QUESTION: Does it matter how many separate welfare benefit plans an employer maintains for purposes of ERISA? If it does, how do we determine how many we have?
ANSWER: Many of ERISA’s requirements apply on a plan-by-plan basis, so it is important to know—and to clearly document—how many plans you maintain for ERISA purposes. A plan sponsor is generally free to determine the number of welfare benefit plans it maintains—there are no hard-and-fast rules for making that determination. As the plan sponsor, you should affirmatively decide how many plans you intend to maintain and reflect this decision in your written plan document(s). For example, you may choose to use a “wrap” plan document to establish a single, “bundled” plan, through which all your welfare benefits are provided. Alternatively, you could bundle different types of welfare benefits in different configurations (e.g., health, dental, vision, and employee assistance under one plan; short-term disability and long-term disability under another plan). Or, you could provide each individual benefit through a separate plan.
Whatever approach you choose, you should document your decision properly (for example, bundling or unbundling existing plans requires a plan amendment, adopted through appropriate amendment procedures) and administer the plan(s) accordingly. This is crucial to your compliance with ERISA requirements that apply on a plan-by-plan basis, including annual Form 5500 reporting, SPDs and other participant disclosures, fiduciary duties, ERISA’s trust requirement, and rules regarding the use of plan assets. For example, if the plan documentation does not specify that benefits are provided under a single plan, and only one Form 5500 is filed for all of an employer’s welfare benefits, the employer could be subject to significant penalties for failure to file a Form 5500 for each other benefit the DOL determines to be a separate plan. For each late or unfiled Form 5500, the DOL is authorized to assess a penalty of over $2,000 per day (indexed annually) for each day it remains unfiled.
In the absence of clear plan documentation, the DOL or a court may consider various factors to determine the number of plans maintained, which may not align with the plan sponsor’s intent. For example, the DOL may consider each separate insurance contract to be one plan, or it may consider each type of benefit to constitute one plan (e.g., two separate insurance policies for medical benefits may be considered to comprise one medical plan). Courts have considered factors such as whether the employer negotiated and paid for the benefits separately or as a package, and whether the employer used a single plan number and filed a single Form 5500 for all benefits.
For more information, see EBIA’s ERISA Compliance manual at Sections XI.A (“Specifying How Many Welfare Benefit Plans Are Maintained”) and XXII.D (“Consequences of Form 5500 Noncompliance”). See also EBIA’s Self-Insured Health Plans manual at Sections X (“Plan Design: Determining How Many Plans to Maintain”) and IX.C.4 (“Structure of Self-Insured Health Plan Document: When Might a Self-Insured Plan Use a Wrap Document?”).
Contributing Editors: EBIA Staff.
