Understanding Summary Plan Descriptions (SPDs): What They Are, Who Needs Them, and Why They Matter

As open enrollment season kicks off, many organizations focus on ensuring employees understand their health, retirement, and welfare benefits. However, one crucial element often overlooked during this time is the Summary Plan Description (SPD). While benefits like health insurance and retirement plans take center stage, SPDs are the cornerstone of compliance and transparency. They provide employees with essential details about how their plans work, their rights, and how to navigate claims and appeals. Ensuring your team has access to accurate and up-to-date SPDs is just as important as offering comprehensive benefits—both for compliance and employee understanding. However, it’s often misunderstood and sometimes confused with documents like the Summary of Benefits and Coverage (SBC).

So, let's break down what an SPD is, why it's important, and what could happen if your company doesn’t have one.

What Is a Summary Plan Description (SPD)?

An SPD is the primary compliance document required under the Employee Retirement Income Security Act (ERISA) that provides participants with essential information about their benefit plan. It explains the plan's key features, including eligibility, benefits, claims procedures, appeal processes, and the rights and obligations of both the employer and employees.

Unlike a summary provided by an insurance carrier, which may only outline basic benefits, an SPD is designed to meet ERISA’s requirements and must provide participants with a complete understanding of their rights under the plan. It must be written for the average participant, free of legal jargon, and reflect the plan's most current terms. Outdated information—anything more than 120 days old—cannot be included. The SPD also needs to be updated whenever there are material changes to the plan.

Who Needs an SPD?

If your company offers any ERISA-covered benefits—such as health, retirement, disability, or other welfare plans—you must provide an SPD. This requirement applies to most private-sector employers, including small businesses, nonprofits, and partnerships.

The SPD must be provided within 90 days of an employee becoming eligible for the plan or within 120 days of a newly established plan. If there are material changes to the plan, an updated SPD must be provided every five years. If no changes occur, the SPD must be redistributed at least once every ten years.

What’s the Difference Between an SPD and an SBC?

The Summary of Benefits and Coverage (SBC), often provided by the insurance company, focuses on health plan coverage details such as co-pays, deductibles, and out-of-pocket limits. While SBCs help outline what is covered, they do not meet the requirements for SPDs under ERISA.

An SPD provides much more comprehensive information, including details about the plan’s governance, the rights of participants, and what they can do if a claim is denied. Employers cannot rely on SBCs to fulfill their ERISA obligations. For example:

• An SPD includes detailed information about plan sponsors, administrators, and participants’ rights under ERISA.
• An SBC covers only the plan’s basic health coverage features.

In short, while SBCs help employees understand what is covered by their plan, SPDs provide a complete picture of how the plan operates, the participants' rights, and how disputes should be handled.

What Information Must an SPD Cover?

An SPD must include specific information about the plan and its operation to ensure participants are well-informed about their benefits and rights. The key elements that must be included are:

• Plan name and type (pension, welfare, health, etc.)
• Employer and plan administrator information: Name, address, and employer identification number (EIN).
• Eligibility requirements for participation in the plan.
• Description of plan benefits: Details on the types of benefits provided.
• Funding sources: Whether the employer, employee contributions, or both fund the plan.
• Plan year: The calendar or fiscal year on which the plan operates.
• Claims and appeal procedures: Instructions on how participants can file a claim and the steps for appealing a denied claim.
• Amendment and termination rules: Circumstances under which the plan can be changed or terminated.
• ERISA rights: Information on participants' rights under ERISA, including requesting documents or filing a lawsuit for benefits.
• QDRO and COBRA details: Information about Qualified Domestic Relations Orders (QDROs) and continuation coverage under COBRA.
• Source of plan contributions: Where contributions come from (employer, employees, or other sources).
• Plan's legal structure: Whether the plan is insured, self-insured, or held in a trust.

What Are the Penalties for Not Having an SPD?

Failing to provide a compliant SPD can result in significant penalties. If a participant requests an SPD and the employer does not provide it within 30 days, the company could be fined up to $110 per day per request. In addition, the Department of Labor (DOL) may impose further penalties if the company is found non-compliant with ERISA’s requirements.

A lack of a compliant SPD can leave a company vulnerable to disputes. If employees or their beneficiaries contest plan benefits or the terms of coverage, and no SPD is available, the company could face difficulties defending itself in court, resulting in higher costs and greater exposure to risk.

Why You Need to Get This Right

Managing employee benefit documentation, especially SPDs, is not just a compliance issue—it’s a communication issue. Employees have the right to clear information about their benefits and rights, and providing them with a proper SPD helps fulfill that responsibility.

If your company still relies on insurance documents like the SBC to meet your obligations, it's time to rethink your strategy. Preparing and distributing compliant SPDs will protect your organization from regulatory risks and ensure that your employees have all the information they need to make informed decisions about their benefits.

To ensure compliance, it's often beneficial to partner with a professional human resources consultant, like those at HR One , who can help you draft and review these documents for accuracy and completeness.

This article was generated by Chat-GPT with prompts and edits by Paul Banuski.