Benefits Plan Preventative Maintenance: SPD Delivery and the Benefits of a Wrap Plan
Employers and employees have a lot to think about and keep track of when it comes to health benefits. One of the most obvious, but often troublesome issues is telling employees just what those benefits are. Employers who provide health benefits are required by law to tell employees what the available benefits are and in plain terms that are easy to understand. Enter the Summary Plan Description ("SPD").
The SPD contains a summary of the features and benefits of a company’s health plan, and contains information on highly specific issues, like what benefits are available, how to make claims and appeal any denial of benefits, and whom to contact with questions. Every year, employers spend large amounts of time and resources developing and distributing SPDs. However, if an SPD is not written or distributed correctly, employers may spend significantly more time and money in litigation and risk exposure to fines and penalties under federal law. And, with healthcare reform on the horizon, legal requirements regarding the distribution and content of SPDs may be changing—and changing soon.
What will not change and will remain non-negotiable is that understandable SPD’s must be delivered to employees every new plan year. Luckily, the United States Department of Labor ("DOL") provides Guidelines for the delivery of SPD’s. Now is a great time for employers to take a look at their SPDs to make sure they are in full compliance with the current regulations.
United States Department of Labor Basic Requirements
The Employee Retirement Income Security Act ("ERISA") is the federal law that controls private pension, group life, and health plans. ERISA requires that each participant covered by an ERISA plan receives a copy of a SPD. In this context, a "participant" means any employee or former employee still covered by the plan. Because the SPD is the primary means of informing plan participants and beneficiaries about their plan and how it work its importance cannot be underestimated. Current DOL requirements include the following:
• The SPD must be delivered to participants within their first 90 days of being covered by the plan. For pension plan beneficiaries, an SPD must be delivered within 90 days after first receiving benefits.
• If a plan is "new," a company must distribute the SPD within 120 days after becoming effective. Plans offering new benefits are generally considered "new" plans; however, plans simply making a change in vendor are typically not considered "new."
• Employers are required to let an employee see a copy of their SPD (and any other plan document) within 30 days if and when an employee asks.
• New copies of the SPD must be distributed to employees every five years if there are changes to the plan, or every ten years if there are no changes. However, changes in federal laws and benefits packages are frequent enough that it is a best practice to distribute updated copies more often.
How must the SPD be delivered?
SPDs must be delivered in a way that is "reasonably calculated to ensure actual receipt of the material." This relatively undefined and imprecise standard can be a bit of a grey area for employers. However, the DOL has approved certain delivery methods to date:
• First class mail, as long as your company keeps an up-to-date address list.
• Second and third class mail is appropriate only if you use a return/forwarding option and request an address correction.
• Hand delivery. However, this does not mean an employer can simply place copies of the SPD in locations frequently visited by plan participants. What falls within the definition of "hand delivery" can be moving target, but courts have previously deemed it acceptable to distribute SPDs in new hire meetings or through interoffice mail.
• Electronic delivery via email or intranet has led to mixed results for employers in federal court, with the penalties for not meeting ERISA’s "reasonably calculated" standard causing some employers to pay fines and attorneys’ fees authorized under the law. Recently, a federal court found that posting a SPD on a company’s intranet, without any additional action taken was insufficient to satisfy ERISA’s disclosure requirements and was viewed as unlikely to result in full distribution to all participants.
Penalties for Noncompliance and Previous Litigation Issues
A violation of the SPD disclosure rules can be punished by fines of up to $110 per day and an award of attorneys’ fees. ERISA also establishes criminal penalties for willful violations. These penalties can include fines between $100,000 and $500,000 and can even result in up to ten years imprisonment. Though criminal penalties are rare, their existence highlights the importance of the SPD delivery requirements. Employers should never take ERISA’s reporting and disclosure obligations lightly, or leave their obligations solely in the hands of others. As always, we recommend that employers who sponsor health plans update, and issue SPDs and other plan materials in a timely and effective manner and consult with any of our benefits team if there are any questions.