The Employee Retirement Income Security Act of 1974 (ERISA) requires employee benefit plans to provide a summary plan description (SPD) to participants and beneficiaries and also sets forth the minimum required information that must be disclosed in an SPD. The following 10 items are what we consider to be the most important issues to consider when drafting and amending an SPD that are not directly addressed in ERISA’s regulations.

1. Firestone Language

SPDs, in addition to plan documents, should give the plan administrator discretionary authority to interpret and administer, in its sole discretion, the terms of the plan, and to make factual determinations. If a plan grants a plan administrator discretionary authority to determine eligibility for benefits, courts are required to defer to the plan administrator’s interpretation of the plan unless the interpretation is arbitrary and capricious. In the absence of a grant of discretion to the plan administrator, a court may engage in de novo review and substitute its own view of reasonableness for that of the plan administrator. 1 The importance of including Firestone language in the plan document and SPD cannot be overstated. While Firestone language is routinely included in new plan documents and SPDs, older SPDs should be reviewed to ensure it is included.

2. Exhaustion Requirements

ERISA’s regulations require that SPDs provide a description of the procedures that participants must follow to make a claim and/or appeal for benefits under a plan. The description should specify that the procedures be “exhausted” before a participant can file a lawsuit against the plan. Exhaustion requirements encourage a resolution without resorting to a costly lawsuit and also ensure that the plan administrator’s decision is given deference if a lawsuit is filed.

Recently, the Second Circuit held in Kirkendall v. Halliburton Inc. 2 that, despite the plan’s inclusion of an exhaustion requirement, a participant did not need to exhaust the plan’s claims procedures when filing a claim to clarify a right to a future benefit because the exhaustion language referred only to actions to recover benefits. One possible way to avoid a similar problem is to make sure that the exhaustion language references all three types of benefit claims available under Section 502(a)(1)(B) of ERISA: (i) recovery of benefits under the plan, (ii) enforcement of the participant’s rights under the terms of the plan, and (iii) clarification of the participant’s right to future benefits under the terms of the plan.

3. Forum Selection Clause

Generally, ERISA allows a lawsuit to be filed in any venue where the plan is administered, where the breach took place, or where the defendant resides or may be found. By allowing a participant to select any of these venues, ERISA gives participants substantial control over the venue of a lawsuit. In light of the fact that the circuit courts have not reached uniform rulings on many ERISA issues, the broad venue provision also provides an opportunity for plaintiffs to forum shop.

Plan fiduciaries can regain control over the venue in which suits are brought by including a clause in the plan document and SPD that preselects a venue that is convenient for litigation (also known as a forum selection clause). Courts generally will enforce such clauses unless a plaintiff can prove that: (i) the forum selection clause was the result of fraud, undue influence, or overwhelming bargaining power; (ii) the selected forum was so inconvenient that injustice will result or the party will be deprived of its day in court; or (iii) enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decision. Courts have declined to uphold such clauses due to inadequate notice of the provision. Plans should therefore consider inclusion of the forum selection clause in the SPD.

4. Modification of the ERISA Rights Statement

The U.S. Department of Labor (DOL) provides model language for use in SPDs that describes a participant’s rights under ERISA, including the right to file a lawsuit when a claim for benefits is denied. While it is generally advisable to use the model language created by the DOL verbatim, in some cases it may be appropriate to modify it. One such instance is the model language that states a participant “may file suit in a state or Federal court” when a benefit claim is denied. At least one court held that the use of this phrase permitted a participant to file a lawsuit without exhausting the claims procedures. 3 Therefore, plan sponsors and fiduciaries should consider modifying the model language to refer to the plan’s claims procedures and to require participants and beneficiaries to exhaust the plan’s claims procedures before filing a lawsuit.

5. Time Limit for Filing a Lawsuit

ERISA does not provide a statute of limitations for benefit claims. As a result, courts generally apply the most analogous state law statute of limitations. The length of such statutes of limitations varies (sometimes significantly) from state to state. In order to avoid being subject to varying statutes of limitations, plan sponsors and fiduciaries should consider including in their plan documents and SPDs a limitation on the time that a participant may file a lawsuit for benefits after exhausting the claims and appeals procedures. Many courts have enforced these plan-imposed limitations as long as they are published (e.g., in the SPD) and reasonable. Courts have upheld time limits as short as 90 days, although the lengthier the time limit, the more likely that a court will be to uphold it.

