When to Distribute an Updated Wrap SPD
By Brian Gilmore | Published January 17, 2024
Question: When do employers need to distribute an updated wrap summary plan description (SPD) or updated carrier documents for their health and welfare plan?
Short Answer: Employers often are under the impression that they need to distribute a new wrap SPD annually and the updated underlying carrier documents within 90 days of the start of the plan year. However, by relying on open enrollment communications as a summary of material modifications (SMM), ERISA generally requires only that employers distribute a new wrap SPD once every five years.
General Overview: Why Have a Wrap Plan Document and Wrap SPD?
Every employee benefit plan subject to ERISA must be established and maintained pursuant to its written plan document. The plan document serves as the formal legal document governing plan benefits. ERISA does not require employers to provide the plan document except upon an employee’s written request.
The SPD is the employee-facing summary of the written plan document that is required by ERISA. The SPD must be written in a manner calculated to be understood by the average plan participant, sufficiently accurate and comprehensive to reasonably apprise employees of their rights and obligations under the plan, and distributed to employees within specific timeframes. There is no required format for the SPD, but ERISA does require that specific provisions and information be included.
For more details: Newfront ERISA for Employers Guide
Employers typically will use a wrap plan document and wrap SPD to work in tandem with the underlying insurance carrier and third-party administrator (TPA) materials (e.g., EOCs, policies, certificates of coverage, benefit summaries, etc.) for the health and welfare plan.
The wrap plan document and wrap SPD approach serves multiple useful functions for employers:
Avoid Restating Benefits: There is no reason for employers to attempt to restate and maintain the detailed benefits in the documents already made available by the carriers and TPAs. By wrapping around those materials and incorporating them by reference, the wrap approach allows the employer to rely on the specific benefit terms already outlined by the carriers/TPAs.
Avoid Conflicts: Employers specifically listing out plan benefits in the SPD independently would run the serious risk of having conflicting terms between the two sets of documents (the SPD and the carrier/TPA materials), which would create many potential sources of liability and concerns.
Consolidate Benefits into One Plan/Form 5500: The wrap plan document and SPD will typically “wrap” around all of the carrier and TPA materials for each ERISA-covered health and welfare benefit offered by the employer, thereby creating one “mega wrap” umbrella plan (often plan 501) to ensure only one Form 5500 filing is required. Without a wrap document to consolidate all health and welfare benefits (medical, dental, vision, etc.) under a single ERISA plan, each line of coverage could be viewed as a separate plan that needs its own Form 5500 filing.
Satisfy Required Content: The wrap plan document and wrap SPD will supplement the carrier/TPA materials to include any ERISA-required content not included in carrier/TPA materials.
Important Employer Protections: The wrap plan document and wrap SPD will include important legal provisions for the employer, such as a discretionary clause granting discretionary authority to the employer plan administrator to interpret plan terms (for the differential standard of review in a lawsuit) and a reservation of rights clause granting the employer plan sponsor the authority to amend or terminate the plan (avoiding claims that benefits are vested).
All employers sponsoring ERISA health and welfare benefits—regardless of size or funding arrangement—should have a wrap plan document and wrap SPD in place for these purposes. These wrap documents serve as the glue holding all benefits together under one comprehensive umbrella scheme. In the aggregate, the wrap plan document and the wrap SPD, plus the underlying carrier/TPA materials (which are generally incorporated by reference), will serve as the ERISA plan document and ERISA SPD.
Bottom Line: Employers sometimes incorrectly believe that the documents provided by insurance carriers and TPAs are sufficient satisfy the ERISA plan document and/or SPD requirements. Typically, this is not correct because those materials do not include all of the ERISA-required content. Even if that were the case, that approach would not be advisable because the wrap documents serve multiple key purposes beyond simply meeting the ERISA content requirements.
SPD Distribution Timing Required by ERISA
New Plans: Within 120 days of plan establishment.
A new plan is not the addition of a new line of coverage (e.g., medical, dental, vision) or benefit package option (e.g., new carrier) within an existing ERISA plan.
This timeframe is exclusively for employers first establishing an ERISA welfare benefits plan.
Changing lines of coverage or plan options are simply changes to the existing plan, addressed by an amended and restated wrap SPD or an SMM (see below).
Newly Covered Participants: Within 90 days after the participant first becomes covered under the plan.
This refers to when a participant first becomes covered under any of the health and welfare benefits incorporated into the wrap SPD.
An ongoing employee electing a new line of coverage or carrier at open enrollment is not a newly covered participant if they were already enrolled in at least one ERISA welfare benefit incorporated into the wrap SPD.
Ongoing Participants—Material Changes Made: Every five years if material changes are made within that five-year period.
Technically, distribution is not required until 210 days following the last day of the fifth plan year.
In virtually all situations there will be at least one material change made in any five-year period.
Ongoing Participants—No Material Change: Every ten years if no material changes are made during the ten-year period.
