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SPDs and Retirement Plans and Participants

Fiduciary Rules and Practices

Summary plan descriptions (SPDs) are not optional — at least not for plans to which ERISA applies. And that includes retirement plans. A recent blog entry discusses SPD requirements and how they relate to retirement plans, participants and beneficiaries.

In “Summary Plan Descriptions: You Gotta Have Them, So Make the Most of Them,” a post on Foley & Lardner LLP’s Law & Employment Law Perspectives blog, partner Belinda Morgan discusses how the SPD rules apply to retirement plans and what they offer.

The Department of Labor (DOL) calls the SPD “One of the most important documents participants are entitled to receive automatically when becoming a participant of an ERISA-covered retirement or health benefit plan or a beneficiary receiving benefits under such a plan,” notes Morgan. The DOL attributes this importance to their function as a source of information for participants on what the plan provides, how it operates, when an employee can begin to participate and how to file a claim for benefits. ERISA mandates how plan administrators are to present the plan rules, financial information and documents concerning how a plan operates and is managed, as well as when they are to provide the SPD.

In addition to the DOL specifications concerning the SPD, Morgan discusses current practices concerning SPDs. Two are particularly relevant to retirement plans: readability and alternative methods of distribution.

Readability. SPDs are supposed to be easily understood, but, says Morgan, “as plans become more complex, this requirement has become increasingly difficult to satisfy” and cites a University of Nebraska study that found that among the SPDs its researchers examined, the readability index was “too high for most participants.”

Morgan suggests that to gauge how readable their SPDs are, employers reread their SPDs from the perspective of a participant and consider whether:

  • the answers to common participant questions are easy to find;
  • the answers are understandable to average participants;
  • whether the SPD would be more readable if legal and technical jargon were removed, examples and/or a glossary were added, and formatting was revamped; and
  • the SPD should inform non-English speaking employees who are eligible to participate in the plan that they can request a copy in their own language.

The risk of poor readability, writes Morgan, is that poor comprehension of information in SPDs may result in participants making “unsound, and potentially costly, benefits decisions.” Conversely, she argues, “The more readable the SPD, the better participants will understand the plan’s terms. Better-informed participants make better plan-related decisions,” in addition to reducing the number of complaints and problems an employer will need to address. 

Alternative methods of distribution. Morgan notes that to ease plan administrators’ burdens, ERISA provides that if a plan administrator furnishes vested employees, retirees and beneficiaries with the plan’s current SPD and applicable summary of material modifications (SMM) on or after the date that they (1) left employment there, (2) retired or (3) began to receive benefits, the plan administrator is not obliged to provide them with updated SPDs.

Instead, they can use alternative methods, including distribution of a statement that the participant’s rights were described in the last SPD provided and in any later-provided SMMs, as well as a statement that the participant can request a copy of the SPD and SMMs, and also the updated SPD.

“SPD compliance can consume a big part of an HR/benefits professional’s time,” says Morgan, and she suggests that plan administrators take advantage of all available options for reducing that burden and for furthering benefits administration and talent management goals.

All comments
David Kupstas
5 years 4 days ago
Many SPDs miss the mark on being written in plain English. It's my understanding that in some cases, the participant is entitled to whatever the SPD says, even if it's in conflict with the plan document. Thus, SPDs are forced to use the same kind of precise language and jargon that plan documents do, which defeats the purpose of the SPD.