With only a few exceptions, it has been the law for more than 30 years that the plan administrators for all employee pension plans and employee welfare plans that are subject to ERISA are required to issue and periodically update SPDs for those plans. This is not news, but worth mentioning especially now that many plan sponsors have updated plans for recent law changes.

A failure to pay close attention to these requirements can have serious adverse consequences. 

  • Courts tend to give great weight to SPDs and SMMs in benefit claim matters. A failure to have a current, updated, and accurate SPD may lead to a outcome that is inconsistent with the terms of the plan documents. At the very least, it may lead to a long and expensive argument about whether the SPD should trump the plan document or whether the plan’s decision to deny a claim should be given deference in court. The prospect of this lengthy and expensive argument may give a claimant leverage in resolving a claim that, on the merits, ought to be denied. For many welfare plans the SPD is often the plan document, so it is especially important to keep it up-to-date.
  • In some circumstances, participants may claim entitlement to significant per diem penalties from the plan administrator who is unable to deliver a current SPD if one is requested by a participant or beneficiary.
  • Other ERISA penalties, such as breach of fiduciary duty, could conceivably attach if the SPD is not updated, or an SMM issued, as required by ERISA.

What are the core requirements? Each plan must have and must issue an SPD within 120 days after that plan becomes subject to ERISA. For most plans, of course, this requirement attached years or even decades ago.

If there have been material changes to the plan, an SMM (or an updated SPD) must be issued not later than 210 days (roughly 7 months) after the end of the plan year in which the material change was adopted. For calendar year plans that made any changes during 2008 requiring an SMM or an updated SPD, the deadline is in July 2009. For group health plans, a shorter timeframe applies if there has been a material reduction in covered services or benefits. When that occurs, the SMM or updated SPD must be issued within 60 days of the adoption of that material reduction.

If there have been material changes to the plan, an updated SPD must be issued at least every five years. If there have been no material changes to the plan, an updated SPD must be issued at least every ten years. It is hard to imagine any plan not being materially changed for ten or even for five years.

Each time a plan is amended or modified whether as a result of a law change or a design change, the plan administrator and its staff should ask again whether an SMM or an updated SPD is in order and if it is, make sure that it is properly issued.

We have observed a few situations where there seems to be some tendency to overlook the need or desirability to issue an SMM or an updated SPD. 

When “just” legally required changes are made to the plan there is a tendency to not reflect them in the SPD.

  • Contact information for trustees, employer, third party administrators, record keepers and others changes but the new information is not reflected in the SPD.
  • The information about which persons (e.g., plan administrator, committee, TPA, employer, trustee, insurer) have what responsibilities is not as clear as it ought to be. 
  • The claims adjudication process changes but the SPD continues to describe an old, out of date, process. 
  • Plans are merged under terms where the old contribution, accrual, distribution, etc. rules are still relevant but the SPD ignores these old rules. 
  • Important, perhaps critical, administrative decisions interpreting plan provisions as to issues that have some tendency to recur are made but are not described in the SPD. 
  • The circumstances around the plan change materially in ways that make certain plan features far more important than they once were but those now important features are not sufficiently described. For example, detailed information about what will happen under the plan in the event of a plant closure may not have merited lengthy description years ago but has now become important enough to warrant a more robust discussion. 
  • An insurance provider supplies non-ERISA compliant certificates of coverage and the employer does not distribute an ERISA compliant SPD or supplement.

To assure compliance with the SPD and SMM requirement, plan administrators should routinely and regularly ask:

  • When was the plan’s last SPD or SMM issued?
  • Have there been changes to the plan since the last SPD or SMM was issued? 
  • Have there been changes in the administration of the plan (e.g. a new trustee, new employer address, etc.)? 
  • Does the SPD accurately reflect the plan document and any internal policies?