How to draft your first summary plan description (SPD)

If you're setting up a health reimbursement arrangement (HRA) or other employee benefits for your organization, you must draft a series of plan documents. These documents are some of the first requirements laid out by the Employee Retirement Income Security Act (ERISA) for plan administrators. One of these required documents is the summary plan description (SPD).

This article will cover what an SPD is, what it should include, when to distribute it, and a hassle-free way to create your plan documents.

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What is a summary plan description (SPD)?

An SPD is a summary of your benefit plan that outlines the benefit’s details and requirements. It's the primary vehicle for communicating health plan rights and obligations to the plan participants.

Unlike your other legal plan documents, an SPD is only for your employees. You should write it in plain language that's easy to understand by the average plan participant.

For this reason, it's also a good idea to have it available in non-English languages. If more than 10% of your employees don't speak English, legally, you must provide the SPD in other languages.

What type of plan requires a summary plan description?

The following plans require an SPD:

• Group health insurance plans
• Life insurance
• Dental insurance plans
• Vision insurance plans
• Disability insurance plans
• Retirement plans
• HRAs
• Flexible spending accounts (FSAs)
• Some Internal Revenue Service-approved fringe benefit plans with employer contributions

SPDs are an essential requirement for all employer-sponsored health benefit plans, including qualified small employer HRAs (QSEHRAs), individual coverage HRAs (ICHRAs), and group coverage HRAs (GCHRAs), also known as integrated HRAs.

If an HRA exists without a written SPD, it's out of compliance. The Department of Labor (DOL) may fine you up to $110 per day if you don't provide one within 30 days after an individual's request.

However, less formal health benefits, such as taxable health stipends, don't require these kinds of legal documents. A health stipend isn't a substitute for an HRA or insurance for applicable large employers (ALEs), but it can be a highly flexible alternative for small businesses.

What should a summary plan description include?

ERISA § 2520.102-3¹ outlines the required contents of your SPD. It should generally inform participants of the plan's benefits, rights, and obligations.

The SPD provides information on:

• Detailed description of plan benefits
• When an employee can participate in the plan
• How you calculate the services and benefits
• Who can contribute to the plan
• When benefits become vested
• When and in what form you pay out benefits
• How to file a claim for benefits
• What features the benefits include
• Rights for plan participants

An SPD also helps protect employers from legal action, so an attorney should always review it.

What do I do with a summary plan description after it's finished?

Once you've written your SPD, you're required to distribute it to all eligible employees so they can read it and understand the benefit.

For first-time HRAs, you must deliver the SPD within 120 days of establishing the plan. For newly eligible participants in an existing HRA, you need to deliver the SPD within 90 days of their first date of coverage under the plan.

Acceptable delivery methods for SPDs include USPS First-Class Mail, hand delivery at your worksites, and electronic delivery with notice. According to ERISA § 2520.104b-1², if you send your SPD electronically, you must have a system in place that notifies you when an employee receives their documents. The electronic documents must be in the same style and format for all employees.

According to U.S. Department of Labor regulations, placing copies of SPDs in break rooms or sharing them through an employee portal don't count as acceptable methods of delivery.

What if I want to change the benefit after I've sent the SPD?

If you realize after you've distributed your SPD that you need to make changes, don't panic! There's a simple procedure in place if you need to update your SPD during the plan year.

The plan administrator must inform your eligible employees of the changes by sending out a revised SPD or by writing and distributing a separate document called a summary of material modifications (SMM) that details the changes.

However you go about it, you must provide the new information about any significant changes within 60 days. A change is “significant” if it reduces your employees' coverage or benefits. If the changes don't affect your employees' coverage, you can distribute the notification within 210 days after the end of the plan year when the change became effective.

What is the difference between a summary plan description and a plan document?

The SPD is a summary of the plan document you must provide to your employees free of charge. It details the plan benefits and features in a way that's easy to understand.

A plan document explains what benefits participants are entitled to. The plan administrator uses the plan documents to make decisions around plan operations. This is often more detailed, and you aren’t required to distribute it to employees.

Does traditional group health insurance provide a plan document or SPD?

Your insurance company typically doesn't provide the ERISA-compliant plan document or SPD. This is the responsibility of the plan administrator. However, insurance companies often provide other information and comments that can help you create an SPD.

Is a summary plan description the same as a summary of benefits and coverage?

An SPD and a summary of benefits and coverage (SBC) aren't the same.

An SBC is required for many health insurance coverage plans. The Affordable Care Act (ACA) generally requires plans to provide an SBC that describes the benefits and coverage under your plan. Plan sponsors must provide an SBC to participants upon request, at renewal, and during special enrollment to help them select health benefits plans.

In contrast, ERISA requires an SPD for health benefits, retirement benefits, and other types of plans. It details the benefits and plan features for the plan offered to your employees.

How can I get help with my plan documents?

Drafting an SPD can take employers months to finish—especially for small to midsize employers that don't have an entire HR team to help with these kinds of responsibilities.

Using benefits administration software like PeopleKeep can help ensure compliance with the law when offering HRAs. We handle the most time-consuming tasks, like preparing and updating legal documents, reviewing reimbursements, and sending the plan administrator a weekly email report with any reimbursements they need to approve.

What's more, you and your employees will have access to our award-winning customer support team every step of the way. So whether you have questions about legal plan documents, administering your benefits, or reimbursing your employees, we're here to help.

Conclusion

Setting up your first ERISA-compliant benefit and drafting all of the required plan documents can seem intimidating, but with the right tools and support by your side, it can be a breeze. By following the guidelines in this article, you'll be ready to take on your SPD so your employees can fully appreciate and utilize your benefit plan to its fullest.

If you're ready to offer an HRA or employee stipends to your workforce, PeopleKeep can help! Our personalized benefits administration software makes it easy to set up and manage your benefits in just minutes each month.

Schedule a call with a personalized benefits advisor today to discuss how personalized benefits can work with your organization!

This blog article was originally published on January 24, 2014. It was last updated on July 25, 2022.

1. https://www.law.cornell.edu/cfr/text/29/2520.102-3

2. https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-F/section-2520.104b-1