What is Summary Plan Description and Does My Company Need One?

Businesses provide benefits to their employees as highly-valued, competitive offerings used to attract and retain a talented workforce.  As an employer, you’ve spent significant time selecting these health, welfare and retirement benefits. How do you know that you are compliant with the federal ERISA (Employee Retirement Income Security Act) law regulating employer-sponsored group benefits?

Understanding what a summary plan description (SPD) is and the role and requirements of an SPD will help keep you ERISA compliant and provide your enrolled employees with the appropriate benefit plan information. Below we will answer some common questions many have regarding summary plan descriptions.

What is an SPD?

The summary plan description is a document written in such a way that employees of the benefits plan can easily understand what their benefit plan provides and how it operates. It includes information on when an employee can begin to participate in the plan and how to file a claim for benefits. Plan administrators are legally obligated to provide employees with an SPD.

Do all employers need to have SPDs?

Employers of all sizes who offer health, welfare and retirement benefits subject to ERISA must provide employees with an SPD for each plan that is offered. Creation and distribution of the SPD is the responsibility of the employer as the plan administrator, not the insurance broker or carrier.  

What is included in a SPD?

A well-written SPD includes details of what the benefit plan provides, eligibility requirements, the claims and appeal procedures and what is not included in the plan. These documents are written using non-legal terminology so they are easy to read and understand. If a plan is changed, it is important to update the SPD with the appropriate information required by ERISA. SPDs and revised or updated SPDs must be distributed free of charge to your plan participants. 

What is a plan document?

A plan document includes a comprehensive description of the operation and administration of the employer’s plan, containing all required legal language. The plan document is not required to be distributed to plan participants.

What is a summary of benefits coverage?

The summary of benefits coverage (SBC), is a standardized written description of the benefits and coverage in the plan to assist plan participants with the understanding on how their coverage will operate. It summarizes key features of the plan, such as covered benefits, costs and limitations. It must be provided to plan participants every year.   

What are the chances that our business will get audited?

An employer of any size who offers benefit plans subject to ERISA may be audited. The Department of Labor (DOL) has recently added resources and is conducting more audits than ever before to ensure ERISA compliance.    

What is the financial risk if our business gets audited?

Businesses that are audited and cannot provide SPDs or plan documents within the requested 30 day time period face penalties of up to $110 per day per plan participant for each violation.  These costs can add up quickly depending on the time it takes to ensure your SPDs are updated and compliant. 

You’ve worked too hard to build your business and offer benefits to your employees to be derailed by document compliance issues. If you have questions or would like more information regarding SPDs reach out to our team, we are happy to help. You can also check out our easy to navigate compliance guide filled with common workplace requirements by clicking the link below.