Posted by Chris Ciminera
I think back to the cell phone commercial with the Verizon spokesman with his black glasses and hand to his head as a parallel for retirement plan communications. Creating a plan or changing provisions without employees knowing about it doesn’t create good “coverage” for plan sponsors. In fact, the Employee Retirement Income Security Act (ERISA) requires that plan sponsors communicate to participants facts regarding the plan. Luckily, I can say that it appears that most plan sponsors understand that required communications to participants are needed, even if the communications don’t always “get through.” These communications include a Summary Plan Description (SPD), which is a summary of the plan provisions in an easily understandable format. Although plan sponsors understand that an SPD needs to be provided, there are some areas where they get confused. Specifically, when to provide this required communication and how to communicate plan amendments are common questions.
So what exactly are the requirements?
Below is an excerpt from the AICPA Employee Benefit Guide about the dissemination of an SPD and Summary of Material Modifications (SMM):
203.1 ERISA, Title I, Section 101, requires employee benefit plans to make certain disclosures to plan participants. This section discusses the various disclosure responsibilities.
Summary Plan Description (SPD) and Summary of Material Modifications (SMM)
203.2 ERISA requires most plans, whether qualified or not, to provide plan participants with a Summary Plan Description (SPD) within 90 days from when they become participants or a beneficiary begins receiving benefits. New plans must provide the SPD within 120 days after the plan is established.
203.3 The SPD must explain in easily understandable language matters such as the type of plan, the requirements for participation and benefits, benefit accrual and vesting provisions, how to file claims, etc. It must also describe participants’ rights under ERISA, for example, the right to examine plan documents and obtain copies of annual reports, etc. If the plan is materially amended, a Summary of Material Modifications (SMM) must be provided within 210 days of the end of the plan year in which the amendment is adopted, unless an updated SPD is provided. A new SPD must be furnished once every five years after the initial filing date if the plan is amended; otherwise, it must be furnished every 10 years.
Plan sponsors generally don’t have issues with providing the initial SPD, since most plan sponsors provide a SPD to employees as soon as they are hired or as soon as they become eligible in the plan. An issue may occur when a plan is amended and the SPD is not provided every year. In this case, a SMM must be provided within 210 days of the end of the plan year in which the amendment is adopted. This SMM communicates the changes to the plan to participants and the effective date that the changes take place. So, plan sponsors should make sure, as Verizon does, that there is good coverage in their retirement plan communications. If not, it will be the DOL saying, Can You Hear Me Now?