Health Insurance Summary Plan Descriptions: Fact or Fiction
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for established retirement and health and welfare plans in private industry to provide protection for individuals in these plans. ERISA requires plans to disclose certain material, including reports, statements and documents to participants and beneficiaries. One of the most important documents participants must receive when becoming covered under a health plan subject to ERISA is a summary of the plan document, referred to as the Summary Plan Description (SPD).
The SPD is probably one of the most misunderstood ERISA required disclosure documents. This misunderstanding can put an employer subject to ERISA at risk to costly problems and potential penalties. This article addresses some of the misunderstandings that some employers maintain regarding the SPD.
The information provided by insurers is an SPD: Fact or Fiction?
Fiction: The Department of Labor considers the SPD as one of the most important documents required by ERISA. Its importance stems from its role as being the primary informational document provided to participants to inform them of their rights and obligations. The SPD describes how the plan works, what benefits the plan provides, how the plan is funded, and how the benefits are obtained. While the Certificate of Coverage, Benefit Booklet, or Summary of Benefit that an insurer provides may meet some of the required information in an SPD, such as covered or non-covered benefits, it does not include all of the required provisions that must be included in an SPD. Some of those provisions are information regarding the plan sponsor/plan administrator, participation and termination requirements and a participant’s ERISA rights. Therefore, if just providing these insurer’s documents an employer will not be compliant with meeting the SPD requirement.
The SPD must actually be distributed to plan participants: Fact or Fiction?
Fact: Many employers mistakenly believe that the SPD only must be made available upon request. However, every plan participant who is entitled to benefits under the employer’s plan subject to ERISA is entitled to receive an SPD. The SPD must be distributed in a manner reasonably calculated to ensure actual receipt by plan participants. Therefore, the most acceptable means of delivery would be hand delivery or first class mail. Second or third class mail is acceptable if return and forwarding postage are guaranteed. An employer should always maintain documentation of who received the SPD. Therefore, merely posting the document or leaving it in a location where it can be picked up is not enough.
An employer can also deliver the SPD electronically, as long as certain DOL electronic delivery requirements are satisfied. Electronic delivery of documents can be by email or by attachment to email, use of a company website for posting of documents, and provision of documents on magnetic disk, CD-ROM, or DVD. The key issue remains, even with electronic delivery, the plan administrator must ensure actual receipt of the document. Some ways to ensure electronic receipt of an SPD would be to use return-receipt or notice of undelivered or unread email features, or conducting periodic reviews to confirm receipt. Other steps that must be taken by a plan administrator when delivering an SPD electronically are: notice must be provided to each participant at the time the document is provided of the significance of the document; and, the participant must be advised a paper copy will be furnished upon request.
My insurer, broker or Third Party Administrator is responsible for an SPD: Fact or Fiction?
Fiction: Under ERISA, the plan administrator is responsible for the SPD and any other disclosure requirements. This is true even where another party prepares or distributes the SPD and where that other party has contractually obligated itself to perform such services. Generally the DOL defaults to the plan sponsor, who is the employer, as the plan administrator. Thus, it stands to reason that the employer, and not the insurer, broker or TPA will be responsible for furnishing SPDs and will be liable for failure to furnish adequate SPDs.
There are consequences for failing to provide an SPD: Fact or Fiction?
Fact: There are no specific penalties in the statute or regulations for failure to prepare or furnish a required SPD. However, under the general enforcement provisions of ERISA, a participant may bring a suit against the plan administrator to enforce the requirement. Likewise, as part of a DOL investigation, the investigator is likely to require the plan sponsor to immediately produce and distribute any required but missing SPDs that are currently applicable. Furthermore, if a participant requests in writing to be provided an SPD, and the plan sponsor fails to provide it within 30 days, the plan sponsor may be charged $110 per day.
Finally, the greatest risk to a plan sponsor in failing to distribute SPDs arises when a participant makes a claim for a benefit based on a faulty or nonexistent SPD. This type of dispute can be extremely costly due to exposure for unanticipated benefits in connection with such claims, and court costs in defending such disputes.
ERISA has been the law of the land since 1974. Although amended several times in the last 40 plus years, it remains the main employee benefit law. Two key requirements for an employer/plan sponsor are the reporting and disclosure requirements. The main disclosure requirement is providing a Summary Plan Description to plan participants describing their rights and obligations. Failure to comply with this ERISA disclosure requirement can result in costly consequences. Thus, prompt production and distribution of SPDs is an often overlooked but crucial aspect of ERISA compliance. Contact your JRG Advisors representative for assistance with an SPD.