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About Summary Plan Descriptions (SPD) and Summary of Material Modifications (SoMM)

Are you considering a reduction in benefits?

  • Exceeding SoMM deadlines are vital surety to avoid employer liability!

  • Use caution to avoid violations of ERISA’s accelerated 60-day SoMM disclosure rules!

  • If in doubt as to whether the potential plan change is a "significant reduction" in benefits, provide notices to individuals for whom there is any reduction in benefit. The rules state that a Section 204(h) notice will generally satisfy the requirement to provide a Summary of Material Modifications (SoMM) regarding a plan amendment; however providing the notice does not necessarily eliminate the need to furnish SoMMs. In other words, the plan administrator may be required to furnish a SoMM to any other participant or beneficiary covered under the plan who was not required to receive a Section 204(h) notice but who ordinarily would receive a SoMM because of changes to the plan.

Frequent SPD’s are critical & key to legal protection

Hughes v. 3M Retiree Medical Plan, 8th Cir. Minnesota Mining and Manufacturing's (3M) "Your Benefits" booklet promised retirees "lifetime" medical benefits. However, former workers still are not legally entitled because the booklet was not a SPD, ruled the federal US Court of Appeals for the Eighth Circuit.

The US Court rejected the arguments made by Edward and Dorothy Hughes that 3M should be held to promises made in the  1991 version of 3M's "Your Benefits" booklet. It referred to "lifetime" medical benefits. The booklet was published every three years &  Hughes claimed it should be considered the legal SPD.

Courts normally consider the SPD as the final word, over other benefit literature. Appeals judges said the "Your Benefits" booklet was not an SPD. The controlling SPD was another retiree booklet about a Medicare  Supplement plan. The Medicare Supplement booklet had no language detailing vesting requirements & warned that 3M might change the plan's provisions, the court said.

3M’s created the "Your Benefits" booklet after they struck a collective bargaining agreement with the Oil, Chemical and Atomic Workers Union Local 6-75.

The lawsuit also alleged that the 3M effort to reduce retiree health coverage was an ERISA violation, the courts rejected this claim thanks to frequent and efficient distribution of employee SPDs.

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Moral of the Story: Distribute detailed, current SPDs to all employees often & live happily ever after!

Frequent SPD’s are STILL critical & key to legal protection - Current Legal action: Plan Administrator was Liable for Damages for Inadequate Delivery of SPD [Leyda v. AlliedSignal, Inc., 2003 U.S. App. LEXIS 3728 (2d Cir. 2003)] For safety: distribute detailed current SPDs to all employees - often

It is imperative to review your SPDs to ensure they contain all of the information now required under DOL Regulation 2520.102-3 and they must be written in plain language that is calculated to be understood by the average plan participant (ERISA 102(a)). Exceeding SOMM deadlines are vital surety to avoid employer liability! Use caution to avoid violations of ERISA’s accelerated 60-day SOMM disclosure rule for group health plans

IRS Finalizes Rules On Notice Of Future Benefit Reductions, rules are effective April 9, 2003

The IRS has issued final regulations on the ERISA mandate that employers notify pension plan participants whenever a plan amendment significantly reduces future benefit accruals. The content of the notice must permit the recipient to determine the “magnitude of reduction.” The final regulations are similar to the proposed rules issued in April 2002; however, the final rules remove Treasury regulation Section 1.411(d)-6. Section 204(h) requires plan administrators to provide notice to participants of a significant reduction in future benefits. Code Section 4980F, added by the Economic Growth and Tax Relief Reconciliation Act of 2001, imposes an excise tax for failure to provide such notice. Overall, the final regulations retain the structure of the proposed regulations, and include some expanded examples of notices. Proposed regulations under Section 411(d)(6) are expected from Treasury and the IRS, which will include general guidance on early retirement benefits and retirement-type subsidies.


29 CFR 2520.104a-1 - Filing with the Secretary of Labor.

Section Number: 2520.104a-1  Section Name: Filing with the Secretary of Labor.

(The information collection requirements contained in subpart E were approved by the Office of Management and Budget under control number 1210-0016)

    (a) General reporting requirements. Part 1 of title I of the Act requires that the administrator of an employee benefit plan subject to the provisions of part 1 file with the Secretary of Labor certain reports and additional documents. Each report filed shall accurately and comprehensively detail the information required. Where a form is prescribed, the reports shall be filed on that form. The Secretary may reject any incomplete filing. Reports and documents shall be filed as specified in this part.

    (b) Exemption for certain welfare plans. See Secs. 2520.104-20, 2520.104-21, 2520.104-22, 2520.104-24, and 2520.104-25.

