Beneficiary—a person designated by a participant or by the terms of a plan who is or may become entitled to a benefit under the plan.

Certificate/Evidence of Coverage (Certificate/Evidence of Insurance, “Cert,” or Certificate Booklet)—booklets describing the terms of the insurance coverage that is provided to participants are Certificates of Insurance; they are not Summary Plan Descriptions (SPDs) because they usually do not contain all of the requisite ERISA provisions and leave out key information. This is a very important, yet highly misunderstood, distinction. Note: Certificates of Insurance and Certificates of Coverage are often incorrectly referred to as SPDs – even by experienced benefits professionals.

Claim Fiduciary—a named fiduciary having the authority and responsibility to adjudicate claims in accordance with the provisions of the plan. In the event of a member appeal for review of a denied claim, the claim fiduciary makes the final determination as to whether the claim is covered. The plan sponsor cannot overrule this determination. The claim fiduciary defends its decision and bears the legal costs of the defense. For insured plans, the carrier is typically the claim fiduciary. However, for self-insured plans, the plan sponsor/administrator can name itself or an independent third party as the claim fiduciary.

Employer Sponsored—1) the employer contributes to the cost, 2) participation in the coverage is not voluntary, OR 3) the employer endorses or recommends the plan.

Exclusive Benefit Rule—Plan Assets must be used for the exclusive purpose of paying plan benefits and reasonable administrative expenses of the plan.

Fidelity Bond—a form of insurance protection that covers anyone who handles plan assets. It also insures against a fiduciary’s fraud or dishonesty. A fidelity bond must be purchased and in place at the beginning of the plan year for any funded plan. The bond must be for at least 10% of the plan’s assets, with a $1,000 minimum and a $500,000 maximum. As a practical matter, this requirement can be met by adding a sponsor’s welfare benefit plan to the same fidelity bond covering its pension plan. A bond may not be needed for unfunded plans, which accept employee contributions that are not actually segregated from the employer’s general assets.

Fiduciary Liability Insurance—an insurance policy that indemnifies fiduciaries for errors in plan administration, whether or not they are a named fiduciary.

Funded/Unfunded Plan—a plan may have assets (e.g., participant contributions which can be segregated from an employer’s general assets), but it is considered unfunded until the assets are actually segregated. At that point, the plan becomes a funded plan. Plan assets may only be used to pay for plan benefits and reasonable administrative expenses.

Group Health Plan—an employment based welfare benefit plan that provides medical care to employees and their dependents directly or through insurance or reimbursement. It can be fully insured or self-insured.

Master Application—an application for group insurance, usually completed by the producer and signed by the producer and employer. It generally contains employer information, benefits requested, eligibility and effective date provisions, employer contribution, participation requirements, etc. The Master Application is often attached to and made part of the Master Contract because it contains the representations upon which the contract of group insurance was issued to the employer.

Master Contract—an insurance policy issued to an employer which provides group insurance benefits to its employees. It usually contains the same information as the Certificate of Coverage, but also has information specifically relating to the employer, such as a grace period for payment of premiums, the policy year, and premium rates.

Medical Care—includes (as used in the ERISA definition of a welfare benefit plan) means amounts paid for:

• the diagnosis, cure, mitigation, treatment, or prevention of disease,
• the purpose of affecting any structure or function of the body,
• insurance covering such medical care, and
• transportation related to such care.

Multiple Employer Trust (MET)—a legal trust generally established by an insurance company for pooling a number of small, unrelated employers. It may provide group insurance coverage on an insured or self-funded basis.

Multiple Employer Welfare Arrangement (MEWA)—An employee welfare benefit plan, or any other arrangement which provides welfare plan benefits to the employees (and their beneficiaries), of two or more employers that are not members of the same controlled group. Exceptions are collective bargaining agreements, rural electric cooperatives, and rural telephone cooperative associations.

Named Fiduciary—a person or entity who has the authority to control and manage the operation of the plan, and generally decides benefit appeals. The fiduciary has the duty to operate the plan prudently and in the best interests of its participants. An individual acting as a named fiduciary who breaches his duty can be personally liable under ERISA. Although ERISA does not require a plan sponsor to carry Fiduciary Liability Insurance, it is prudent for the sponsor to carry this coverage. Note—this is not the same coverage as Employee Benefit Liability insurance or a Fidelity Bond (which is required by ERISA). This is because a relatively benign mistake could turn into an expensive fiduciary liability problem. For example, this could be the case where a Benefits Manager forgets to enroll an employee for coverage, and that employee later dies, becomes disabled, or incurs expensive medical treatment, which is not covered because the insurance company never received his or her enrollment form.

