First things first, summary plan descriptions (SPD) and a summary of benefits and coverage (SBC) are NOT the same. They serve a similar function, but are separate compliance obligations for an employer.
Summary of Benefits and Coverage (SBC)
As of September 23, 2012, a SBC, which is a written summary that describes the health plan’s benefits and coverages, must be given to each participant, spouse, dependent, and prospective enrollee in a group health plan. The insurer and employer are responsible for distributing the SBC. Generally, a participant will receive a copy from the insurer and the employer as both want to ensure they satisfy their compliance obligation. The SBC must be distributed with initial enrollment materials and re-distributed every year thereafter. If re-enrollment in the health plan is automatic in subsequent years, the SBC must be provided at least 30 days prior to the first day of coverage.
Stand-alone dental and vision plans that are not integrated with the health insurance do not need an SBC. However, there are special rules for account arrangements. Flexible spending accounts and health savings accounts are exempt from the distribution requirement. However, a non-integrated health reimbursement account must have a separate SBC issued to participants, spouses, dependents, and prospective enrollees.
A willful failure to comply with the SBC requirements carries a $1,000 per day penalty for each affected individual.
Summary Plan Description (SPD)
A SPD, is a longstanding obligation for employers under ERISA. The SPD describes the most important plan provisions with explicit requirements outlined by the Department of Labor (DOL). The plan administrator, which is generally the employer, is required to provide a SPD to each participant. The DOL requires SPD distribution to plan participants only, while an SBC must be distributed to spouses, dependents, and prospective enrollees. Additionally, unlike the SBC, the insurer has no obligation to distribute SPDs to participants.
A SPD is required for stand-alone dental and vision plans and HRAs. Similar to a SBC, a SPD is not required for an flexible spending arrangement and a health savings account. A SPD must be provided within 120 days after the effective date of a new plan and new participants must receive the SPD within 90 days after the date the participant first becomes covered by the plan. Unlike the SBC, the SPD is to be re-issued every ten years, or if there is a plan amendment, every 5 years.
Failing to provide a SPD or providing an inadequate SPD may be a breach of a plan administrators fiduciary duty. Failure to deliver an SPD when one is requested by a participant or beneficiary within 30 days of the request may make an employer liable for a $110 per day penalty.
An employer must remember to comply with its SBC and SPD obligations. They are an easy target for auditors and a relatively “easy” task for an employer to complete. Ensure human resource departments are aware of these requirements and build them into open enrollment tasks before each plan year.