requirements of ERISA.  As with retirement plans, ERISA requires each benefit plan have a written plan document that contains specific elements, and that a summary plan description (SPD) for each benefit plan be provided to each participant in that plan.  (The insurance contract or policy for the benefit does not meet ERISA’s requirements of a plan document and SPD.)  Assuming the insurance contract or policy is sufficient for purposes of ERISA may expose  the company and plan’s fiduciaries to unnecessary risk.  In addition, ERISA requires the company to file an annual Form 5500 for each benefit plan.  The more benefit plans a company offers, the more plan documents and DOL requirements it will have.

A simple method to improve legal compliance with ERISA and minimize administrative responsibilities is to combine the individual benefit plans under a wrap plan.   Wrap plans are legal documents that combine all group insurance policies and contracts of a plan sponsor into a single plan and contain pertinent provisions required by ERISA. Adoption of a wrap plan means that your company is only required to file one Form 5500, rather than multiple forms for each welfare benefit.  A significant advantage of the wrap plan is that it reduces administrative costs by reducing the number of Forms 5500 that must be filed, and consequently reduces the risk of a late or missed filing and the associated penalties. 

DOL has informally indicated that it will be looking for Forms 5500 for welfare benefit plans for companies that filed a Form 5500 for a retirement plan with more than 100 participants.  As a result, it is more critical than ever for companies to review their plan documents and Form 5500 filing requirements to ensure ERISA’s requirements are met.

Sound interesting? Read “Wrap Plan Document for Welfare Plans”  to find out what you need to know regarding wrap plan documents.


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