Subject: Amending Your Wrap Plan Document for the Employer Mandate

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Subject: Amending Your Wrap Plan Document for the Employer Mandate

Dear ______:

Your welfare benefit “wrap” plan is an important tool that many plan sponsors use to both streamline their Form 5500 filings and ensure that theiremployees are provided ERISA-required information (such as information about eligibility, waiting periods and coverage termination dates) regarding their welfare benefits supplied through the plan.

These documents need to be amended occasionally to conform to new rules, regulations, and/or modifications made to the plan, or simply to add or modify provisions that, while perhaps not required by applicable law or regulations, are nevertheless helpful or supply additional protections to the plan sponsor and its employees who help administer the plan.

The onset of the Patient Protection and Affordable Care Act’s (PPACA) employer mandate has brought about the need for or desirability of several clarifications and updates to many of our clients’ current wrap plan documents.If you adopted a model Lockton wrap plan document, or a model wrap plan document supplied by the HuschBlackwell law firm, we have prepared the attached draft amendment to that document.

The attached draft amendment to wrap plan reflects several important changes required or rendered desirable by the PPACA. These include:

• A change in the definition of “Employee” to make clear that if an individual you don’t consider an “employee” (you might view the person as an independent contractor) is later determined by a court or government agency to be your “employee,” the person is not entitled to retroactive benefits under your welfare benefit plans.
• The addition of a definition of “PPACA.”
• Changes, if necessary, to the plan’s appendices setting forth the benefits provided under the plan (some employers, for example, added new coverage options, or modified or terminated existing coverage options, pursuant to the employer mandate) and/or the appendices setting forth eligibility rules, waiting periods and coverage termination dates (some employers modified these rules to conform to the employer mandate, particularly if applying the “look-back” measurement method for determining full-time employees under that mandate).

Other changes, some unrelated to the PPACA, include:

• A change to the rule generally prohibiting retroactive coverage terminations to allow for such terminations due to short-term administrative delays in processing coverage terminations, for example. This accommodation is permitted by recent federal guidance, and will be helpful to wrap plan sponsors.
• A minor clarifying change to the plan’s nondiscrimination rules to give the plan sponsor additional flexibility with respect to providing different benefits to different classifications, if it chooses to do so.
• A minor change providing that where an employer affiliated with the plan sponsor makes contributions toward the cost of benefits provided under the plan, it will be deemed to have adopted the plan. An affiliated employer whose employees participate in benefits supplied under the plan should adopt the plan through a board resolution or execution of a participation agreement, but often these niceties are overlooked. This new language will deem the affiliated employer to have adopted the plan, thus helping to protect that employer and the plan sponsor.
• A minor clarification to the plan’s rules regarding how it coordinates with workers’ compensation benefits.
• A new rule limiting the time within which a plan participant or beneficiary may sue the plan.
• A new rule providing for indemnity by the plan sponsor for its employees who help administer the plan, unless they are grossly negligent or their actions amount to willful misconduct.
• A new rule to make COBRA administration easier for employers using the PPACA employer mandate’s “look-back measurement method” for determining full-time employees, where a full-time employee experiences a reduction in hours that will ultimately cause him or her to lose eligibility. The new rule permits the employer to treat the loss of coverage, rather than the earlier reduction in hours, as the COBRA qualifying event.

This is a much more intuitive approach to COBRA obligations under the employer mandate than treating the reduction in hours as the qualifying event, because the employee will often remain eligible (pursuant to the employer mandate) for several months or more following the reduction in hours.

We strongly suspect you are already (and have for some time) been in operational compliance with the PPACA, so in that sense the attached amendment is merely conforming your wrap plan document to your current administration of the plan. Nevertheless, we think it prudent for you to adopt the amendment promptly, and urge you to do that. You might wish to share the draft amendment with your legal department or outside counsel.

Please let us know if you have questions about the draft amendment.