If an employee came into your office and demanded to see the SPDs for your long term disability and medicals plans, would you know what he was talking about?
Title I of the Employee Retirement Income Security Act (ERISA) requires administrators of covered employee benefits plans to disclose certain material to participants and beneficiaries. ERISA disclosure takes on three forms regarding material such as reports, statements and documents.
First, direct operation of law requires disclosure at a certain time or occurrence of an event, such as when a new plan takes effect. Next, disclosure can be requested from a participant or beneficiary. Finally, ERISA requires reports, statements and documents be made available for inspection by participants and beneficiaries at a reasonable time and place.
A summary plan description (SPD) is one of the documents ERISA requires be provided to plan participants. More than a mere compliance document, the Department of Labor describes the SPD as “the primary vehicle for informing participants and beneficiaries about their rights and benefits under the employee benefit plan in which they participate.”
Although ERISA does not specifically define an SPD, it does enumerate the information that must be contained in an SPD — the plan name, sponsor, administrator, address for service of legal process, funding mechanisms, requirements for participation and benefits, circumstances that result in ineligibility or a denial of benefits, and a statement of participants’ rights under ERISA. Often plan administrators take the benefit book supplied by an insurance carrier as an SPD, but even though these books may describe the benefits to participants, they usually do not meet other statutory requirements.
ERISA requires that the plan administrator furnish participants of welfare benefit plans a copy of the SPD and any modifications. Normally this distribution is required within 120 days of the plan becoming subject to ERISA or within 90 days after a participant first becomes covered under a plan. Then, an updated SPD must be provided every five years, if changes are made within the five-year period. Otherwise, barring any amendments or modifications, the original SPD must be distributed every ten years.
SPDs must be distributed in a manner “reasonably calculated to ensure actual receipt” of the material. Thus, first class mailing is acceptable, as well as personally handing the document to a participant. However, just posting or leaving a supply in a common work area would not be acceptable. In 2003 the DOL expanded the circumstances in which electronic mailing may be used to furnish SPDs. However, the general requirements for distribution of an SPD must be met and there are other disclosure requirements for electronic transmission.
There are several types of ERISA plans which are exempt from the SPD requirement. Two are employer-provided daycare and welfare plans for select employees, namely management and highly compensated employees. However, there is no exemption for small plans, those with fewer than 100 covered participants. Thus, a company with only five employees that sponsors an ERISA-covered welfare plan must comply with the SPD requirements.
No specific civil penalties exist for failing to prepare or provide an SPD. However, a participant, pursuant to ERISA, may bring suit to enforce the requirement, which may mean attorney and litigation fees. Additionally, if a participant makes a written request for an SPD, and it is not provided within 30 days of the request, the plan sponsor may be charged $110 per day.
An employer sponsoring an ERISA-covered benefit plan is responsible for knowing the ERISA disclosure obligations. Thus, an employer as a plan administrator must know what language is to be present in the SPD, when and how it must be distributed, and whether the regulations require that it be modified.
The contents of this article are intended as general information only. It is intended to alert the reader to issues in employee benefits. It does not constitute legal advice or a legal opinion on any specific facts or circumstances. You should consult your own lawyer or employee benefits consultant with any specific questions concerning your situation.
Frances K. Horn, Esq., PHR can be reached at (412) 456-7000 or www.HRH.com
