The plan administrator/employer is responsible for preparing the SPD and affirmatively delivering it to certain persons, e.g.:
- covered employees
- terminated COBRA participants
- parents or guardians of children covered under a qualified medical support order
- dependents of a deceased retiree under a retiree medical plan
Note—It is not the insurance company’s responsibility to prepare or deliver the SPD.
Unless requested, an SPD does not need to be provided separately to dependents of a covered employee or to employees who are not covered, although it is a good idea to do so.
An SPD should be delivered to participants within 90 days after they become covered, whether they request it or not. Plan administrators of a new plan must distribute an SPD within 120 days after the plan is established. An updated SPD must be furnished to all covered participants every 5 years, and every 10 years even if the SPD has not changed.
Determining whether or not an SPD was furnished to a participant or beneficiary is an important issue in litigation. An employer should be prepared to prove that it furnished one in a way “reasonably calculated to ensure actual receipt,” using a method “likely to result in full distribution.” Acceptable methods of delivery include: first-class mail, hand-delivery, and electronic distribution, if the employees have access to computers in the workplace and can print a copy easily. DOL regulations are quite clear that merely placing copies of the SPD in a break room or posting it on an employer’s website or intranet does not necessarily satisfy this requirement because it was not affirmatively delivered to the participant.
SPD ELECTRONIC DISTRIBUTION REQUIREMENTS
Requirements for employees with work-related computer access—Definition of work-related computer access: Employees have the ability to access documents at any location where they reasonably could be expected to perform employment duties. In addition, access to the employer’s electronic information system must be an integral part of their employment duties.
- Electronic materials must be prepared and delivered in accordance with otherwise applicable requirements (e.g., timing and format requirements for SPDs as outlined under ERISA.)
- A notice must be provided to each recipient, at the time that the electronic document is furnished, detailing the significance of the document.
- The notice must advise the participant of their rights to have the opportunity, at their work site, to access documents furnished electronically and to request and receive (free of charge) paper copies of any documents received electronically.
- The employer must take appropriate measures to ensure the electronic distribution will result in actual receipt of information by the participants (i.e. return-receipt.)
- If the disclosure includes personal information relating to an individual’s accounts and benefits, the plan must take reasonable and appropriate steps to safeguard the confidentiality of the information.
Additional requirements for non-employees or employees with non-work related computer access—
- Affirmative consent for electronic distribution must be obtained from the individual. Before consent can be obtained, a pre-consent statement must be furnished that explains:
- The types of documents that will be provided electronically;
- The individual’s right to withdraw consent at any time without charge;
- The procedures for withdrawing consent and updating information (e.g. updating the address for receiving electronic disclosure);
- The right to request a paper version and its cost (if any); and
- The hardware and software requirements needed to access the electronic document.
- The regulations permit the pre-consent statement to be provided electronically if the employer has a current and reliable e-mail address.
- If system hardware or software requirements change, a revised statement must be provided and renewed consent from each individual must be obtained.
- If the documents are to be provided via the Internet, the affirmative consent must be given in a manner that reasonably demonstrates the individual’s ability to access the information in electronic form, and the individual must have provided an address for the receipt of electronically distributed documents.
- The employer must keep track of individual electronic delivery addresses, individual consents and the actual receipt of e-mailed documents by recipients.
- Steps 1, 2, 4 and 5 outlined above under requirements for employees with work-related computer access must also be followed.
ERISA Pros Electronic Document Delivery Package – Employers wishing to deliver their SPDs (as well as Summary Annual Reports (SARs) and Summaries of Material Modifications (SMMs) electronically should consider using ERISA Pros’ proprietary Electronic Document Delivery Package. We provide a set of instructions, a checklist, fillable forms and emails, and a spreadsheet to monitor and document compliance.
There are very few exceptions to the SPD requirement. One is that an SPD is not required for an employer-provided day care center. Another is that a plan covering a select group of management or highly compensated employees (e.g., a Top-Hat Plan) is exempt from this requirement. With few exceptions, an SPD is required regardless of how many participants are covered; there is no small plan (less than 100 participants) exception, like there is with Form 5500s.
What happens if the employer/plan sponsor doesn’t have an SPD or plan document? If a participant, beneficiary or the DOL makes a written request for a copy of either document, it must be furnished within 30 days; otherwise the employer/sponsor can face a DOL penalty of up to $110/day in the case of a participant request or $156/day (capped at $1,566 per request) in the case of a DOL request.
A poorly drafted SPD, which provides greater benefits or fails to disclose exclusions in the underlying Certificate of Coverage, may result in additional liability for the plan sponsor/employer. A participant or beneficiary can sue his employer/plan sponsor/plan administrator to enforce his or her plan rights. Where an SPD has not been provided as required by law, or is inadequate or contradictory to the Certificate of Coverage, courts tend to favor the participant or beneficiary, resulting in liability for benefits never intended by the employer. Also, if the employer completely fails to produce an SPD, and a participant can show a loss of benefits resulting from not having received an SPD (e.g., he was not aware of the need to pre-authorize a hospital stay or surgical procedure), a court may find in favor of the employee, again resulting in an unexpected expense to the employer. With medical treatment often costing significant dollars, having liability without insurance coverage can be devastating to an employer. Participants and beneficiaries are entitled to relatively wide-ranging discovery regarding their claims, and the DOL has broad powers to subpoena records in the course of an audit or investigation.