6. Subrogation and Reimbursement Language

ERISA regulations require SPDs to clearly identify any circumstances that may result in recovery of benefits by the plan, including the plan’s subrogation and reimbursement rights. In the employee benefit plan context, subrogation is the plan’s assumption of the legal rights of a plan participant for purposes of recovering a loss from a third party. Reimbursement is the recovery of payment from a plan participant who has recovered amounts from a third party. It is particularly important for self-funded health plans to include specific language regarding subrogation and reimbursement to maximize the protection of the plan’s rights. If a plan has an insured benefit, the insurer, and not the plan, will likely look for recovery under these principles.

Plan sponsors and fiduciaries should consider drafting the plan’s subrogation and reimbursement rights: (i) as broadly as possible, i.e., to cover all possible types of recovery and claims; (ii) to require first dollar reimbursement from any recovery; and (iii) to make clear that the “make-whole” and the “common fund” doctrines do not apply. The “make-whole” doctrine prevents a plan from claiming a right of subrogation or reimbursement if the plan participant recovers some, but not all, damages, and the “common fund” doctrine requires a contribution to the attorney’s fees associated with collecting from the third party.

A careful review of a plan’s subrogation and reimbursement rights is in order in light of the U.S. Supreme Court’s recent decision in U.S. Airways v. McCutchen, 4 There, the Court found that the common fund doctrine applied because the plan did not specify that the doctrine did not apply, and thus, limited the plan’s reimbursement right.

7. Incorporation of Securities Filings

Retirement plans that offer publicly traded employer stock as an investment option under the plan must provide participants with a prospectus, as required by the Securities Act of 1933. The prospectus must include a summary of certain plan provisions. For convenience purposes, many SPDs incorporate certain Securities and Exchange Commission filings into the SPD/prospectus, and vice versa. This practice, however, has recently come under attack.

Several courts have concluded that a plan fiduciary that incorporates by reference securities filings into a Form S-8 or prospectus is not acting in a fiduciary capacity and, as a result, cannot be liable for a breach of fiduciary duty associated with misrepresentations in those filings simply because of the incorporation. 5 The law is less clear, however, on the viability of an ERISA fiduciary breach claim resulting from a plan fiduciary’s decision to incorporate by reference allegedly false or misleading securities filings into an SPD. 6

In some jurisdictions, employers may be at risk of having to defend fiduciary breach claims based on the incorporation by reference of securities filings into an SPD. It is thus appropriate to consider whether to continue using the SPD as the vehicle for satisfying the prospectus requirements associated with the plan’s offering of the company stock fund as an investment option. Plan sponsors should consider instead the feasibility of separating its securities filings from plan communications.

8. SPD Disclaimer

In light of Cigna v. Amara, 7 there is no doubt that it is the plan document that controls participants’ rights to benefits under the plan. Many SPDs contain language that alerts readers that the SPD is only a summary of plan benefits, and that the underlying plan document (or insurance contract) controls if there are any inconsistencies between the SPD and the plan document. Plan fiduciaries should continue this practice even after Amara to avoid any misunderstanding on the participants’ behalf about what document controls in the event of a conflict in the documents, or an omission in the SPD.

9. Allocation of Fees

ERISA does not mandate how fees and expenses associated with, among other things, loans, investments, distributions, and qualified domestic relations orders are allocated to participants and beneficiaries. The regulations only require that SPDs include a summary of any plan provisions that may result in a participant fee. Therefore, plan sponsors and fiduciaries have considerable discretion to determine how the fees are allocated. Plan sponsors should decide on the allocation method and describe it in the plan document as part of the plan design. This ensures that the decision regarding the allocation method is a settlor, as opposed to a fiduciary, function. If the plan documents are silent on the allocation method, the plan fiduciaries would need to choose the allocation, and their choice will be subject to fiduciary standards. Any allocation of fees to participants set forth in the plan document should also be described in the SPD.

10. Circular 230

“Circular 230” are regulations governing practice before the Internal Revenue Service. The regulations contain specific rules regarding the standards for written tax advice. Recent changes to those rules have led to the use of a “Circular 230 Disclaimer” which states that, to the extent the communication contains federal tax advice, that advice cannot be used to avoid federal tax penalties. While including such a disclaimer is not common practice in SPDs, the ramifications for violation of the Circular 230 regulations are so severe that plan fiduciaries may want to consider with their tax professionals whether it is appropriate to do so, or to take other steps to ensure that the SPD cannot be construed as giving tax advice.

The View From Proskauer

The 10 tips identified above are derived largely from case law developments on issues not resolved by the regulations. Accordingly, in addition to including the information required by the regulations, plan sponsors and fiduciaries should monitor case law developments and consider amending their SPDs to take those developments into account where appropriate.