SPD is the acronym for Summary Plan Description, and it is the document that employees get that explains what is required of an employer who has an employee benefit plan.
Let’s start with the easy and most obvious answer. The SPD is important because the document is required for any employer that has an employee benefit plan subject to ERISA. And not having an SPD may subject the employer to bigger fines than you care to even imagine.
IMPORTANT – READ THIS: Under ERISA, the Employer Retirement Income Security Act (“ERISA”), all employer-provided employee benefit medical plans are assumed to be self-funded and the property of the employer providing the benefit. This includes employer benefit plans for groups as small as two employees. This means that if an employer tells employees they have a benefit plan, the employer may become liable for all of the benefits unless they implement an insuring agreement to transfer the risk to the insurance company. And even worse than that, without the SPD, and an insurance contract, the plan might be assumed to have unlimited and undesignated benefits and anything an eligible employee brings in for payment could be considered a valid claim.
What does the SPD actually do?
The SPD discloses that the employer has an employee benefit plan, what all the various benefits are that might be included, any agreements such as insurance that may be there to take the risk, and what an employee’s rights are under ERISA. In short, it tells the employee what is available, how it’s implemented, and what action they can take if they feel they have been poorly treated.
What does the SPD not do?
The well-prepared SPD is a general document meeting the necessary legal guidelines. It does not get into specifics because if you do that, then every time you change benefit plans you have to completely rewrite the SPD.
The SPD is not the insuring agreement. Employers who put in employee benefit plans routinely purchase insurance policies to cover the risk. They may not realize it but they have agreed to not do anything outside of that insuring agreement/contract. It is very important here to realize that the insurance coverage is a contract between the employer and the insurance company. As a contract, it does not cover everything possible that could happen to a person, it only covers those things outlined in the policy. This is why it is important for the SPD to indicate they do not cover anything not included in the insuring agreement. And even more important, for the employer to pay attention and not do things not allowed in the insurance contract.
The SPD is also not the same as the insurance companies’ coverage booklet, nor the SBC (Summary of Benefits and Coverage) provided by the insurance company. Those documents are explanations of what the insurance contract includes and how the plan will be managed.
What are these things again?
- The SPD says the employer has a plan and tells employees what types of insurance plans are included.
- The SBC, and the insurance contract spell out what is actually covered, and not covered, by the plan.