Summary Plan Descriptions (SPDs): Important Documents for Your Group-Sponsored Plans
Posted by Megan Johnson on July 24, 2015
Has your business filed a Summary Plan Description (SPD) for your employee welfare benefit plan? The Department of Labor describes the SPD as “the primary vehicle for informing participants and beneficiaries about their rights and benefits,” and employers are legally obligated to provide each plan participant with a copy of the SPD, free of charge. Legal documents for employee information, including SPDs and written plan documents, are not always composed correctly. These oversights can easily result in fines for businesses. Whether the qualifications of ERISA obligation have been met are not always clear; the plan documents, however, can quickly be made compliant by a skilled Benefits Administrator.
Employee welfare benefit plans include medical, dental, vision, group term life insurance, and disability insurance plans. Section 402 of ERISA states that every employee welfare benefit plan must be established and maintained pursuant to a written plan document. In addition to the plan document requirement, ERISA also requires that every employee welfare benefit plan be described in an SPD that provides plan participants with an accurate and comprehensive summary of the plan. Failure to provide a plan participant with a copy of the SPD within 30 days of the date the participant requests a copy can result in a $110/per day penalty.
Some employers and most agents incorrectly assume that the insurance policy, coverage certificate, or coverage booklet they receive from their insurance carrier or third party administrator satisfies the plan document requirement. While these documents often include detailed descriptions of the benefits available under the plan, they infrequently identify a named fiduciary or the procedures for amending the plan, both requirements of ERISA. These documents also typically do not distribute responsibilities for the operation and administration of the plan between the employer and the insurance carrier/third party administrator.
The importance of preparing an SPD that complies with ERISA cannot be overstated. As a critical document communicating employees’ rights and benefits and as an ERISA obligation, businesses cannot over-prepare these documents in view of their ethical and legal responsibilities. Naming a fiduciary and plan amendment procedures are major concerns, though having a Benefits Administrator review the documents is the best way to ensure thorough compliance.