What is a Summary Plan Description?

People holding pen and documents

Starting a business comes with the responsibility of preparing documents to comply with government regulations. Aside from making tax reports, employers subject to the Employee Retirement Income Security Act (ERISA) must also provide their employees with a copy of their summary plan description. 

What is a Summary Plan Description?

A Summary Plan Description or SPD is a document that contains a detailed guide of all the benefits an employer provides to their employees, including the implementation of the said plan. It must include details about employee eligibility, the calculation and payment method of the benefits, the claiming process of their benefits, and the time when benefits become vested. 

One of the requirements of an SPD is that it must be written in a language that would be easy for the employees to understand. The SPD needs to have the following details: 

  • plan name
  • employer’s name and address
  • plan administrator’s name (if other than the employer) and contact information
  • statement of the Health Insurance Portability and Accountability Act rights
  • ERISA disclosures
  • guidelines on how employees can file for an appeal or grievance

The format of the SPD must not, in any way, misinform or mislead employees and beneficiaries of their rights and obligations. 

Who Must Receive Summary Plan Description?

ERISA mandates employers to provide SPDs to all employees under a retirement or welfare benefit plan. In general, existing and former employees are regarded as “covered” once they become eligible to contribute to or receive benefits under the plan document

Beneficiaries of retirement plans, including their spouse or dependents, must receive an SPD if they are eligible to receive benefits. However, a welfare plan participant’s beneficiaries, while they are likely to receive benefits, do not need to have an SPD. Plan administrators must provide an SPD copy to any participant should they request to have one. 

When Should Participants Receive their Summary Plan Description?

Participants must receive a copy of their SPD: 

  • Within 120 days starting from the day the plan became subject to ERISA;
  • Within 90 days upon enrollment of new participants;
  • Within 30 days upon receipt of a participant’s written request
  • Every five years, should there be any modifications within the period;
  • Every ten years, if no necessary changes occurred. 

Special Considerations for Summary Plan Descriptions 

Preparing a summary plan description can be quite challenging, but it should not discourage you from complying because it has crucial advantages for employers. Employers need to create an accurate and comprehensive SPD because it can be their most powerful tool against a lawsuit. An incomplete or the absence of an SPD exposes an employer to employee lawsuits. 

Another important detail that employers should not miss out when making an SPD is to have a clear definition of an employee who must receive benefits. Employers must also outline what benefits if any, can temporary workers and independent contractors can claim. 

Additionally, if more than 10 per cent of your employees speak a foreign language, consider having your SPD prepared in their language. This practice allows you to remain compliant with the clause that the SPD must be understandable for the recipient. 

If you are unsure of what you should include in your summary plan description, it is best to hire a lawyer well-versed in the ERISA law. They are most qualified to review and make necessary adjustments before you distribute the said documents. 

Takeaways 

Employers who take time to craft an accurate SPD shows the importance they give to their workforce. The document is a clear indication that the employer is committed to providing their employees with the necessary tools they will need to arrive at a well-informed healthcare decision. 

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