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What is an SPD and Why Do I Need One?

Did you know … If you’re an employer – of a company of any size – that offers group health benefits to your employees, you must provide your employees with a summary plan description (SPD)? Hey, it’s not our rule – it’s a federal law! 

An SPD is a document that explains in layman’s terms the insurance plan’s benefits, claim review procedures, and ERISA rights. It helps your employees understand what is included in their health care plan. Think of it as an owner’s manual. 

What the heck is ERISA? 

ERISA is the Employee Retirement Income Security Act, a federal law from 1974 that governs how employers provide benefit plans to employees. It protects the interests of employee benefit plan participants and their beneficiaries by requiring that plan information gets to the plan participants. It also establishes standards of conduct (and enforcement provisions) for plan managers and other fiduciaries. If you want to know more about ERISA, the DOL website has a good explanation. 

Why do I need an SPD? 

Providing health benefits to employees requires the employer to comply with ERISA, regardless of employer size, number of employees or whether the benefits are paid for by the employer or its employees. It should be noted that not all employers are covered by ERISA, such as government entities and churches, which are considered nonprofits. 

What's in it? 

The SPD must include specific items, such as plan eligibility information, a description of plan benefits and circumstances causing loss or denial of benefits, benefit claim procedures, and a statement of rights under ERISA.   

The SPD must contain the following details of the benefit plan:   

  • Plan name  
  • Name and address of employer  
  • Plan sponsor’s employer identification number (EIN) 
  • Plan number  
  • Type of plan (medical, FSA, disability, etc.)  
  • Type of plan administration (insurer, contract, etc.)  
  • Plan administrator’s name, address, and phone number  
  • Name and address of agent for service of legal process  
  • Plan year information about plan trustees (if applicable)  
  • Certain information about collective bargaining agreements (if applicable)  

It must also include:  

  • Description of plan eligibility provisions  
  • Description of plan benefits  
  • Description of circumstances that would cause a denial of benefits  
  • Amendment and termination provisions  
  • Subrogation provisions  
  • Plan contributions and funding  
  • Coordination of benefits and offset provisions  
  • Claim procedures and limits for lawsuits   
  • Statement of ERISA rights  
  • Offer of assistance in non-English language (if applicable)  
  • Description of employer’s refund allocation policy (for insured plans relying on Form 5500 exemptions)  
  • Grant of discretion for plan administrator to interpret plan and make factual determinations  

Key questions 

Here are some of the questions that an SPD should answer:  

  • Is there a minimum age requirement to participate?  
  • Is there a minimum service requirement to participate? If so, what is it, and how is it calculated?  
  • When does the plan year begin and end? This will tell employees when the deductible resets.  
  • Do I make contributions to the plan, or do all contributions come from my employees?  
  • What happens to my benefits if I become disabled? If I leave the company? If I retire? If I die? If I take a leave of absence?  

Pertaining to retirement plans:  

  • Does the plan allow rollover contributions from other plans?  
  • How are employer and employee contributions invested?  
  • When do I become vested in the retirement plan?   
  • Am I allowed to borrow from my retirement account? If so, what are the rules?  

Who gets an SPD?  

The SPD must be furnished (for free) to participants when they become covered by the plan. A separate SPD does not need to be provided to beneficiaries, such as spouses or dependents.  

Participants and beneficiaries may request copies of the SPD. Not to scare you, but failure to furnish an SPD within 30 days of the request may expose the ERISA plan administrator (typically the employer) to penalties of up to $110 per day, even if the document was already provided.  

Like with most compliance regulations, there are time frames in which an SPD must be distributed: 

  • Within 120 days of the health plan becoming subject to ERISA 
  • Within 90 days of enrollment 
  • Every 5 years if modifications are made 
  • Every 10 years if the document doesn’t change  

And remember, as ERISA puts it, “the SPD must be written for the average plan participant and be sufficiently comprehensive to apprise covered persons of their benefits, rights, and obligations under the plan.” In other words, unlike the previous sentence, it must be written in plain language! 

SPD vs. SBC 

Don’t confuse an SPD with an SBC, or Summary of Benefits Coverage, which is often provided along with the SPD. An SBC tells employees what the plan covers, such as in-network and out-of-network copays, deductibles, and out-of-pocket limits. (Not familiar with these terms? Our acronym glossary spells them out.) 

If you’re still wondering how to handle an SPD, call us, and we can get it taken care of for you! We even have an SPD checklist available through our HR partners at Mineral.  

Jason Levan

Jason Levan joined Kuzneski Insurance Group in 2021 as Director of Communications and Content after his first career as a newspaper reporter and editor. In Act II, he oversees the content marketing for the company, with the goal of making the insurance world easier to understand and navigate for our clients. When he’s not at work, you can often find him “banging and clanging” in the gym, or spending time with his family.

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