    (c) Alternative method of compliance for pension plans for certain selected employees. See Sec. 2520.104-23.


  • Section Number: 2520.104a-7  Section Name: Summary of material modification.  The administrator of an employee benefit plan subject to the provisions of part 1 of title I of the Act, and not otherwise exempt from the requirement to file and distribute a summary plan description, shall file a summary description of modifications or changes described in section 102(a)(1) of the Act with the Secretary no later than the date on which the summary description is required to be disclosed to participants and beneficiaries by Sec. 2520.104b-3.

The Department of Labor listed several modifications or changes that would likely constitute a "reduction in covered services or benefits":

  1. Eliminating benefits payable under the plan.

  2. Reducing benefits payable under the plan, including a reduction that occurs as a result of a change in formulas, methodologies or schedules that serves as the basis for making benefit determinations.

  3. Increasing deductibles, co-payments or other amounts to be paid by a participant or beneficiary.

  4. Reducing the service area covered by an HMO.

  5. Establishing new conditions or requirements (e.g., pre-authorization requirements) for obtaining services or benefits under the plan.


More reasons to use caution with SPDs

Employer's Failure to Timely Notify Employees Violated ERISA

  • [Russo v. B&B Catering, Inc., 2002 U.S. Dist. LEXIS 4434 (N.D. III. 2002)] Over a three-year period, the employer in this case provided employee medical coverage through group health policies issued by three different insurers. The first policy was canceled when the employer filed for bankruptcy. The second ended after a few months. The third and last policy was in place for over a year. In the first few months, the employer paid 100% of the premiums. Later, the covered employees paid the premiums through payroll deductions. The employer sent premium payment checks to the insurer. The court held that the employer violated ERISA and rejected the employer's argument that ERISA no longer applied to the policy once it became an employee-pay-all arrangement. The court reasoned that (1) the employer initially established the arrangement (when it paid 100% of the premium), which was enough under the ERISA plan definition (requiring that an employer establish OR maintain a plan); (2) even after the employer stopped paying premiums, its level of administrative responsibility was enough to make ERISA applicable (it was responsible for providing employee claim forms, accepting proof of loss forms and notifying employees of "continuation rights" (presumably under COBRA); and (3) the employer made only one insurance policy available. The court held that the employer was an ERISA fiduciary, at least to the extent that it exercised discretion over the employee premium payroll deductions, which the court recognized as ERISA plan assets. Then the court found that the employer was responsible as plan fiduciary under ERISA Section 104(b)(1) for SMM (ERISA Section 104(b)(1) requires that a summary of material modification (SMM) be provided within 60 days of the adoption of any "material reduction in covered services or benefits" under a group health plan.) regarding ERISA's accelerated 60-day SMM requirement for group health plans. Note that the 60-day SMM requirement of ERISA Section 104(b)(1) applies to the plan administrator (employer). 29 CFR 2520.104a-1 - Filing with the Secretary of Labor.  Section Number: 2520.104a-1  Section Name: Filing with the Secretary of Labor.

Impact of including unaltered model statement of ERISA rights in plan's SPD

  • [Prescott v. Little Six, Inc., 2003 U.S. Dist. LEXIS 17484 (D. Minn. 2003)] This trial court decision because it illustrates the important but unintended consequences that can result from including the DOL's model statement of ERISA rights in a plan's SPD. The case involved claims by individuals regarding various pension and welfare plans maintained by an Indian Tribal Government entity. At issue in this case was whether the entity had waived its tribal sovereign immunity from lawsuits in federal court. In deciding that the tribal entity had waived its immunity, the court relied in part on several plans' SPDs, each of which contained language from the model statement of ERISA rights prescribed by DOL regulations. As part of the statement of rights, the SPDs said that a plan participant "may file suit in a federal court" if a benefit claim wasdenied. Holding that the SPDs were legally operative documents, the court said that the references to filing suit in federal court constituted a valid waiver of the tribal entity's sovereign immunity. DOL regulations indicate that a plan's SPD must contain a statement describing the ERISA rights of participants and beneficiaries. An SPD containing the model language set out in applicable DOL regulations will be deemed to comply with this requirement. As a consequence, most SPDs include the model language almost verbatim. But ERISA plans should be careful to omit information in the model statement of rights that does not apply (e.g., references to pension plans or pension rights in welfare plan SPDs and vice versa; inapplicable references to unions; references to COBRA if a plan is not subject to COBRA). Plans should also rephrase the model statement to fit the circumstances (e.g., a plan that is exempt from filing annual reports on Form 5500 might modify the model statement's language on summary annual reports (SARs) to note that a SAR must be provided only in a year in which the plan has to file an annual report).

