How to Draft and Distribute a Summary Plan Description (SPD)

If you’re hiring within the US, there’s no doubt you’re looking into health insurance and retirement benefits for employees. After all, these plans can have a significant impact on your workforce with six in ten people willing to take a pay cut to access better healthcare.

Creating a clear and compliant Summary Plan Description (SPD) is a crucial part of that process. HR and payroll teams face the daunting task of addressing all legal requirements while making the plan accessible and translating complex laws and company policies into simple language to ensure workers understand their rights.

In this article, we explore how to research, draft, and distribute an SPD. Continue reading to discover all the essential steps and best practices involved in the process.

What is a Summary Plan Description (SPD)?

An SPD is a document that provides detailed information about your company’s health insurance and retirement benefits administration. It explains how the plans work and informs participants of their rights and responsibilities.

Many US employers are required to write and distribute an SPD under the Employee Retirement Income Security Act (ERISA). They must give participants a free copy of the document within 90 days of enrollment and make it available upon request. As they amend their plans, they must keep the team updated.

The main objective of an SPD is to uphold the standards set by the ERISA and protect worker rights. When employees have access to plan details, they can make more informed decisions concerning their benefits. They can also understand what constitutes unfair practice and how to hold administrators to account.

When are employers required to write an SPD?

If you offer a health insurance or retirement benefit plan covered by ERISA, you must produce an SPD. These plans typically involve:

• Pension plans
• 401(k)s
• Profit and stock sharing plans
• Medical, dental, and vision plans
• Employee assistance plans (EAPs)
• Flexible spending accounts (FSAs)
• Health insurance arrangements (HRAs)

Use Deel’s Benefits Tool to explore legally mandated plans in the US in more detail.

As public sector employers and religious organizations aren’t subject to ERISA, they don’t have to write an SPD. They have their own laws and guidelines to follow, which may involve a similar document.

Global companies aren’t exempt. You must create an SPD if you intend to enroll US workers in ERISA-compliant plans even if your headquarters are abroad.

What details should the SPD include?

The Department of Labor (DOL) has strict rules about what employers should include in their SPD. Ensure you have the following:

• The official name and type of the plan
• The workers’ rights under ERISA
• Eligibility criteria for participation
• A description of the benefits included and when participants have a right to them
• Information about contributions and the methods used to calculate them
• Details of claims, appeals, and grievances procedures
• The conditions under which you may terminate the plan
• A statement about whether retirement plans are insured by the Pension Benefit Guarantee Corporation

If you established the plan as part of a collective bargaining agreement, you must declare this in your SPD too.

Companies are free to add further details to the documents provided they still comply with ERISA. For example, you may wish to include a brief history of the plan and how it has benefitted employees in the past.

Preparing to draft the SPD

Your first step is to gather all the necessary information and documentation required to write the SPD. In particular, look for the following items:

• Insurance contracts
• Copies of trust and service agreements
• Plan documents or summaries
• Your benefit schedule and table
• Your policies and employee handbook
• A copy of the ERISA requirements (available from the DOL website)

Next, you’ll want to make sure you fully understand employee needs, expectations, and communication styles. One of the easiest ways to gain insights is by conducting company-wide surveys. 

Tailor the SPD’s language and presentation to your team’s general comprehension level. Some staff may be unfamiliar with US labor laws or legal terminology so you have to explain terms like ‘fiduciary’ or ‘ERISA’.

Look at previous participation in benefits programs, as historical data can reveal which plans are most popular and which are underutilized. This information can show you where you should emphasize or explain certain areas of your plan in the SPD.

Drafting the SPD

Using the right language in your SPD is crucial. It needs to be accurate and comprehensive but clear to the average worker.

Consider all eventualities as you draft the document to avoid misunderstandings with employees. As well as discussing what you cover, explain what you don’t include. Businesses can lose disputes if their SPD isn’t specific about any limitations or exclusions.

Add an appendix where you clarify all the terms you use. For example, who counts as a dependent? State their age and relationship with participants to avoid disputes over ineligible family members.

It’s best to hire a professional writer if you lack the in-house expertise. Look for specialists in US labor and employment laws who will be familiar with all the terminology. They’ll know how to translate all your policies into plain English.

You may also need a translator if you have a multi-lingual team. The DOL requires you to provide foreign language assistance if over 10% of your workforce isn’t literate in English.

Formatting the SPD

Ensure the format and language are accessible as well as the language. A poor visual layout can affect comprehension, especially if employees have certain disabilities. Here are some general rules to follow:

• Choose sans serif fonts like Arial and Helvetica
• Make fonts no smaller than point 12
• Break up the text with headings and lists
• Include graphics like charts and tables
• Use white space to avoid cluttering the document
• Ensure a high contrast between text and backgrounds

It’s worthwhile investing extra time and resources into making the SPD engaging. You can reflect your company values in the tone of voice and the design. Considering you may present an SPD as part of the employment contract, it’s a great opportunity to impress new hires.

Reviewing the SPD

Conduct thorough reviews before you distribute the SPD to any employees. Publishing a document with mistakes carries significant risks such as compliance issues and litigation. 

Arrange for a legal expert to check whether the SPD reflects your plan contents and complies with ERISA requirements. They might spot potential issues with wording that could lead to confusion. For example, your SPD might state that employees are eligible after a “12-month period” but you may need to specify that it’s consecutive.

Testing the SPD with employees can help you check whether the language is clear and understandable. Choose a sample that represents different areas of the company. You can have them underline vague or confusing wording or rate pages on a scale of 1 to 10 for clarity. 

Distributing the SPD

Employers must follow strict reporting and disclosure requirements under the ERISA. Some are specific to the SPD and others apply to all plan documents.

The DOL gives the following timelines for disclosing the SPD to employees:

• Within 120 days of establishing a plan
• Within 120 days of becoming covered by ERISA
• Within 90 days of enrolling new participants
• Every five years after that for amendments

However, these are the maximum amounts you’re allowed to take. It’s best to distribute revised copies of the SPD annually as plans are likely to undergo significant changes within a year.

Employers can choose whether to distribute the SPD on paper or electronically. If you choose the digital option, you can publish the document on a website or send it directly to participants. Note that you have to provide a paper copy on request.

There are several advantages to electronic copies:

• No printing and posting costs
• Reduced administrative burden on the HR department
• Easily and immediately accessible to participants
• More environmentally friendly

You don’t have to lose any oversight either. Use an HR compliance solution like Deel to verify workers have read and signed the SPD. You can monitor the document status for each employee via our dashboard.

Updating and amending the SPD

You must inform participants as you amend your benefits. The DOL says you can either provide a revised SPD or a document called a Summary of Material Modifications (SMM).

As the SMM is a summary, choose it when you’ve made specific changes. For example, you could use it to announce new medical procedures or drug prescriptions you’ve added to your coverage. The DOL gives you 210 days from the end of the last plan year to distribute the SMM.

Choose an SPD when you’ve significantly overhauled your plans or need to inform staff of changes in legal requirements. Its comprehensive format is ideal for clearly explaining complex or extensive modifications.

Move past routine paperwork and compliance with Deel PEO

An SPD doesn’t have to just be a legal formality—you can also leverage this document to enhance employee understanding and appreciation of your benefits and improve your overall company culture and satisfaction.

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• New hire reporting
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