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Summary Plan Descriptions: You Gotta Have Them, So Make the Most of Them

Administrators of plans subject to ERISA (including plans sponsored by for-profit and nonprofit businesses and organizations[1]) must provide participants and beneficiaries with summary plan descriptions (“SPDs”) describing “the most important facts they need to know about their retirement and health benefit plans including plan rules, financial information, and documents on the operation and management of the plan.” ERISA mandates how plan administrators should present those facts and when to provide the SPD.

HR/benefits professionals are probably well versed in the SPD requirements. For the rest of you, they’re briefly summarized below. In addition, this article describes three trending practices that may make it easier to both meet your SPD compliance obligations and further your overall benefits administration and talent management objectives.

The Who, What, and When of SPDs (But Not Necessarily in that Order)

The “What.” SPDs are intended to be “plain language” explanations of the complicated terms of your benefit plans. Under the ERISA rules, an SPD must be “written in a manner calculated to be understood by the average plan participant.” Further, it should contain sufficient detail to ensure participants and beneficiaries understand their rights and obligations under the plan, as well as the plan’s advantages and disadvantages. An SPD’s format cannot mislead, misinform, or fail to inform participants and beneficiaries of their rights and obligations, or minimize or obscure limitations, restrictions, or reductions in plan benefits.

The “Who.” ERISA requires SPDs to be distributed to all participants “covered” by a retirement or welfare benefit plan. Generally, current or former employees are treated as “covered” when they become eligible to make contributions to or otherwise receive benefits under the plan.

Retirement plan beneficiaries (generally, a plan participant’s spouse or other dependents) are treated as “covered” by the plan, and entitled to receive an SPD, if they are receiving benefits under the plan. Although a welfare plan participant’s beneficiaries may be eligible to receive benefits, and are therefore “covered” by the welfare benefit plan, plan administrators aren’t required to provide them with SPDs. Plan administrators must, however, provide a copy of the SPD to any participant or beneficiary who requests one.

The “When.” Eligible plan participants and beneficiaries must receive, without charge, a copy of a plan’s SPD within 90 days of becoming covered by the plan. SPDs for a new plan must be distributed within 120 days of the plan’s adoption date, again without charge. The plan administrator must provide an SPD to a requesting participant or beneficiary within 30 days of the request, but may charge copying costs. SPDs can be distributed by hand, by mail, or electronically. (ERISA, of course, has rules for each method.)

Updated SPDs incorporating all prior amendments must be provided to eligible participants and beneficiaries at least every five years. (Participants and beneficiaries should be informed of material interim amendments through the issuance of a “summary of material modifications” or “SMM.”) If a plan hasn’t been amended at all (likely a fairly rare occurrence), a new SPD is required every 10 years.

Trending SPD Practices

Easily Readable SPDs Can Benefit Participants (And You). Although SPDs should be easily understood by average plan participants, as plans become more complex, this requirement has become increasingly difficult to satisfy. In a 2006 study, University of Nebraska-Lincoln researchers reviewed and tested the SPDs of 40 different health care plans.[2] They found that, on average, the readability level of important plan information included in the SPDs was higher than that recommended for technical material – and too high for most participants.

If your participants don’t understand the information contained in their SPDs, they may make unsound, and potentially costly, benefits decisions. To determine whether your SPDs have readability issues, you should re-read the SPDs from a participant’s viewpoint, asking questions like:

  • Are answers to common participant questions easy to find and, once located, understandable to average participants?

  • Would removing “legalese” and technical jargon, adding examples and/or a glossary, revamping the SPD’s formatting, etc., increase the SPD’s readability?[3]

  • If a significant number of non-English speaking employees are eligible to participate in the plan, should the SPD inform those employees that they can request a copy in their own language (even if such a statement wouldn’t be required by ERISA based on the number of affected employees)?[4]

The more readable the SPD, the better participants will understand the plan’s terms. Better-informed participants make better plan-related decisions (and will have fewer complaints and problems you must address).

SPDs as a Tool for Furthering Diversity & Inclusion Efforts. Several clients have recently asked us to review their SPDs to remove references to “gendered” pronouns (i.e., “he,” “she,” etc.), making the documents more gender-neutral and inclusive. We primarily replaced those pronouns with references to the “participant” or “employee,” as required by context. However, as language and writing (even legal writing!) evolve, it’s also becoming more acceptable to use the singular “they” to refer to an individual participant or employee.

These employers’ efforts were apparently part of the larger societal trend to promote diversity and inclusion in all settings. As noted in a recent ABA Journal article, “[w]ords matter, and they reflect the mindset of their drafter.” Thus, employees may view an employer’s efforts to craft gender-neutral SPDs (and other plan-related documents) as evidence of the employer’s commitment to creating and maintaining a diverse and inclusive workplace. As you review your SPDs for readability, you may also want to consider whether it makes sense to update them for gender neutrality and inclusiveness at the same time.

Keeping Former Participants, Retirees, and Beneficiaries Updated (Retirement Plans Only). Providing updated SPDs every five or 10 years (as applicable) to former retirement plan participants with vested benefits (“terminated vesteds”), retirees receiving benefits, and beneficiaries receiving benefits may seem like an unnecessary cost, given that those individuals won’t be affected by most plan changes.

To lessen the burden on plan administrators, the ERISA rules include an alternative distribution method for such situations. If the plan administrator provides terminated vesteds, retirees, and beneficiaries with a copy of the plan’s current SPD and any applicable SMMs on or after their separation date, retirement date, or benefit commencement date, respectively, the plan administrator isn’t required to provide them with updated SPDs. Rather, those participants can receive (free of charge) a notice containing:

  • A statement that the participant’s rights were described in the previously-provided SPD and any later-provided SMMs; and

  • A statement that the participant can request a copy of the earlier SPD and SMMs, as well as of the updated SPD, without charge, from the plan administrator.

Implementing the alternative procedure may require you to provide terminated vesteds and retirees with SPDs and SMMs when, or soon after, they terminate or retire. This might be a bit odd at first, but could help lower your overall cost of compliance, especially if updated SPDs would need to be produced and mailed to such participants.

SPD compliance can consume a big part of an HR/benefits professional’s time. Be sure you’re taking advantage of all options for lessening that burden and for furthering your company’s benefits administration and talent management goals.

[1] Governmental and church plans are exempt from ERISA, so its SPD requirements don’t apply to them.

[2] Although the researchers focused on health plan SPDs, their findings likely also apply to retirement plan SPDs.

[3] Sponsors of prototype plans should generally be able to update their plans’ SPDs, even if they can’t amend or revise the prototype provider’s base plan document or adoption agreement.

[4] See 29 CFR §2520.102-2(c). Not surprisingly, the University of Nebraska researchers also found that non-English speaking workers faced additional difficulties in understanding their plan documents and SPDs.

© 2023 Foley & Lardner LLPNational Law Review, Volume IX, Number 70

About this Author

Belinda S. Morgan, Foley Lardner, Executive Compensation Lawyer, ERISA

Belinda S. Morgan is a partner and business lawyer with Foley & Lardner LLP. She focuses her practice on employee benefits, executive compensation and ERISA issues. Ms. Morgan also is involved in the representation of tax-exempt organizations at both the state and federal levels. She is a member of the firm’s Employee Benefits & Executive Compensation and Labor & Employment Practices.

Ms. Morgan has significant experience advising private and public employers in the design and administration of traditional defined benefit pension,...