What is a Summary Plan Description And Do We Need One For Our Business?

The federal law that governs group life, private pension, and health plans which is also known as The Employee Retirement Income Security Act (ERISA), requires that plan participants receive a document known as a summary plan description (“SPD”). Two departments of labor must draft SPD, and it doesn’t necessary has to be referred to as “The Summary Plan Description.”

Contents in the Summary Plan Description.
The Summary Plan Description is a detailed document that informs plan participants about how the plan is managed and how it operates. Among other things, the SPD must clearly identify in easily understood language the following items:
1-A description or summary of the benefits.
2-The plan name, sponsor, and administration.
3-Funding mechanisms.
4-Participation and qualification guidelines.
5-Calculation methods for service and benefits.
6-Benefit vesting schedules.
7-Benefit payment procedures and timing.
8-Claims submission process.
9-Claims appeal process.
10-Address for service of legal process.
11- Circumstances that may result in ineligibility or a denial of benefits.
12- Technical notices and a report of participants’ in the ERISA.
13- Any questions that any member may have after reading the SDP can only be only answered by contacting the plan manager.

SPD Summary Plan Description

Summary Plan Description will be provided when:
Every plan manager must provide a copy of the SPD to members in the following circumstances:
1-When a new plan takes effect.
2-When an employee becomes eligible to participate in a plan.
3-Upon written request of a plan participant or beneficiary.

Summary Plan Description Exceptions.
Employer-provided daycare, highly compensated employees and welfare plans for management are exempt from the Summary Plan Description requirement. There are no exemptions from the Summary Plan Description requirement for small plans covering fewer than 100 participants.

How Often Must a Summary Plan Description be updated?
1-If a plan is modified or amended within a five-year period, a new Summary Plan description must be distributed to the members. In case the plan has not be changed, the original SPD must be distributed to plan participants every ten years.
2-A “summary of material modifications” may also be used to notify plan participants of a significant plan change.

What Are Common Summary Plan Description Errors that Can Result in ERISA Litigation?
1-Administration disputes or errors that may come up in ERISA litigation include but are not limited to.
2-Failure to follow the procedures described in the SPD.
3-Conflicts between the SPD and any underlying plan document which it describes or summarizes.
4-Failure to clearly disclose situations that may result in forfeitures, benefits reduction, or exclusions.
5-Failure to provide plan documents promptly.

Despite the amount of information contained in your Summary Plan Description, it should be written in a format that is simple to read. Just like with any piece of business writing, it is important to craft your business plan with your expected readers in mind. This is because bankers, investors, and other busy professionals who will read your business plan will not have time to read a tedious document with long-winded paragraphs and large blocks of text.

Overall, Employee Retirement Income Security Act (ERISA) provides clearly proscribed procedures that must be closely followed by plan administrators and sponsors. Questions about ERISA compliance should be directed to an attorney experienced in ERISA matters.

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