Management Skills

Its Wednesday afternoon and an employee calls your office asking to see a copy of her SPD for her medical plan. Do you know what she is talking about? And if so, when was the last time you checked if it was up to date and matched your plan document?

Under the Employee Retirement Security Act (ERISA), all employers of covered employee benefit plans are required to distribute and maintain Summary Plan Descriptions (SPDs) to its participants. The SPD outlines the eligibility, schedule of benefits and items that are covered or excluded by the benefit plan that is offered by an employer.

Distribution Requirements

A participant covered by an ERISA plan must receive an SPD. A Participant refers to any employee or former employee still covered by the plan. Below are distribution requirements:

� The plan must have and distribute an SPD within 120 days after the plan becomes subject to ERISA;

� New participants under an existing plan must receive the SPD within 90 days after coverage begins. Plan sponsors however should distribute the SPD as soon as possible, because many of the ERISA requirements do not become effective until the participant is notified. Therefore, claim review and appeals procedures will not be enforceable until then;

� If there is a material change to the plan, a Summary of Material Modification (SMM) or an updated SPD must be issued no later than 210 days after the end of the plan year in which the material change was adopted. However, for group health plans, a shorter timeframe of 60 days applies if there has been a material reduction in covered services or benefits;

� An updated SPD must be issued at least every five years if there has been a material change to the plan. If there hasnt been a material change to the plan, an updated SPD must be issued at least every ten years.

Penalties for Not Distributing an SPD

ERISA does not have any specific penalties for failing to provide the SPD or SMM to a participant or beneficiary. However, there is a penalty if a participant or beneficiary makes a written request for an SPD and the plan sponsor fails to provide it. Whenever a participant requests an SPD, the plan sponsor must provide the document within 30 days. If the plan sponsor fails to provide it during this timeframe, the DOL can access a penalty up to $110 a day.

Failure to provide the SPD can have other consequences:

� Plan participants can sue the plan sponsor for failure to enforce the requirement;

� Failure to issue an SMM for any plan amendment may invalidate the amendment;

� Courts also tend to give a great weight to SPD and SMMs. A failure to have a current, updated and accurate SPD may lead to a court ruling that is inconsistent with the terms of the plan documents. Also, for many welfare plans the SPD is often the plan document, so it is very important to make sure that this document is kept up-to-date;

� Other ERISA penalties, such as a breach of fiduciary duty and criminal penalties can occur if an SPD is not updated or an SMM is not attached.

Concluding Thoughts

Plan administrators should frequently monitor their SPD and SMM requirements to assure compliance. Preventive measures can protect the employer and the plan from serious adverse consequences.

The author, Reem Janho, is the Founder and President of Compliance Strategies Group, Inc. and has been consulting on employee benefit plans for over ten years. Through public seminars and private consulting, she helps plan sponsors with their employee benefit plan compliance issues and also with their Form 5500 preparation. For more information, visit http://www.compliancestrategiesgroup.com