HORAN Health Benefits Compliance Blog

Keeping you up-to-date and on-track with health benefits compliance

The Summary Plan Description (SPD) Requirement

 May 1 2017     Diane Cross

When reviewing compliance matters with employers, the Summary Plan Description (SPD) requirement often creates questions and confusion. All too frequently, it is a requirement in which employers incorrectly assume they are in compliance or simply are unaware of altogether. So, what is an SPD and why is it so important?

An SPD is a document that employers are required to provide to employees or plan participants explaining how the plan operates – the plan’s benefits, claim review procedures, and the participant’s ERISA rights – in a way that is easily understood. Virtually all employer-sponsored group benefit plans must provide participants with an SPD, regardless of size, if subject to ERISA*. The SPD requirement is applicable to both fully-insured and self-funded plans.

Employers are often surprised to learn that they do not have an SPD. A common misconception is that providing participants with the Certificate of Coverage or booklet issued by the insurance company fulfills the SPD obligation. Most often, the group health plan sponsor (i.e. employer) will need to provide additional information which is not contained within the booklet created by the insurer. Language required to satisfy ERISA’s SPD requirement that is often missing from the insurer or vendor provided documents includes:

  • Plan number and plan year
  • Employer’s tax ID number
  • Name and address for the plan administrator and agent for service of legal process
  • Source of plan contributions
  • Responsibilities for plan operations between the Employer and Insurance Carrier or third-party administrator 

Additionally, employers should be mindful of the fact that the SPD actually needs to be distributed to employees or plan participants. "Participants" include employees and former employees who are eligible for benefits under the plan. Former employees include, for example, COBRA beneficiaries, retirees and other former employees who may remain eligible under the plan. Participants must receive an SPD:

  • Within 120 days of the plan becoming subject to ERISA;
  • Within 90 days of enrollment for new participants;
  • Every 5 years if material modifications are made during that period; and
  • Every 10 years if no amendments occur.

Employers may not realize that failure to have an SPD can have significant financial consequences. If the SPD is not provided within 30 days of an individual’s request, an employer can be charged up to $110 per day per failure. In addition, should the Department of Labor (DOL) audit an employer’s group health plan, an SPD will likely be requested. If an employer cannot respond to the DOL’s request, it could trigger additional requests, visits, and penalties.

To avoid noncompliance and costly fines, employers should ensure that the plans they sponsor comply with ERISA’s SPD requirement. For more information regarding the Summary Plan Description requirement and available resources, please contact your HORAN representative. 

*ERISA applies to nearly all private employee benefit plans, and excludes government and church plans.