Recently, there has been a whirlwind of change and even more speculation about potential changes to the laws governing employee benefit plans. Some rules haven’t changed, but should not be forgotten. The compliance requirements relating to plan documents, remain intact and the risk of non-compliance could be lethal for an unwary administrator (usually the employer) of an ERISA plan.
It may seem obvious, but the first step towards compliance is having properly drafted notices and SPDs for each benefit plan subject to ERISA. Absent an SPD and proper notices, other sources often attempt to fill the vacuum of information about a benefit plan. Sometimes a well-intentioned human resources employee will attempt to answer other employees’ questions about a benefit plan. An HR department or “the benefits person” is not a substitute for an SPD and required notices. An SPD should serve as a primary source of information for employees about a benefit plan, to include how the plan operates, who is covered, what benefits are available under the plan and a litany of details about the plan and its administration. DOL regulations provide comprehensive guidance on the style, format and content requirements for SPDs.
A well drafted SPD serves as a useful communication tool and opportunity to explain a benefit plan to your employees in plain and simple terms. Further, participants should be automatically provided with an SPD within 90-days of being covered by the plan and every 5 years if changes are made to the SPD or the plan is amended. Changes to the SPD, referred to as a Summary Material Modifications, must be furnished no later than 210-days after the end of the plan year in which the change is adopted. An administrator that fails to provide these updated plan documents upon 30-days written request may find itself in the crosshairs of a federal lawsuit. For example, the cost of such a lawsuit can be shocking for an employer that fails to timely provide notice of a retirement plan’s automatic contribution arrangement. Employers must sufficiently notify eligible employees of its auto contribution arrangement between 30 and 90 days prior to the beginning of each plan year.
As outlined in our previous post, the potential costs of non-compliance has recently skyrocketed. A participant or beneficiary may be able to file suit to enforce these monetary penalties and obtain an award of attorney fees. For example, an employer that fails to satisfy a request for plan documents, such as an SPD, for 6 months (about the time it would take a frustrated participant to make several requests before filing a lawsuit) may result in penalties of $149 per day up to the max penalty (per request) of $1,496 for 2017. Even more to the point, if during this same period the employer failed to furnish sufficient notice of the retirement plan’s automatic contribution arrangement, the penalty could reach approximately $300,000 ($1,659/day for 2017). The best way to avoid such a result is by simply complying with the basic disclosure requirements under ERISA. In other words, spending a little now could save you a lot later.