Other Fiduciaries—anyone (even employees, whether or not they are a named fiduciary) who performs fiduciary functions, such as exercising discretionary responsibility, authority, or control over plan management decisions, disposition of plan assets, or rendering investment advice. An ERISA fiduciary is held to a very high standard, which requires more careful decision making and disclosure than would otherwise be required in a business relationship. He or she must act solely in the best interests of the plan and its participants and beneficiaries, and use plan assets for the exclusive purpose of paying plan benefits or reasonable expenses of the plan. He or she must act with care, skill, prudence, and diligence to diversify the plan’s assets to minimize the risk of large losses, and to act in accordance with the plan documents governing the plan. ERISA fiduciaries, whether or not named, who breach their fiduciary duties, are personally liable for damages to the plan. They may also be liable for additional special DOL penalties and be subject to criminal penalties.

Participant—an employee or former employee who is or may become eligible to receive a benefit from an employee benefit plan or whose beneficiaries may be eligible to receive any such benefit. This term is sometimes used more generally to mean an employee or former employee receiving benefits under a plan.

Plan Sponsor—the sponsoring employer

Plan Administrator—typically the plan sponsor, or employer, unless another party is designated. The plan administrator is directly responsible for plan compliance and is liable for compliance penalties—even if it has delegated the performance of its duties to another party. The plan administrator may amend, modify, or terminate the plan, if this right is properly reserved in writing. The term “plan administrator” is a source of much confusion because it is often thought that when an employer uses a Third Party Administrator (TPA) to administer its plan and adjudicate claims, the TPA should be named as plan administrator. However, the plan administrator is almost always the employer, not a TPA or an insurance company.

Plan Assets—there are at least three ways a plan could be considered to have assets:

1. Participant & beneficiary contributions—Contributions by participants and beneficiaries are plan assets by definition (even though the IRS for tax purposes may treat participant contributions as employer contributions). Salary reductions or withheld amounts become plan assets as soon as they can be reasonably segregated from the employer’s general assets, but not later than 90 days. For practical purposes, such contributions become plan assets shortly after they are withheld from pay.
2. Use of a separate account to pay benefits—When the employer pays benefits out of a formal trust fund or an ordinary bank account held in the name of the plan.
3. Amounts attributable to plan assets—Insurance company refunds, reimbursements, subrogation recoveries, and payments from stop-loss policies.

Plan Number—a three-digit number assigned by the plan administrator. If there is one plan, it should be numbered 501. If there is more than one plan, they should be numbered 501, 502, 503, 504, and so on.

Plan Year—any twelve-month period chosen by the administrator for reporting purposes. Note—this is not necessarily the same as the policy year of underlying insurance contracts.

Policy Year/Anniversary—the twelve-month period for which coverage is provided and premiums are established. This is not necessarily the same as the ERISA plan year. The policy anniversary is the date that the insurance policy/contract renews and premium rates are re-determined.

Summary of Benefits (Benefit Summary)—a short (1 to 4 pages) handout summarizing and highlighting the features of coverage contained in the Certificate of Coverage, e.g., deductibles, copays, coinsurance, exclusions, etc.

Third Party Administrator (TPA)—a person or entity that administers the plan and adjudicates claims. A TPA is usually not the plan administrator.

Trust Rule—In general, plan assets must be held in a formal trust for the exclusive purpose of paying plan benefits and reasonable administrative expenses of the plan. Employee contributions are considered plan assets. However, there are some exceptions to this rule.

• If an employer collects employee contributions for a self-funded plan through a cafeteria plan and does not segregate any plan funds from its general assets (whether contributions or benefits), the plan is deemed to have no assets.
• Likewise, if an employer sponsoring a fully insured plan does not segregate funds, promptly forwards employee contributions to the carrier, and promptly delivers insurer refunds to participants, the plan is deemed to have no assets.
• However, even if an employer collects employee contributions through a cafeteria plan, but segregates those funds or other funds (e.g., employer paid benefits or employer paid premiums), the employer must create a trust to hold ALL plan assets.

Voluntary Employee’s Beneficiary Association (VEBA)—an organization organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries if no part of the net earnings of the association goes to the benefit of any private shareholder or individual.

Welfare Benefit Plan—a program established by an employer or an employee organization that provides for its participants or their beneficiaries:

• medical, surgical, or hospital care or benefits,
• benefits in the event of sickness, accident, disability, death or unemployment,
• vacation benefits, apprenticeship or other training programs,
• day care centers,
• scholarship funds, or
• prepaid legal services.

Wrap Plan—an umbrella plan document and SPD, through which several component welfare benefit plans are provided. A wrap plan saves the employer from the time and expense of preparing an SPD, a Form 5500, and an SAR for each separate component benefit plan by replacing them with one comprehensive wrap plan. The DOL acknowledges the use of a wrap document, which covers more than one plan in one document.