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Don’t Overlook Your Summary Plan Description (SPD) – 5 Benefits of Your SPD

Contributor: Robin Tholt, Account Executive

March 8th, 2023 | 5 min. read

By Tony Calavitta

5 Benefits of Your SPD

As an employer, you have a seemingly endless list of responsibilities and requirements to keep up with.

With critical obligations ranging from labor law compliance to safety mitigation to documentation and recordkeeping, staying on top of each and every employer demand can become unmanageable.

Here at Combined, we understand how easy it is to unintentionally overlook tasks amidst the effort to accomplish a dozen others. Our team of specialists has provided employers, both large and small, the support needed to make sure no requirement goes unrealized.

In this article, we will highlight a commonly overlooked employer responsibility – creating, maintaining, and distributing an updated Summary Plan Description (SPD). By reading it, you’ll learn the importance of this responsibility and how your SPD can be an asset to you, your employees, and your business.

What is a Summary Plan Description (SPD)?

A Summary Plan Description (SPD) is a written overview of important benefits information designed to inform your employees of what is offered under their benefits plan in an easily understood manner.

The Employee Retirement Income Security Act (ERISA) requires that all employers sponsoring employee benefits plans must produce and provide an SPD to plan participants.

According to the Department of Labor, “the SPD is the primary vehicle for informing participants and beneficiaries about their rights and benefits under the employee benefit plans in which they participate.”

With this in mind, your SPD should guide your employees through the particulars of their benefits plan. It should cover plan details including:

  • General information
  • Administration
  • Eligibility
  • Benefits offered
  • Contribution cost
  • Limitations
  • Amendments
  • Participant rights

To learn more about what an SPD is and how to create one that is both comprehensive and compliant, read our article, What is a Summary Plan Description (SPD)?

Why Summary Plan Descriptions (SPDs) are a commonly overlooked employer responsibility

As a legal requirement for all employers sponsoring an employee benefits plan, why is creating, maintaining, and distributing a comprehensive SPD a frequently overlooked employer responsibility?

1.      Employers confuse SPDs with documentation provided by the insurance carrier

According to the Society for Human Resource Management (SHRM), because insurance carriers provide a master contract for coverage and a summary of benefits, employers often mistake these documents as a means of meeting the ERISA requirement for an SPD.

While these documents do contain some of the information required to be supplied in an SPD, they do not contain all of it.

As such, using them in place of a comprehensive SPD is not an adequate substitution.

2.      Employers mistake SPDs to be the insurance carrier’s responsibility

Another common misconception is that SPDs are the insurance carrier’s responsibility.

However, think of accountability for your SPD in terms of compliance – Who will face violation penalties for noncompliance with ERISA’s SPD requirement?

  1. The insurance carrier
  2. The employer  

The correct answer is the employer. Should a viable SPD not be provided, DOL enforcement penalties will be issued to the employer, not their insurance carrier.

By this logic, it’s clear that employers are responsible for meeting the SPD requirement.

3.      Employers underestimate the importance of SPDs

With an endless list of employer responsibilities, it’s not uncommon for SPDs to fall to the bottom of it.

Employers largely cite a lack of time and a lack of awareness as top reasons for failing to produce and provide a benefits SPD to plan participants.

5 Benefits of your Summary Plan Description (SPD) – Why you shouldn’t overlook this employer responsibility

Despite being a commonly overlooked employer responsibility, your SPD can be an essential resource to your employees and a valuable asset to your business.

Don’t overlook it – Here are 5 benefits of creating, maintaining, and distributing a comprehensive SPD.

1.      Contain employee confusion

Did you know that 49% of employees worldwide do not understand the specifics of their benefits package?

In other words, for employees to make informed decisions about their benefits, nearly half of them will have questions.

Your SPD is an opportunity to answer all of the questions your employees may have about their benefits plan in an accessible and easy-to-understand, written document. It ensures that the answers they need are available, consistent, and able to be referenced if necessary.

By providing an SPD as a resource to your employees, you can prevent employee confusion about benefits offerings while saving yourself extra time spent answering questions on an individual basis.

2.      Improve employee health and wellness

According to a study by MetLife, 84% of employers recognize improving the health of their workforce as a main goal of their benefits plan.

Your SPD can help you do just this – but, how?

I’ll answer this question with a quick anecdote:

Recently, I purchased my grandma a brand-new Apple iPhone, excited to bring her out of the mobile device dark ages. Her previous cell phone experience, however, was limited to that of a T9 flip phone.

Without considering this, I expected that she would immediately set it up and, within no time, we’d be chatting over Facetime about her daily coffee klatch. But the next time I visited her, the new phone was still in the box, waiting to be charged and activated.

Why do you think this is? Because she didn’t know how to use it. And without any instruction, even though it was more expensive, more advanced, and (frankly) more beautiful than her outdated flip phone, the iPhone was useless to her.

Without informing your employees of the reach of their benefits plan and instructing them on how they can use it, the benefits plan you offer – no matter how expensive, expansive, or exceptional – will be just as useless to your employees as the iPhone was to my grandma.

Upon that visit, we finally opened the box and I taught her the iPhone basics. Now, the only challenge she has with her new phone is putting it down.

Your SPD can teach your employees the basics of their benefits like:

  • What is covered under their plan
  • How to use their benefits
  • What using their benefits will cost them
  • The claims process and where to seek help with it

In doing so, your employees will feel more confident about using their benefits. As with the iPhone example, they will be more inclined to use their benefits when they need to whether it be for preventive care, prescriptions, ongoing treatment, etc.

Just by enabling them to effectively use their benefits plan, your SPD can help to improve health and wellness within your workforce.

3.      Demonstrate the value of your employee benefits plan

Remember that 49% of employees worldwide do not understand their benefits package.

As an employer, this means that despite your efforts to create a competitive employee benefits package, nearly half of your workforce does not really know its value.

Having a comprehensive SPD can not only help curb this staggering statistic but can also highlight the value of the benefits package you offer your employees.

With employees being 70% more likely to stay in a job if they are satisfied with their benefits program, using your SPD to explain the perks of your plan can indirectly increase employee engagement and retention.

4.      Prevent you from paying expensive ERISA compliance penalties

Providing an SPD to all plan participants is an ERISA requirement – one that is enforced with expensive penalties.

For example:

  • Should the DOL audit your benefits plan, they will request a copy of your SPD – failure to provide it within 30 days will result in a $184 fine per day after the deadline with a maximum penalty of $1,846 per request.

  • Should a participant submit a written request for a copy of your SPD – failure to provide it within 30 days will result in a $110 fine per day after the deadline with a maximum penalty of $1,100 per request.

You don’t want to pay these penalties – and, by providing your employees with a comprehensive SPD, you won’t have to.

5.      Provide legal protection

In the event of an employee grievance or lawsuit, your SPD can protect your business from facing undue damages.

As a written and distributed document, it can serve as legal evidence that all benefits plan information was clearly communicated with plan participants.

Take the next steps to these Summary Plan Description (SPD) benefits

If you are here, you want to make sure that you fulfill all of your employer responsibilities – even the ones that are often overlooked.

In this article, we explored why producing and providing a comprehensive SPD is one of these frequently forgotten tasks. By reading it, you learned the importance of your SPD and how it can benefit your business.

Here at Combined, our benefits team can help you create a comprehensive and compliant SPD. With years of experience, we are confident that the rewards of creating, maintaining, and distributing your customized company SPD are but a consultation away.

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This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.