Many plan sponsors and administrators rely on “disclaimer” language in their summary plan descriptions (“SPDs”) to guard against any inaccuracies in the SPDs distributed to plan participants and their beneficiaries. Generally, disclaimer language will provide that if there are discrepancies between the terms of a plan’s SPD and the formal plan document, the plan document will control.

Two recent court cases illustrate the importance of providing accurate SPDs to plan participants and their beneficiaries, regardless of whether the SPD includes disclaimer language. In light of these cases, described more fully in this Update, a plan sponsor may wish to review its summary plan descriptions to ensure accuracy and completeness.

  • In Burke v. Kodak Ret. Income Plan, the spouse had been married to a participant in Kodak’s pre-retirement Survivor Income Benefits (“SIB”) Plan for less than one year at the time of the participant’s death and did not qualify for spousal survivor benefits. Prior to their marriage, lived together as domestic partners for a number of years. Although the plan document and employee communications for the SIB Plan explained that the filing of an affidavit of domestic partnership was a condition for the payment of benefits under the SIB Plan, the Plan’s SPD did not include this requirement. The Second Circuit noted that the circuit courts are divided over whether a detrimental reliance standard or a prejudice standard is necessary to recover plan benefits based upon a claim that the plan’s SPD was somehow deficient (i.e., either because the terms of the SPD conflict with the terms of the plan or the SPD omits a provision of the plan). Under a detrimental reliance standard, a plan participant or beneficiary generally must show that he or she read the SPD and that, but for the inaccurate description, would have acted differently and not been harmed. The Second Circuit adopted a prejudice standard for determining whether a court may allow a recovery for benefits under a plan based on an inaccurate SPD. Under this standard, a plan participant or beneficiary initially must show that he or she was likely to have been harmed as a result of a deficient SPD. If this initial showing is made, however, the employer may still prevail through evidence that the deficiency was, in fact, only a harmless error. Based on this case, the Second Circuit held that the surviving spouse was prejudiced as a matter of law and, therefore, entitled to survivor benefits as a domestic partner under the SIB Plan because the SPD did not mention the affidavit requirement. Accordingly, the spouse was entitled to these benefits. 

  • Burstein v. Ret. Account Plan for Employees of Allegheny Health Educ. and Research Fund involved a claim for benefits based upon a conflict between the terms of a plan’s SPD and the terms of the plan document. A pension plan SPD that participant benefits would vest and become nonforfeitable upon plan termination. In contrast, under the terms of the plan document the right to a nonforfeitable benefit was limited to the funded amount of a participant’s benefit at the time of termination, as permitted by statute. The SPD did contain a statement that in the event of a conflict between the terms of the plan document and the SPD, “the plan document always governs.” In Burstein, the Third Circuit Court of Appeals widened the divergence among the circuit courts on this issue by holding that a plan participant who bases a claim for benefits on a conflict between the terms of the plan document and its SPD need not plead either detrimental reliance or prejudice to enforce the terms of the SPD. Rather, the court found that claims for plan benefits essentially are contractual in nature, and that in the event of a conflict between the provisions of the plan and the SPD, the SPD will control. In the court’s opinion, this result is necessary based on the requirement under ERISA that an SPD be accurate and sufficiently comprehensive to reasonably apprise plan participants of their rights and obligations under the plan, and based on the fact that it is the SPD, and not the plan document, that is routinely provided to participants.

These cases challenge plan sponsors who provide summary plan descriptions that are technically accurate, yet readily understandable by the “average plan participant,” as required by ERISA.

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Pros and Cons of electronic distribution of ERISA documents including SPDs

The DOL’s electronic disclosure regulations allow for electronic distribution of a wide range of ERISA-required documents.  The regulations impose certain basic conditions for all electronic disclosures. When these conditions are met, ERISA-required documents may be furnished electronically to employees who have work-related computer access. Additional, more burdensome requirements apply for electronic disclosures to individuals who do not have work-related computer access. This group of individuals includes non-employees (like COBRA qualified beneficiaries and covered spouses) but it also includes employees who do not have work-related computer access. The following paragraphs contain more details about these general rules.

