Most employers understand the need to provide a Summary Plan Description (SPD) to participants in their retirement plans, such as 401(k) and 403(b) Plans. Many employers don’t realize that this same requirement applies to their medical, dental, life and disability plans. Some employers think that all they need to do is to distribute the benefit booklets provided by their insurance companies. Chances are very good that those employers are wrong.
Plans governed by ERISA must provide an SPD to plan participants within 120 days after initial adoption of the plan, or within 90 days of enrollment for new participants. Booklets provided by insurance companies rarely include all of the information required in an SPD. Providing an insurance company booklet that only includes some of the required information is the same as providing no SPD at all.
Among other required disclosures, SPDs must include information on the name of the plan, the name and address of the plan administrator and the name and address of the plan’s agent for service of legal process. SPDs also outline the plan’s eligibility requirements and provide a description of how the benefits are funded and administered. An SPD must also include a statement of participants’ and beneficiaries’ rights under the Employee Retirement Income Security Act (ERISA). Rarely, if ever, is this information included in booklets provided by the company’s health, dental, or vision providers.
Penalties for failing to provide an SPD can be severe. If the Department of Labor (DOL) conducts an audit or requests a copy of the company’s SPD, it may impose civil penalties of up to $110.00 per day to a maximum of $1,100.00 per request. Failure to provide a copy of the SPD within 30 days of a participant’s request may subject the plan administrator to penalties up to $110.00 per day in favor of the aggrieved employee. Penalties may be imposed even though the participant who requested the information suffers no out-of-pocket damages.
Keeping your company’s SPD current is just as important. SPDs that have inaccurate or out-of-date information may expose the plan sponsor to liability for benefits the employee thought he or she was getting, but didn’t.
Generally, SPDs must be distributed every five years if material modifications are made within that period, or every ten years if no amendments occur. A summary of material modifications (SMM) also must be provided to plan participants within 210 days after the close of the plan year in which the plan modifications were adopted. If benefits or services are materially reduced, participants generally must be notified of the change within 60 days of adoption.
Fortunately, there is an easy way to comply with the SPD requirements. It’s called a “wraparound” or “wrap” document; basically an SPD that incorporates or “wraps around” all of the policies and benefit booklets provided by the insurance companies that includes the information those documents do not.
Separate and apart from the potential legal exposure, it just makes good business sense to give employees the information they need to take full advantage of the benefits they – and you – pay so much for. It may sound trite, but providing employees with up-to-date and accurate information about their benefits is another way to show that you care about them as individuals.
We can help. For a confidential analysis of your company’s welfare benefit plans, or questions about TRC’s employment practice area, contact Jim Rogers at (412) 316-8651 or [email protected].
Important Notice: This information is intended for general guidance only, and should not be used as a substitute for specific legal advice. For specific legal advice applicable to your situation, you should consult an attorney of your choice. Although believed to be accurate when written, no guarantee of completeness or accuracy to your particular circumstances should be implied. Laws, regulations, and court decisions in this area change frequently, and you should consult the attorney of your choice for up-to-date information.