Understanding the Summary Plan Description (SPD) Requirements under ERISA

When employees become participants in a health benefits plan governed by the federal Employee Retirement Income Security Act (ERISA), they must automatically receive an important document: the Summary Plan Description (SPD). However, many employers find themselves confused about this critical ERISA requirement, which could lead to legal and financial risks.

Consequences of Non-Compliance with SPD Requirements

Failure to comply with ERISA’s SPD requirements can have significant legal consequences. For instance, if a plan sponsor fails to provide an SPD within 30 days of a participant’s request, they could be fined up to $110 daily.

This guide addresses common misconceptions regarding SPD requirements and offers insights on how employers can avoid costly penalties and legal complications.

Does the information from Insurance Carriers Count as an SPD?

Under ERISA, plan administrators—typically the employers sponsoring the health plans—are responsible for ensuring that the SPD is distributed. As mandated by federal law, the SPD must include specific details that are often missing from the benefit summaries or certificates of insurance provided by insurance carriers.

Although carriers provide valuable information about the plan, they usually do not supply all the necessary provisions for ERISA compliance. Simply distributing insurance documents or benefits booklets will most likely not fulfill the SPD requirements and could result in penalties for the employer.

Can the SPD Be Provided Only Upon Request?

The SPD must be proactively distributed to all plan participants in a manner that ensures they actually receive it. Acceptable distribution methods include:

• Hand delivery at the workplace (posting in common areas is not sufficient)
• Inclusion in newsletters or company publications
• Mail delivery
• Electronic delivery, such as via email or an intranet site, as long as certain Department of Labor (DOL) requirements are met

Why Should I Distribute the SPD If I’ve Never Done So Before?

All employers sponsoring group health plans must comply with the SPD distribution requirement. Failing to do so can result in significant problems, including:

• Failing a DOL audit, which is increasingly common for businesses of all sizes
• Fines of up to $110 per participant per day for failing to provide an SPD or plan document within 30 days of a participant’s request

Moreover, distributing SPDs ensures that employees are informed about their benefits, which can prevent disputes and dissatisfaction over plan coverage.

Is the SPD the Same as the Plan Document?

In addition to the SPD, ERISA mandates that all covered benefit plans be administered according to a written Plan Document. This document must include certain provisions as required by ERISA and other federal laws, including the Health Insurance Portability and Accountability Act (HIPAA). Insurance contracts, however, are generally created to comply with state insurance laws and may not include the necessary ERISA provisions. While the Plan Document does not need to be distributed automatically, it must be available for participants to review upon request.

Does Distributing a Wrap SPD Ensure Compliance?

A Wrap SPD is designed to combine the details from various insurance certificates and benefit booklets into a single document that meets ERISA’s disclosure requirements. However, simply distributing a Wrap SPD does not guarantee full compliance. Employers must ensure that participants receive both the Wrap SPD and any underlying benefit plan documents.

The Wrap SPD and the related documents do not need to be distributed simultaneously, but participants must receive the most current and complete information.

Do I Need to Distribute a New SPD If There’s a Change in the Plan?

ERISA mandates that plan administrators notify participants about significant changes to the plan. This can be done by updating the SPD or providing a Summary of Material Modifications (SMM) that explains the change.

Timing of Distributing an Updated SPD or SMM

• The Affordable Care Act requires group health plans and insurance providers to notify participants at least 60 days before the effective date of any material plan modification that alters the Summary of Benefits and Coverage (SBC).
• If a plan change results in a reduction of covered services or benefits, participants must be notified within 60 days of the modification.
• If neither of the above conditions applies, the administrator has up to 210 days after the plan year ends to distribute an updated SPD or SMM. However, it is best practice to notify participants of any changes as soon as possible.

Electronic Disclosure Requirements

ERISA allows documents to be provided electronically, but plan administrators must ensure that the system guarantees receipt of the documents. Methods to ensure this include tracking undelivered emails or requesting acknowledgment of receipt. Additionally, when distributing materials electronically:

• Personal information must be kept secure
• The documents should comply with ERISA’s style, format, and content requirements
• Participants must be informed of the significance of the document and have the option to receive a paper copy

In most cases, participants must give explicit consent to send documents electronically. The DOL’s regulations provide further guidance on these requirements.