  •  Basic requirements for all electronic disclosures include:

  1. Electronic materials must be prepared and furnished in accordance with otherwise applicable requirements (e.g., timing and format requirements for SPDs).
  2. Each time an electronic document is furnished, a notice (electronic or paper) must be provided to each recipient describing the significance of the document.
  3. A paper version of the electronic document must be available on request.
  4. The plan must use appropriate and necessary means to ensure that the system for furnishing documents results in actual receipt of the transmitted information (e.g., using return-receipt or notice of undelivered e-mail features or conducting periodic reviews or surveys to confirm receipt). 
  5. The plan must take reasonable and appropriate steps to safeguard the confidentiality of personal information related to an individual’s accounts and benefits.
  • When the above conditions are met, ERISA documents may be distributed electronically to employees with work-related computer access only  if:

  1. They have the ability to access documents at any location where they reasonably could be expected to perform employment duties (this can include computer access at a home office); and
  2. Access to the employer’s electronic information system is an integral part of their employment duties BUT for any employee with access to your computers who does not use that system as an integral part of their work (e.g., staff with building maintenance, food service, copying or similar duties) must receive paper copies of ERISA disclosure items.

When both the basic and certain additional conditions are met, ERISA documents may be furnished electronically even to individuals without work-related computer access. The additional conditions include a requirement to obtain affirmative consent for electronic disclosure—and before consent is obtained, a statement must be furnished explaining how the electronic delivery system will work, including the types of documents to be provided, procedures for withdrawing consent and updating information (e.g., updating email addresses), and what hardware and software will be needed. The need to furnish paper copies of the required pre-consent statement and to keep track of a large number of individual consents (and individual electronic delivery addresses) makes electronic disclosure to non-employees (and to employees without work-related computer access) less attractive for many employers. In addition, even some of the basic conditions are more challenging for this group of recipients—for example, your company’s internal security and confidentiality protections will not protect personal information transmitted outside the system to non-employees.

NOTE: There are probably additional unspecified issues to consider. Final regulations permit a wide range of documents to be distributed electronically, including all ERISA Title I disclosures including QDRO and QMCSO notices, COBRA notices, HIPAA certificates of creditable coverage, documents that must be provided to participants and beneficiaries after written request under ERISA Section 104(b), pension plan investment information, individual pension benefit statements, and information about pension plan loans. Even if you decide to try electronic communications for employees and former employees, some types of notices (e.g., COBRA election notices) night not be well suited for electronic transmission.

If you have ALREADY distributed SPDs to the participants in ANY of your ERISA welfare plans BUT later on an employee makes a written request for copies of the SAME SPDs, you should provide the additional copies (and charge him/her copying costs). ERISAs requirement (to provide copies of plan documents) is intended to protect participants who may have lost them; ERISA does NOT protect the sponsor here. So just provide another SPD, the risk is too high & if you don’tyou WILL expose your company to substantial civil penalties.  

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Two independent ERISA rules affect repetitive distribution of plan SPDs:

  1. ERISA Requires Automatic SPDs for Covered Participants. The SPD for an ERISA welfare plan must, as a general matter, be furnished automatically and without charge within 90 days after a plan participant becomes covered by the plan. This rule requires your company to provide SPDs automatically to plan participants (but not beneficiaries) without any request. The term "participant" includes employees or former employees who are eligible or may become eligible for benefits under your plan or whose beneficiaries are eligible. The definition of participant includes individuals who are eligible for one of your plans, even if not actually enrolled--however, automatic SPDs are not required until a participant becomes "covered" by a welfare plan. In the case of a plan requiring enrollment, a participant does not become a "covered participant" until enrolled. (Most employers provide SPDs to ALL eligible employees, regardless of enrollment status, even though it’s not specifically required by ERISA.)

  2. Certain Plan Documents Must Be Provided on Written Request of a Participant or Beneficiary. A plan administrator must provide copies of certain listed documents, including the latest updated SPD, when a plan participant or beneficiary makes a written request. The plan administrator may charge copy costs when providing requested documents. The charge must be reasonable and cannot exceed the lesser of 25 cents per page or the plan's actual cost. No handling or postage costs may be charged. If the requested documents are not provided within 30 days, the participant or beneficiary may sue the plan  administrator for penalties of up to $110 for each day the response is late. 

  • These two SPD distribution rules overlap but are not entirely consistent, as follows.

  1. A participant who is not a "covered participant" may nevertheless make a request for plan documents. A plan beneficiary also has the right to request copies of plan documents. Therefore, more people can request a copy of the SPD than are entitled to receive a copy automatically.

  2. The plan administrator may charge copying costs when providing an SPD in response to a written request but must provide automatic SPDs free of charge.

  3. The time period for providing requested documents--30 days--is shorter than the period for furnishing automatic SPDs--90 days after a participant becomes covered. This sets up the possibility of a request from a participant before the time that he or she would be entitled to an automatic SPD. It is safer to avoid penalties & provide the SPD earlier to a requesting participant.

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