What Is a Summary Plan Description?
A Summary Plan Description (SPD) is a document that employers must give free to employees who participate in Employee Retirement Income Security Act-covered retirement plans or health benefit plans. The SPD is a detailed guide to the benefits the program provides and how the plan works. It must describe when employees become eligible to participate in the plan, how benefits are calculated and paid, how to claim benefits, and when benefits become vested.
The SPD should be in plain language that employees can understand. It must include the plan name and its Internal Revenue Service-assigned number, the employer’s name and address, the plan administrator’s name and contact information, a statement of Health Insurance Portability and Accountability Act rights, ERISA disclosures, and guidance on how employees can file a grievance or an appeal.
- Employees must receive a Summary Plan Description (SPD) from their employers.
- The plan describes the program benefits and how the plan works.
- The plan must answer specific questions such as the plan name, the plan's IRS-assigned number, the employer’s name and address, and a statement of health and accountability rights.
Understanding the Summary Plan Description
When you are first hired, you should receive an SPD covering your new employer’s health care and retirement benefits within 90 days. The company may distribute the document to you electronically if you regularly use a computer at work or as a hard copy. If you only receive an electronic copy, you may request a written copy.
A Summary Plan Description Should Answer Your Questions
A plan should include the answers to the following questions:
- Is there a minimum age requirement to participate in the plan?
- Is there a minimum service requirement to participate in the plan? If so, what is it, and how is it calculated?
- When does the plan year begin and end? Does it run from Jan.1 to Dec. 31, or does it have different start and end dates? This information is important for health plans because account holders need to know when your annual deductible resets.
- Do I make contributions to the plan, or do all contributions come from my employer?
- For retirement plans, does the plan allow rollover contributions from other plans? For example, can I roll my 401(k) from my former employer over into this plan?
- For retirement plans, how are employer and employee contributions invested? Are there default investments that the money will go to if I don’t select specific investment options? If so, what are they? How do I change my investment selection?
- When do I become vested in the retirement plan? Am I immediately 100% vested, or do I have to work for the company for a certain number of years to become partially or fully vested?
- Am I allowed to borrow from my retirement account? If so, what are the rules?
- What happens to my benefits if I become disabled? If I leave the company? If I retire? If I die? If I take a leave of absence?
A Summary Plan Description Offers Employers Protection Against Lawsuits
On the business side, employers should ensure that their SPD covers everything it should. With no SPD or an inadequate SPD, employers expose themselves to lawsuits from employees. An SPD that follows ERISA guidelines and clearly lays out exclusions and limitations will protect the company against possible legal action.
The SPD should state what defines an employee who is entitled to various benefits and whether such employees include independent contractors, temporary workers, spouses, domestic partners, and children.
Additionally, if 10% or more of your employees speak a language other than English, you must publish your SPD in those other languages too. Hiring an attorney who understands ERISA law to review the SPD before you distribute it can help ensure the document is complete, thorough, accurate, and complies with state and federal law. It can take months to create an SPD from start to finish. Making sure your employees can understand it easily will reduce complaints, lawsuits, and questions to human resources from confused employees.
Employers may change the benefits they offer periodically. When this happens, the employer must notify all employees in writing by giving them a revised SPD or a summary of material modifications that explains the changes to the SPD. The company must distribute the notification within 60 days of the change becoming effective if it reduces coverage or benefits. If the changes do not reduce coverage or benefits, the notification should be distributed within 210 days after the end of the plan year when the change became effective.