When do employers need a Summary Plan Description?

If you are an employer sponsoring an employee group health plan, you must have an ERISA-compliant Summary Plan Description. The federal Employee Retirement Income Security Act (ERISA) is designed to protect plan participants by setting minimum disclosure standards for covered plans. An ERISA-covered group health plan is an employment-based plan that provides medical care coverage, including hospitalization, sickness, prescription drugs, vision or dental. Administrators of these plans, which often includes the employer/plan sponsor, are required to provide important plan information in writing in the form of a Summary Plan Description (SPD).

The Summary Plan Description is used to disclose and communicate important information about an employer’s employee benefit plan. It provides 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 be furnished to employees without charge within 90 days after the employee becomes a participant or within 120 days of the plan’s adoption date. SPDs must also be provided within 30 days of being requested.

Pursuant to ERISA regulations, the SPD must:

• identify the plan name, plan number and employer identification number;
• describe the type of plan (i.e., employee welfare benefit plan, employee benefit plan);
• 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; and
• include a statement of rights available to plan participants under ERISA.

The SPD must also explain various aspects of the benefits being provided, such as the plan’s:

• 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; and
• conditions or limits applicable to obtaining emergency medical care.

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;
• be sufficiently comprehensive to apprise participants of their rights and obligations under the plan;
• not be formatted in a way that misleads or misinforms plan participants;
• present the plan’s advantages and disadvantages without exaggerating the benefits or minimizing the limitations; and
• ensure that the plan’s exceptions, limitations, reductions or restrictions are not 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).

Plan administrators must consider the level of comprehension and education of typical plan participants and the complexity of the terms of the plan. In most cases, this requires limiting or eliminating technical jargon and long, complex sentences. It may also require the use of clarifying examples, illustrations, clear cross references and a table of contents.

Unlike these general descriptions, ERISA’s SPD requirements are highly technical and very specific. Employers must ensure strict compliance with all applicable rules. Given ERISA’s relative complexity, employers may need to consult licensed professionals to avoid the potentially severe consequences that can result from violations. In addition to having an ERISA fidelity bond to protect against losses due to fraud or dishonesty by persons handling funds, employers should also carry employment practices liability insurance.

The Human Equation prepares all risk management and insurance content with the professional guidance of Setnor Byer Insurance & Risk.