Summary plan description definition and meaning
A summary plan description, or SPD, is a document that employers who offer retirement or health benefit plans covered by the Employee Retirement Income Security Act (ERISA) are required to provide to participating employees and beneficiaries at no cost. It includes essential information about the plan, including what it entails and how it operates.
More about what a summary plan description is
Employees participating in their employer’s retirement plan or group health insurance plan covered by ERISA should be aware of their rights and responsibilities under the plan. ERISA is the federal law that sets minimum standards for private-sector retirement and group health plans.
In addition, employees are entitled to other details about the plan, such as its operation and management. ERISA mandates that plan administrators provide this information in a written summary plan description.
The plan administrator — the individual or company managing the plan — is responsible for ensuring that the SPD’s language is easily understandable to the average participant. Often, employers engage a third-party administrator (TPA) to act as their plan administrator.
Plan document vs summary plan description
The summary plan description is a concise, simplified version of the plan document, which provides an extensive outline of the plan’s rules and procedures. While the plan document is drafted in compliance with ERISA regulations, it often contains complex legal terminology that may be challenging for the average participant or beneficiary to understand.
The SPD is created to provide a clear and straightforward summary of the plan, offering a birds-eye view of what it includes and how it operates, making it easy for anyone to understand.
ERISA typically mandates that employers maintain both a plan document and an SPD. However, in certain cases, employers are allowed to integrate these into a single document. When combined, this document must meet ERISA’s requirements for both the plan document and the SPD.
What to include in the SPD
This can vary significantly by plan, as employers often set different terms and conditions for offering benefits. Moreover, it depends on the type of benefit, whether it’s a retirement plan or a group health plan.
The SPD typically includes the following information:
- The name and type of plan
- Plan eligibility requirements
- Description of benefits offered under the plan
- Explanation of when participants are entitled to benefits
- Description of conditions that could result in the denial of benefits
- Sources of plan contributions (e.g., employee and employer contributions)
- Statement regarding a collective bargaining agreement, if applicable
- Explanation of ERISA rights
- Claims process for benefits
- Resources for disputing denied claims
According to the US Department of Labor (which oversees ERISA), the SPD must be comprehensive enough to inform covered individuals about their benefits, rights, and responsibilities under the plan.
Who should receive an SPD?
Employers are required to distribute the SPD, free of charge, to plan participants and beneficiaries, including:
- Covered employees and their qualified beneficiaries
- COBRA qualified beneficiaries
- Former employees who are still covered by the plan
- Covered retirees
- Guardians of incapacitated individuals
- Surviving spouses and dependents still covered by the plan
When to distribute SPDs
The timeline for employers to furnish the SPD to participants and beneficiaries is as follows:
- Within 90 days of the individual becoming covered under the plan
- Within 120 days of the plan becoming subject to ERISA
- Within 30 days following a written request by the employee or beneficiary
- Within 60 days in the event of a reduction in covered benefits
- Every five years if there have been changes to the plan
- Every 10 years if there have been no changes to the plan
In addition, participants and qualified beneficiaries must receive a Summary of Material Modifications (SMM) if the plan undergoes significant changes. Employers are required to issue the SMM within 210 days after the end of the plan year in which the changes occurred.
How to furnish the SPD
ERISA’s Disclosure section specifies that “the plan administrator shall use measures reasonably calculated to ensure actual receipt of the material by plan participants, beneficiaries, and other specified individuals.” This means that employers should utilize the most effective delivery method(s) for distributing the full SPD.
Acceptable methods of delivery include:
- First-, second-, or third-class mail
- Hand delivery at the worksite
- Electronic distribution
It’s important to understand the unique requirements for different distribution methods. For instance, when distributing the SPD electronically, employers must adhere to ERISA’s specific guidelines, which vary depending on whether employees have work-related computer access.
Furthermore, employers must provide an electronic or paper notice when sending an electronic SPD. This notice should clarify the importance of the SPD plus inform the participant or beneficiary of their right to request a free paper copy.
Are there penalties for noncompliance?
Failure to comply with ERISA regulations can result in penalties. If an employer does not fulfill a participant’s or beneficiary’s request for an SPD within 30 days, they may face a penalty of up to $110 per day for each violation. In some cases, a lack of SPD provision could also prompt a DOL audit. Moreover, if the employer fails to provide the SPD to the DOL upon request, they could incur a daily penalty of $184, with a maximum of $1,846 per request.
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