Compliance Reminder
ERISA is a complex federal law, and employers should always seek guidance from qualified ERISA counsel when applying these rules to their own benefit plans. This content is provided for informational purposes only and does not constitute legal advice.
Overview
Before an employer can maintain a compliant ERISA Plan Document or Summary Plan Description (SPD), it must first establish an employee welfare benefit plan under ERISA. Establishing a plan means that the employer has intentionally created and maintains an ongoing arrangement to provide specified benefits to employees and their dependents.
ERISA applies automatically to nearly all private-sector group benefit plans – regardless of size – as soon as this ongoing arrangement exists. The only common exceptions are governmental employers and church plans, which are generally exempt from ERISA.
What It Means to Establish a Plan
A plan is considered established when there is a consistent administrative framework showing that the employer has decided to provide certain benefits to employees on an ongoing basis. ERISA does not require a formal written declaration to trigger plan establishment – it happens by function, not by paperwork.
A plan is typically deemed established when:
- The employer communicates or promotes benefits to employees (for example, open enrollment materials or new hire packets).
- Premiums are deducted from payroll or contributions are made by the employer.
- The benefits are ongoing, not one-time or purely voluntary.
- The employer plays an active role in plan administration (such as enrolling employees, handling claims, or choosing carriers).
Once these conditions exist, the employer is considered to have created an ERISA-covered plan – whether or not a formal Plan Document (or wrap) has been written yet.
The Importance of Formalizing the Plan
Although a plan may be established by operation of fact, ERISA requires formal written documentation to prove its existence, structure, and operation.
That documentation is typically satisfied through one of two approaches:
- Separate ERISA Plan Document and Summary Plan Description (SPD) – two distinct documents serving different purposes.
- Wrap Plan – a single, comprehensive document that “wraps” all benefit programs together and fulfills both the legal (Plan Document) and communication (SPD) requirements.
Failure to formalize a plan does not exempt an employer from ERISA – it only leaves the employer noncompliant and unprotected in an audit or lawsuit.
A written plan document or wrap is the employer’s evidence that:
- The plan was deliberately established and structured according to federal law.
- The employer understands its fiduciary obligations.
- Participants have been properly informed of their rights.
Common Misunderstandings About Plan Establishment
“We don’t have an ERISA plan because we didn’t create one.”
False. If an employer offers group health, dental, vision, life, disability, or similar benefits to employees, they have already established an ERISA plan by operation of law.
“Only large companies are subject to ERISA.”
False. ERISA applies to virtually all private-sector employers that provide benefits, even those with just one employee on payroll.
“We’re exempt because our plan is fully insured.”
False. Funding type (insured vs. self-funded) does not affect ERISA applicability. Both are covered unless the employer is a government or church entity.
“We can avoid ERISA by using voluntary benefits.”
Not necessarily. If the employer endorses, promotes, or contributes to the benefit in any way, it may still be deemed an ERISA plan.
Key Takeaway
An employer “establishes” an ERISA plan the moment it begins offering group benefits in an ongoing, employer-sponsored arrangement.
Once established, the employer must maintain the required written documentation – either through separate Plan Documents and Summary Plan Descriptions, or through a single comprehensive Wrap Plan that fulfills both functions.
Recognizing when a plan is established is the first step toward full ERISA compliance and protection for both the employer and plan participants.