Federal Requirements
Group life insurance is subject to several federal laws and regulations. Understanding these requirements is essential for both the licensing exam and compliance in practice.
ERISA Overview
The Employee Retirement Income Security Act (ERISA) of 1974 governs most employer-sponsored benefit plans, including group life insurance.
What ERISA Covers
| Covered | Not Covered |
|---|---|
| Private employer group life plans | Government employer plans |
| Employer-sponsored benefits | Church plans (can opt out) |
| Welfare benefit plans | Individual insurance policies |
Key ERISA Objectives
ERISA was enacted to:
- Protect employee benefit rights
- Establish standards for plan administration
- Require disclosure and reporting
- Establish fiduciary responsibilities
- Provide remedies for violations
ERISA Requirements for Group Life Insurance
Plan Document Requirements
Every ERISA-covered plan must have a written plan document that includes:
| Element | Description |
|---|---|
| Plan name | Official name of the benefit plan |
| Plan sponsor | Employer providing the plan |
| Plan administrator | Party responsible for administration |
| Eligibility requirements | Who can participate |
| Benefit provisions | What benefits are provided |
| Funding method | How benefits are funded |
| Claims procedures | How to file and appeal claims |
| Amendment procedures | How the plan can be changed |
Summary Plan Description (SPD)
The Summary Plan Description (SPD) is a plain-language document that explains the plan to participants.
SPD Requirements
| Requirement | Description |
|---|---|
| When provided | Within 90 days of becoming a participant |
| Language | Written in understandable terms |
| Content | Eligibility, benefits, claims procedures |
| Updates | Summary of Material Modifications (SMM) for changes |
Important SPD Note
Exam Tip: The certificate of insurance is NOT an SPD. Employers must provide a separate SPD that meets ERISA requirements, even if they also provide insurance certificates.
SPD Content Requirements
The SPD must include:
- Plan name and type
- Name and address of plan sponsor and administrator
- Eligibility requirements
- Circumstances that may result in loss of benefits
- Claims procedures and timing
- Statement of ERISA rights
Reporting Requirements
ERISA requires certain filings with federal agencies.
Form 5500
The Form 5500 is an annual return filed with the Department of Labor:
| Filing Requirement | Description |
|---|---|
| Who files | Plan administrator (usually employer) |
| When due | Last day of 7th month after plan year end |
| Small plans | May file simplified Form 5500-SF |
| Large plans | Additional schedules and audit requirements |
Exemptions
| Exempt Plans | Requirement |
|---|---|
| Unfunded plans | May be exempt from some requirements |
| Fully insured plans with fewer than 100 participants | May use simplified filing |
Fiduciary Responsibilities
ERISA imposes fiduciary duties on those who manage or advise the plan.
Who Is a Fiduciary?
| Role | Fiduciary? |
|---|---|
| Plan administrator | Yes |
| Plan trustee | Yes |
| Those with discretionary authority | Yes |
| Insurance company (insured plans) | Generally not for claims |
| Employer in administrative role | May be |
Fiduciary Duties Under ERISA
| Duty | Description |
|---|---|
| Prudence | Act with care, skill, and diligence |
| Loyalty | Act solely in participants' interests |
| Diversification | Diversify investments to minimize risk (for funded plans) |
| Plan compliance | Follow plan documents |
| Prohibited transactions | Avoid self-dealing and conflicts of interest |
Fiduciary Liability
Fiduciaries who breach their duties may be personally liable for:
- Losses to the plan
- Restoring profits made through breach
- Removal as fiduciary
- Civil penalties
- Criminal penalties in extreme cases
Claims Procedures
ERISA establishes requirements for processing benefit claims.
Claims Timeline
| Step | Deadline |
|---|---|
| Initial claim decision | Within 90 days (can be extended) |
| Notice of extension | Before initial 90 days expires |
| Appeal filing | 60 days from claim denial |
| Appeal decision | 60 days from receiving appeal |
Required Information in Denial Notice
If a claim is denied, the notice must include:
- Specific reasons for denial
- Reference to plan provisions
- Description of additional information needed
- Explanation of appeal procedures
- Statement of right to sue under ERISA
ERISA Preemption
ERISA preempts (supersedes) most state laws relating to employee benefit plans.
What ERISA Preempts
| Preempted | Not Preempted |
|---|---|
| State laws regulating benefits | State insurance regulation |
| State causes of action | Criminal laws |
| State claims procedures | Tax laws |
Practical Impact
- Beneficiaries generally cannot sue in state court
- Must follow ERISA claims and appeal procedures
- Remedies may be limited to the benefit owed
- Punitive damages typically not available under ERISA
Exam Tip: ERISA preemption is significant in group life insurance claims. Beneficiaries of ERISA-covered plans have different (often more limited) legal remedies than beneficiaries of individual policies.
Key Takeaways
- ERISA governs most private employer group life insurance plans
- Plans must have a written plan document with specific required elements
- The Summary Plan Description (SPD) explains the plan in plain language; it's not the same as the certificate
- Form 5500 must be filed annually with the Department of Labor
- Fiduciaries must act prudently, loyally, and in participants' best interests
- Claims procedures have specific timelines and notice requirements
- ERISA preempts most state laws, limiting legal remedies for beneficiaries
- Government and church plans are generally exempt from ERISA
Under ERISA, the Summary Plan Description (SPD) must be provided to participants:
Which of the following is NOT covered by ERISA?
An ERISA fiduciary who breaches their duties may be liable for:
ERISA preemption means that:
14.1 Purpose and Uses of Annuities
Chapter 14: Annuity Fundamentals