No yawning allowed: plan documents & SPDs are riveting…and required

While an article on plan documents and Summary Plan Descriptions is exhilarating to us, we realize it may not be bedside reading for you. However, for your clients with certain alphabet soup programs, it’s important to understand the requirements around plan documents and their supporting counterparts to prevent potential penalties. So, grab a cup of coffee and we’ll keep this as exciting as we can.

What programs require plan documents?

An employer is not required to offer group employee benefits. But once an employer provides benefits that are subject to ERISA (Employee Retirement Income Security Act of 1974), the benefits must be described in a written document. A common misnomer is that ERISA covers only retirement plans, when in reality, it also imposes many obligations on non-pension welfare benefits – including alphabet soup programs. For purposes of keeping you awake, however, we’re only going to talk about the requirements of programs we administer at SBA.

If a company offers one of the following programs, they are required to have a plan document: 

  • Premium Only Plans (POP) (yes, a POP requires a plan document),
  • Flexible Spending Account plans (FSA),
  • Health Reimbursement Arrangements (HRA), and
  • Qualified Small Employer Health Reimbursement Arrangements (QSEHRA). 

Plan documents must be available and Summary Plan Descriptions must be furnished to employees within 90 days of the start of a new plan.

A compliant plan document should answer questions like:

  • Who is the employer and who is the Fiduciary?
  • Who is eligible and who is not eligible to participate in the plan?
  • What happens when a participant terminates employment?
  • Can a participant change their election?
  • How are the benefits funded?
  • What are the third-party administrator’s responsibilities?
  • Amendment or Termination of Plan rights and how it would work?
  • Who is a legal dependent? 
  • What is an eligible expense?
  • When can I enroll and terminate from the plan?
  • How do I get reimbursed from the plan?
  • How often can I be reimbursed from the plan?
  • If I have a dispute with the plan, how to I file a claim?
  • What if I don’t use all the money I contributed to the plan?
  • Where does my forfeited money go?

What other documents are required?

In addition to the plan document, two supporting documents are also required:

  1. An Adoption Agreement is a supplement to the Plan Document. SBA’s plan documents are standardized so the Adoption Agreement supplies all the unique details specific to the employer that will be different from another employer such as legal name, address, federal ID number, plan year, eligibility requirements and what sort of benefits are offered through the plan (e.g. for a FSA it might be medical insurance, dental insurance, vision insurance, a Health FSA and Dependent Care Account plan). The Adoption Agreement will describe any extended grace or run-out provisions of the plan, if a debit card is offered by the plan, what the benefit minimums and maximums are, if the group is a COBRA eligible employer or not and who administers COBRA for this benefit, employer and third-party administrator contacts and generally a signature line for an officer accepting liability for adoption of the plan.
  2. A Summary Plan Description (SPD) is required to communicate plan benefits, rights and obligations to participants and beneficiaries in language that is easy-to-read for the average person (trying to avoid “insurance-ese”). The SPD is probably the most important document required by ERISA – even more important than the plan document. The employer is required to furnish an SPD to each participant. 

Who is responsible for drafting and maintaining plan documents?

This week a broker told me that a third-party administrator informed her it was the broker’s responsibility to provide the client with Plan Documents and SPDs. That was a new one. Here’s the rule. The Administrator of the plan, which is always the employer, is required to furnish these documents.

Who actually drafts and maintains those documents is not covered in the law. That said, I’ve never heard of a third-party administrator who did not have access to plan documents prepared by legal counsel to ensure they met every requirement of ERISA law. After all, it seems the Administrator/Employer would benefit greatly by using plan documents with that type of scrutiny. For the record, we use plan documents and Summary Plan Descriptions carefully crafted and continually updated by Alston & Bird, LLP in Atlanta, GA.

What about COBRA?

While COBRA itself does not require its own plan document, COBRA is mentioned in every plan document and SPD – at least that we offer. When a COBRA participant is mailed a COBRA notice due to a qualifying event, the notice itself explains to the participant how COBRA works – so there is no need for a separate document. However, once on COBRA, the qualified beneficiary is entitled to receive an SPD for every COBRA eligible benefit he or she is eligible for or enrolled in to allow that participant to make educated COBRA decisions. Remember, COBRA participants are to be treated just like an active employee in every respect for the length of the COBRA eligibility (18, 29 or 36 months). So, at open enrollment, when a new benefit is offered, an SPD or the abbreviated Summary of Benefits and Coverage (SBC) must be furnished which describes the benefit to all qualified beneficiaries – including COBRA participants.

C’mon, do POPs really have to have a plan document?

I am regularly asked why an employer must have plan documents and an SPD for participants in a Premium Only Plan. After all, the only thing a POP does is allow for insurance premiums to be paid on a pre-tax basis, right? Blame ERISA. A POP is covered under ERISA and under ERISA law, failure to have these documents will incur fines and penalties by the Department of Labor. So, it doesn’t matter how simple the plan, the law requires a plan document and SPD. Period.

Are there any alphabet soup programs that do not require plan documents?

Oddly enough, Qualified Transit plans (QTP) do not require plan documents or SPDs. It’s “advised” to have them, so participants understand how the plan works, how to make a claim and how to get reimbursed. Another increasingly popular program that does not require plan documents and SPDs are Health Savings Accounts (HSA). I’m referring to the bank account and not the HSA-qualified medical plans. Since these bank accounts are owned by the employee, are portable when they terminate employment and are self-administered, the employer is not responsible in any way for explaining how the bank account works.

So, you don’t have to find this information as riveting as we do. But, the next time a client asks “why do I need a plan document for a program that isn’t my 401(k) plan?” you’ll be happy you stayed awake to read this article. And, if they still don’t believe you, have them call me and I’ll supply a copy of the regulations for their reading pleasure.



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