Sum­ma­ry plan descrip­tions (SPDs) are required for all retire­ment, health, and wel­fare plans sub­ject to the Employ­ee Retire­ment Income Secu­ri­ty Act of 1974 (ERISA). How­ev­er, mis­con­cep­tions about this require­ment are wide­spread. ERISA attor­ney Sta­cy H. Bar­row, part­ner with Marathas Bar­row Weath­er­head Lent LLP, had a chat with ThinkHR about the impor­tance of hav­ing prop­er ERISA doc­u­men­ta­tion and the con­se­quences of fail­ing to do so.

THR: What types of employ­ers need to have an SPD? 

SHB: We tell all employ­ers — of any size — who offer plans sub­ject to ERISA that they need to have an SPD. This is the first item in every Depart­ment of Labor (DOL) audit. If you don’t have one and you get audit­ed or a par­tic­i­pant asks for plan doc­u­ments, you will be scram­bling to put doc­u­ments togeth­er and you can’t do them fast enough to avoid an issue. In addi­tion, cafe­te­ria plans can only be adopt­ed prospec­tive­ly, so if you don’t have a writ­ten cafe­te­ria plan in place, you may be jeop­ar­diz­ing the tax qual­i­fied sta­tus of your plan.

THR: Won’t my bro­ker or car­ri­er take care of these documents?

SHB: Employ­ers may think that bro­kers or car­ri­ers take care of all required ben­e­fits doc­u­men­ta­tion, but at the end of the day, it’s the employ­er who is respon­si­ble for com­ply­ing with ERISA’s SPD require­ment. Your bro­ker may help you, but they might not be aware of every ben­e­fit you offer or your eli­gi­bil­i­ty guide­lines. The carrier’s doc­u­men­ta­tion often is miss­ing some of the required lan­guage, which is why you use a wrap. You don’t specif­i­cal­ly have to use a wrap to devel­op your SPD, but the car­ri­er doc­u­ment won’t get you there and an wrap is often the best way to com­ply. If the plan doc­u­ments aren’t com­pli­ant, that’s not the carrier’s or broker’s respon­si­bil­i­ty, it’s the employer’s.

THR: Do I real­ly need to be con­cerned about a DOL audit?

SHB: Employ­ers can get com­pla­cent about doc­u­men­ta­tion, think­ing that only large employ­ers get audit­ed, or it won’t hap­pen to them. It’s not only the large cor­po­ra­tions that get audit­ed. It can hap­pen to employ­ers of any size or type. It’s impor­tant to make sure you have good ben­e­fits doc­u­men­ta­tion, because if you don’t, and you do get audit­ed, it might cause the DOL to dig deep­er and look for oth­er prob­lems, such as look­ing into your 401(k) plan.

Plan doc­u­men­ta­tion is a huge part of every DOL audit. I can’t stress strong­ly enough that they will want to see the sum­ma­ry plan descrip­tion and plan doc­u­ments. If you can get good, com­pli­ant doc­u­ments to the DOL, it increas­es the chances of a speedy res­o­lu­tion. If you can pro­vide them quick­ly, it sends a mes­sage that you are ready and in compliance.

THR: What are the con­se­quences of being out of compliance?

SHB: Not hav­ing the prop­er doc­u­ments may be an issue if you get audit­ed or there is lit­i­ga­tion over a denied claim. You need to be pre­pared for this pos­si­bil­i­ty. If the DOL audits and impos­es penal­ties, it may not be because the employ­er didn’t have a wrap doc­u­ment, but rather because the doc­u­ment wasn’t updat­ed, wasn’t com­pli­ant, or wasn’t dis­trib­uted to employ­ees. And the DOL may impose penal­ties of up to $152 per day for fail­ure to pro­vide an SPD upon request. Also, fail­ure to inform par­tic­i­pants of plan changes may inval­i­date those changes.

By Rachel Sobel

Orig­i­nal­ly pub­lished by