HIGHLIGHTS:

  • Administrators of all employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) should ensure their plans' compliance with ERISA's Summary Plan Description (SPD) requirement.
  • Misconceptions of the ERISA rules can lead plan administrators to believe that they either have provided an ERISA-compliant SPD when they have not, or that an SPD is not required at all.
  • SPDs for new plans must be furnished to participants and beneficiaries within 120 days of that plan's effective date. For existing plans, an SPD must be provided to each participant within 90 days of the date that the participant begins to be covered.

There is no time like the present for administrators of employee benefit plans subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) to confirm the plans' compliance with ERISA's Summary Plan Description (SPD) requirement. Sometimes, misconceptions of the ERISA rules can lead plan administrators to believe that they either have provided an ERISA-compliant SPD when they have not, or that an SPD is not required at all. We are not the first to write on this topic and surely will not be the last. Note that the plan administrator is often the plan sponsor, and typically not an insurer or a third-party administrator.

The penalty for failing to provide an ERISA-compliant SPD to participants in a timely manner, or within 30 days of a written request, can be up to $147 per day, per request. (This increased from $110 per day in August 2016.) Although the penalty is capped at $1,472 per request, each participant and beneficiary could make a request for an SPD, triggering the penalty with respect to each participant. A court has discretion to impose an even more significant penalty for failing to act in a fiduciary capacity by withholding an SPD from a participant. For example, one federal circuit court upheld a damages award of nearly $200,000 against a company for failing to act in a fiduciary capacity, on top of the statutory penalty, for failing to furnish an SPD to a single participant. Given the potentially onerous aggregate penalties for a plan administrator, it is worth taking a few moments to review the applicable SPD rules and how they may apply to your plan.

ERISA applies to virtually all employee benefits plans provided by private employers (i.e., non-governmental employers or churches) or employee organizations to U.S. citizens or residents, including employee welfare benefits under ERISA Section 3(1) and retirement benefits under Section 3(2). Employee welfare plans under Section 3(1) include medical, health, dental, vision, life, accident, disability insurance plans, flexible spending accounts (FSAs), health reimbursement accounts (HRAs), and any other plan that an employer has established and maintained through the purchase of insurance or otherwise and for the purpose of providing benefits for its employees. Retirement benefit plans are plans or programs designed to provide retirement income to employees, including 401(k) plans, profit sharing plans, defined benefit plans and cash balance plans. Some exceptions apply, such as top-hat plans and non-ERISA portions of cafeteria plans, but whether the exception applies to a specific employee benefit plan should be carefully considered by a plan administrator.

SPD Requirements

An SPD must contain a comprehensive description of the plan and must be clear enough so that the average person reading it can understand his or her benefits under that plan. SPDs for new plans must be furnished to participants and beneficiaries within 120 days of that plan's effective date. For existing plans, an SPD must be provided to each participant within 90 days of the date that the participant begins to be covered. Note also that if material changes are made to a plan, a Summary of Material Modifications (SMM) must be provided to participants within 210 days after the end of the plan year in which the change has been made. Every five years, assuming a plan has changed, a new SPD must be furnished to all participants (every 10 years if there has been no change).

Note that even when a welfare benefits plan has less than 100 participants and is exempt from the Form 5500 annual reporting requirements, the plan administrator is still required to furnish the SPD. Furthermore, an SPD must have certain specific information and cannot be substituted in whole by another summary of benefits, an insurance policy or an insurance certificate of coverage that does not contain all of the required information for the SPD.

In order to be ERISA-compliant, an SPD must include the following:

  1. Certain details about the plan, including plan name, plan number, type of welfare or retirement plan, the last day of the plan's fiscal year, the type of administration and a summary of benefits
  2. Employer details, such as: name, address and employer identification number (EIN)
  3. Plan administrator details, such as: name, address and telephone number
  4. Eligibility requirements for participants and beneficiaries
  5. Claims procedures, including the heightened disabilities claims procedures effective after April 1, 2018
  6. A statement of a participant's rights under ERISA
  7. For group health plans, additional information, including COBRA continuation coverage and Health Insurance Portability and Accountability Act (HIPAA) pre-existing condition exclusions

This list is not comprehensive but is intended to help plan administrators identify whether they are providing an ERISA-compliant SPD to plan participants. Sometimes, a plan administrator will choose to create a "wrap document" and "wrap SPD" to encompass the required SPD information for all of that employer's welfare plans, providing all the required information that is typically not included in insurance company-provided summaries or benefits booklets. A wrap document tends to be a cost-efficient alternative to having multiple SPDs, one for each of the individual health and welfare plans.

Additional Considerations

In addition to compliance with the ERISA requirements to provide an SPD, the plan sponsor also must consider, among other things, the manner in which the SPD will be furnished to plan participants and beneficiaries, the need to include language in the SPD for a health plan to comply with HIPAA privacy and security obligations, and the need to provide the SPD in a foreign language.