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ERISA's Summary Plan Description (SPD) Requirement - A Wrap Document Can Help

 February 28 2019     Diane Cross

The Employee Retirement Income Security Act (ERISA) sets minimum standards for employee benefit plans, providing several rules for private-sector employer sponsored group health plans (governmental and church plans are exempt from ERISA). Among ERISA’s many rules is the requirement to provide each participant with a Summary Plan Description (SPD). We often discover that many employers mistakenly believe they are compliant with this requirement when they are not, as discussed further below. The good news is, there are tools available to help achieve compliance.

The SPD is a document that communicates plan rights and obligations in a way that is easily understood, explaining the plan’s benefits, claim review procedures, and the participant’s ERISA rights. And, it must be distributed to participants at certain times. A common misunderstanding for employers is that the plan’s certificate of insurance/benefit booklet provided by an insurance carrier or third-party administrator (TPA) meets ERISA’s SPD requirement. Most often, this is not the case. The group health plan sponsor will need to provide additional information that may not be contained within the booklet created by the insurer to meet this requirement. For example, ERISA requires SPDs to include certain types of information such as plan number and plan year, employer’s tax ID number, name and address for the plan administrator, and plan contribution structure – which is typically not included in the certificate of insurance provided by a carrier.

To meet the SPD requirement, an employer can use a wrap document (SPD wrap) that includes the ERISA-required information that the certificate or booklet prepared by the insurer or TPA may not include. This document is called a wrap document because it essentially “wraps around” the insurance certificate or benefit booklet to fill in the missing ERISA-required provisions. In this scenario, the wrap SPD and the insurance certificate/booklet, together, make up the plan’s SPD.

When must an SPD be provided to a plan participant?
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; or
•Every 10 years if no amendments occur.

Are all group health plans required to provide participants with an SPD?
All group health plans subject to ERISA must provide participants with an SPD, regardless of size. Both insured and self-funded group health plans must comply with the federal laws governing SPDs. While ERISA contains an exception for group health plans with less than 100 plan participants, that exception only applies to reporting requirements (e.g., 5500 filings).

Employers subject to ERISA should revisit their plan documentation to make sure they are compliant with ERISA’s SPD requirement, as not having an SPD can be costly for employers. For example, if an employer fails to provide an SPD within 30 days of a participant's request, fines of $110 per day can accrue.  Without an SPD, it is difficult for an employer to respond to such request.  For more information on the SPD requirement, its required content, or how to utilize an SPD wrap document – contact your HORAN representative.