The language in the Summary Plan Description (SPD) is usually a combination of wording from cautious Employee Retirement Income Security Act (ERISA) attorneys and human resources professionals who are concerned with the use of too many general, simple statements. The result is often a complicated document that many employees receive, glance at and toss into a pile because it does not make sense.

What is an SPD?

An SPD is a document employers must provide to employees who participate in an ERISA-covered retirement plan.  The SPD details what benefits the plan provides and how the plan works.

What does ERISA require?

ERISA regulations describe the style and format for an SPD. Key language in the SPD must be written so that it is “understood by the average plan participant.” It must be comprehensive enough to inform the plan’s participants and beneficiaries of their rights and obligations under the plan.  Some of the key items included are:

• Age requirements for the plan;
• Service requirements to participate in the plan and how they are calculated;
• When the plan year begins and ends; and
• How contributions are made to the plan, etc.

How can you determine if the language is easily understandable? The regulations’ “method of presentation” guidance indicates that you should factor in participants’ “level of comprehension and education,” as well as the complexity of the plan’s terms. Taking these factors into consideration will usually require:

• The limitation or elimination of technical jargon and of long, complex sentences;
• The use of clarifying examples and illustrations;
• Clear cross-references; and
• A table of contents.

The regulations also caution against presenting the facts in a way that would have the effect of misleading or simply not informing participants and beneficiaries. Specifically, the regulations require that descriptions of benefit limitations, reductions and other restrictions of benefits not be relegated to fine print or footnotes. Also, you have to present both the plan’s advantages and disadvantages without exaggerating the benefits or minimizing the limitations.

Get it right

An SPD is one of the most important documents of your plan. It is one that participants will come back to time and time again. Hire an attorney who understands ERISA law to review the SPD before you distribute it, and contact your benefits specialist to make sure your SPD meets the necessary requirements. Make sure your employees can easily understand it when they read it.

For more information, contact Stephanie Zaleski at [email protected] or 312.670.7444.  Visit ORBA.com to learn more about our Employee Benefit Plans Services.

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