Employee benefit plans constantly undergo changes. Claims procedures are revised, benefits provisions modified, and new administrators or trustees named or their addresses or telephone numbers changed. Whenever such changes occur, plan sponsors have the obligation to communicate these to participants through a revised summary plan description (SPD) or through a summary of material modifications (SMM).
All ERISA-governed plans must communicate their terms to participants in the form of an SPD. Department of Labor regulations specify SPD format and content. Content requirements include, for example, contact information for the plan administrator; eligibility requirements for participation and benefits; a description of how benefits may be forfeited, suspended, etc.; how the plan is funded and the source of contributions; and procedures for claims and appeals. This is just a partial listing of content requirements, and these requirements vary to some degree depending on whether the plan is a pension or a welfare benefits plan.
As to format, the SPD must be written in a manner that the average plan participant can understand. Many plans fall short of meeting this requirement. According to an analysis from the Employee Benefit Research Institute (EBRI), important information contained in SPDs frequently is written at a level that is too high for the average plan participant. In the SPDs examined in the EBRI study (both single employer and multiemployer plans), information on eligibility, benefits and participation rights and responsibilities were written, on average, at a first-year-of-college reading level. While an employer should take its workforce into account in drafting an SPD, with adults in the United States reading on average at an 8th or 9th grade level, an SPD written at a first-year-of-college reading level would be appropriate for very few employee groups.
As noted at the beginning of this article, when changes are made to an employee benefit plan, the SPD must be revised to reflect this. If the change has been material, an updated SPD, or an SMM, must be issued not later than 210 days after the end of the plan year in which the material change was made. (A shorter time frame of within 60 days of the change applies if the plan is a group health plan and the change is a reduction in covered services or benefits.) In any case, an updated SPD must be issued at least every five years if the plan has undergone material changes, and at least every 10 years if it has not.
Given the specificity of the SPD requirements, prudence dictates that employers periodically review their SPDs to ensure they remain current, and accurately reflect plan provisions. Also, changes in law or the issuance of regulations might require an SPD review and revision.
When a benefit plan is insured, the carrier will supply a certificate of insurance or other booklets or documents that describe the benefits. However, do not assume that these documents fulfill the SPD requirements. These could be generic documents that do not reflect specific provisions that apply to your company’s plan; they also were probably written with state insurance laws in mind, not ERISA. The SPD requirement is a plan sponsor obligation, so that is where the penalties will attach in the event that an SPD is found to be lacking.