What’s the Difference Between a Plan Document and an SPD?
New to administering employee benefit plans? Here’s some important information you’ll need to know.
Under ERISA, an employer that provides certain benefits to its employees, such as medical insurance or other types of coverage mentioned later, is considered to have established an “employee welfare benefit plan.” Providing these 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. However, not all employers are covered by ERISA, such as government entities and churches, which are considered nonprofits.
First, the basics. The Employee Retirement Income Security Act (ERISA) is a federal law from way back in 1974 that governs how employers provide benefit plans to employees. Here is a great primer on ERISA from our partners at Mineral.
Now for that important information we mentioned: ERISA dictates that benefit plans have both a plan document and a Summary Plan Description (SPD). But how do they differ, and what must they include? These are common questions we get from those who are unfamiliar with employee benefits.
Plans that are subject to ERISA (including, but not limited to, group health, life, dental, vision and disability insurance plans, and pension plans) must establish and maintain a written plan document. It describes the plan’s terms and conditions related to the operation and administration of the plan. It spells out, among other things, what benefits are available, who is eligible, how benefits are funded, who is the named fiduciary, how the plan can be amended and the procedures for allocating plan responsibilities.
Again, this plan must be in writing to be considered in compliance with ERISA. The plan document is sometimes included with the SPD all in one document or broken out. The plan document is also known as a “wrap document.”
A group health plan document should contain:
- Name of the plan administrator
- Designation of any named fiduciaries other than the plan administrator
- A description of the benefits provided
- The standard of review for benefit decisions
- Who is eligible to participate (classes of employees, employment waiting period, hours per week)
- The effective date of participation (next day or first of the month following an eligibility waiting period)
- How much the participant must pay toward the cost of coverage
- The plan sponsor’s amendment and termination rights and procedures, and what happens to plan assets upon plan termination
- Rules restricting and regulating the use of personal health information
- Subrogation, coordination of benefits and offset provisions
- Procedures for allocating and designating administrative duties to a third-party administrator (TPA)
- How the plan is funded, whether from employer and/or employee contributions, only if it has assets
- How insurer refunds (dividends, demutualization) are allocated to participants
- For group health plans, information regarding COBRA, HIPAA and other federal mandates such as Women’s Health Cancer Rights Act, pre-existing condition exclusion, special enrollment rules, mental health parity, coverage for adopted children, qualified medical support orders and minimum hospital stays following childbirth
Summary Plan Description
ERISA also requires employee health and retirement benefit plans to have an SPD. The SPD must convey this information in an understandable summary. 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 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
- Statement that the plan administrator may be served with 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
From an employer’s perspective, 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 it?
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 both the plan document and the SPD. Failure to furnish these documents within 30 days after the request may expose the ERISA plan administrator (again, that’s typically the employer) to penalties of up to $110 per day, even if the document was already provided.
Again, 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.
Did you know? We can create SPDs for our clients in Mineral for free. Give us a call if you need some assistance!
And, here’s a helpful resource from Mineral: Summary Plan Description Checklist