Summary Plan Descriptions
Issue # 82
December, 8, 2008
The Employee Retirement Income Security Act (ERISA) requires plan administrators (usually the employer unless part of a multi-employer trust) to give plan participants in writing the most important facts they need to know about their retirement and health benefit plans including plan rules, financial information, and documents on the operation and management of the plan.
One of the most important documents participants are entitled to receive automatically when becoming a participant of an ERISA-covered retirement or health benefit plan or a beneficiary receiving benefits under such a plan, is a summary of the plan, called the summary plan description or SPD. The plan administrator is legally obligated to provide to participants, free of charge, the SPD.
All employers, regardless of the number of plan participants, are required under ERISA to provide active participants and beneficiaries (including retirees and COBRA participants if covered) with copies of SPD's within 120 days after a new benefit plan is effective. New participants must receive a copy of the SPD within 90 days of eligibility.
While this seems to be a relatively simple compliance requirement, preparing a summary plan description that satisfies the content requirements under ERISA continues to be a compliance problem for many plans sponsors, especially those sponsoring insured plans. Failure to include the required information in the summary plan description of an ERISA covered plan could subject the sponsor to significant penalties.
Additionally, providing the SPD is one of the required COBRA notice procedures, and employers have been sued by employees for not following these procedures. Adherence to these notice requirements is an important risk management practice for employers.
The term "summary plan description" has a specific meaning under ERISA. Accordingly, employers should not assume that an insurance certificate or plan description provided by a health or other insurance carrier satisfies these requirements. This is because insurance companies prepare their documents to comply with state insurance laws, and are not acting as plans sponsors subject to the disclosure requirements under ERISA.
Plan administrators can prepare a separate document that "wraps" around the insurance policy/certificate in order to provide the information omitted from the carrier's document but that is required to be included in a summary plan description. The "wrap" should make clear to participants that the "wrap" document and the carrier's document together constitute the summary plan description for the plan.
A properly completed "wrap" document is very specific in nature. Completion of the document requires careful coordination with the relevant insurance contracts. A completed Summary Plan Description should always be reviewed with legal counsel before distribution to employees.
Kempkey Insurance Services goes beyond insurance by designing and implementing risk management programs for growth oriented businesses. We help our clients maximize the value of their insurance dollars and minimize their potential for unwanted surprises. Ed Kempkey can be contacted at (888) 536-7539 extension 2188, or at ed@kempkey.com.