The Employee Retirement Income Security Act (ERISA) is a federal law that sets minimum standards for most voluntarily established employee pension and welfare plans in the private sector. To protect individuals in these plans, ERISA requires plan administrators, which are oftentimes the employers, to provide plan participants and their beneficiaries with a Summary Plan Description (SPD).
SPDs are used to give plan participants and beneficiaries important information about pension plans, like 401(k) and profit sharing plans, and welfare plans, like group health, disability and pre-paid legal plans. SPDs provide information about the plan, what benefits are available under the plan, the rights of participants and beneficiaries under the plan, and how the plan works.
SPDs must generally be given to each plan participant and each beneficiary receiving benefits under the plan within 90 days after first becoming covered by the plan. Under ERISA, SPDs must generally:
- Identify the plan name, plan number and employer identification number (EIN)
- Describe the type of plan (ex. 401(k), profit sharing, group health, disability)
- Describe the type of plan administration
- Provide contact information for the plan administrator and service of process
- Describe the plan’s eligibility requirements
- Describe circumstances which may result in disqualification, ineligibility, denial, loss, forfeiture, suspension or reduction of benefits
- State the date of the plan’s fiscal year
- Describe the procedures governing claims for benefits, applicable time limits and remedies if claims are denied
- Describe provisions governing termination of the plan
- A statement of rights available to plan participants under ERISA
SPDs for employee pension plans must include additional information, such as:
- The plan’s normal retirement age
- A description of benefits, eligibility, vesting and accrual
- A statement about whether the plan is covered by termination insurance from the Pension Benefit Guaranty Corporation
- Source of contributions to the plan and the methods used to calculate contributions amounts
Similarly, SPDs for employee welfare plans must also include additional information, such as information about:
- Cost-sharing provisions, including costs of premiums, deductibles, coinsurance and copayment requirements
- Annual or lifetime caps or limits on benefits
- Coverage for preventive services
- Coverage for drugs, medical tests, devices and procedures
- The use of network providers, the composition of provider networks and whether, and under what circumstances, coverage is provided for out-of-network services
- Conditions or limits on the selection of primary care providers or providers of specialty medical care
- Conditions or limits applicable to obtaining emergency medical care
- Preauthorization requirements or utilization review as a condition to obtaining a benefit or service
Since comprehension is the key, SPDs must follow strict style and formatting requirements. For example:
- SPDs must be written in a manner calculated to be understood by the average plan participant
- SPDs must be sufficiently comprehensive to apprise the plan’s participants and beneficiaries of their rights and obligations under the plan
- SPDs must not be formatted in a way that misleads, misinforms or fails to inform participants and beneficiaries
- Advantages and disadvantages of the plan must be presented without either exaggerating the benefits or minimizing the limitations
- Exceptions, limitations, reductions, and restrictions of plan benefits cannot be minimized, rendered obscure or otherwise made to appear unimportant (style, caption, printing type and prominence must be the same as that used to describe plan benefits)
In fulfilling these requirements, plan administrators must consider the level of comprehension and education of typical participants in the plan and the complexity of the terms of the plan. In most cases, this will usually require limiting or eliminating technical jargon and long, complex sentences, and using clarifying examples, illustrations, clear cross references and a table of contents.
Unlike the general descriptions provided in this article, the SPD requirements are highly technical and very specific. To avoid violations, employers must confirm strict compliance with ERISA’s SPD requirement. If you have questions about your employee welfare plans, or if you would like to see how Setnor Byer Insurance & Risk can help, contact us.
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