Technically, distribution is not required until 210 days following the last day of the tenth plan year.
In virtually all situations there will be at least one material change made in this period, making this timing rule inapplicable in most cases.
SMM Distribution Timing Required by ERISA
An SMM is required whenever there is a material change to the plan. Employers will need to consider all relevant facts and circumstances in determining whether a plan change is material. As a general rule of thumb, employers should err on the side of assuming plan changes are material.
SMM for Material Reduction in Covered Services (Health Plans Only): Within 60 days after adoption of the change.
Best practice is to provide the SMM as soon as possible, including in advance of the reduction where feasible.
Intentionally delaying distribution until this deadline might cause participants to seek the services that have been reduced/eliminated prior to receiving the SMM, which could potentially give rise to a breach of fiduciary duty claim.
All Other Material Changes: Within 210 days after the end of the plan year in which change adopted.
Despite the lengthy leeway in this deadline, best practice is to provide the SMM sooner where possible.
Note—Updated SPD Distribution Satisfies SMM Requirement: There is no need to distribute an SMM if the changes are incorporated into an updated SPD that is distributed by the applicable SMM deadline.
Note—Advance Disclosure Required for Summary of Benefits and Coverage (SBC) Changes: Unlike the SMM rules that relate to the SPD, employers must distribute an updated SBC (or a summary of the changes) 60 days prior to any mid-year material modification that affects the SBC content.
Open Enrollment Materials Can Satisfy SMM Requirements for New Plan Year Changes
Most employer-sponsored group health plans will have material changes each open enrollment. That could be the result of a new carrier, new policy, new lines of coverage, or simply changes within existing plan options (e.g., change to covered benefits, deductible, or other cost-sharing amounts).
Employers generally make great efforts to launch multi-faceted communication campaigns during the open enrollment period to ensure that employees are aware of the benefits made available and make informed elections for the new plan year. The materials distributed during open enrollment will generally qualify as an SMM to inform employees of the material changes to the plan for the upcoming plan year.
In other words, there is no formal format required for an SMM. Employers can therefore reasonably take the position that their open enrollment materials serve as the SMM, provided all material changes are contained within those materials. For avoidance of doubt, we recommend employers include a short statement in their open enrollment materials informing employees that they constitute an SMM.
Template Language to Include with Open Enrollment Materials to Confirm SMM Status:
These open enrollment materials serve as a Summary of Material Modifications (“SMM”) to the [Enter Plan Name Listed in Wrap SPD/Form 5500] (“Plan”). This SMM summarizes changes to the Plan that are effective as of [Enter Start Date of New Plan Year].
You should review this information carefully and share it with your covered dependents. Keep this information with your Summary Plan Description (“SPD”) for future reference. In the event of a conflict between the official Plan Document and this SMM, the SPD, or any other communication related to the Plan’s open enrollment period, the official Plan Document will govern. Contact [Enter Benefits Department Contact Information] if you have any questions or to request a paper copy of these materials.
Employers Do Not Need to Issue a New Wrap SPD Annually or Every Time a Carrier Changes
Employers often are under the impression that they need to provide a newly updated (i.e., amended and restated) wrap SPD annually at the start of each plan year or each time the employer changes a plan carrier or TPA listed in the wrap SPD. There is no such requirement.
As described above, employers generally must distribute an updated SPD only once every five years, assuming that there was at least one material modification during that period (generally always the case).
In a typical year, there will be no need to change any wrap SPD content other than any new carrier or TPA information—which, as described above, will have been disclosed already at open enrollment through materials that can serve as the SMM for such changes. The only other SPD content that will typically be modified from the prior year is the new or updated carrier/TPA documents, which the wrap SPD incorporates by reference. Again, these material changes will be referenced in the open enrollment materials that can serve as an SMM to the SPD to inform employees of the material changes for the new plan year.
Bottom Line: Some employers choose to distribute a new wrap SPD each year at the start of each plan year, or each time the employer changes a plan carrier or TPA listed in the wrap SPD. There is no problem with engaging in this practice, but it is not required. Employers can distribute an updated (i.e., amended and restated) wrap SPD only once every five years without issue by relying on open enrollment materials to serve as an SMM informing employees of material changes to the plan.
No 90-Day Rule for Distribution of the New or Updated Carrier/TPA Docs
Employers often are under the impression that they need to distribute the new or updated underlying insurance carrier and TPA materials (e.g., EOCs, policies, certificates of coverage, benefit summaries, etc.) within 90 days of the start of the plan year. While that is a worthy goal to target as a best practice, these new or updated carrier/TPA documents (that are incorporated by reference in the wrap SPD) do not have any fixed deadline for distribution.
The SMM deadlines are not based on a 90-day period. As described above, there is a 60-day period for material reductions to the group health plan, and a 210-day after the plan year period for all other material changes.
Furthermore, any key changes from the prior year will generally have already been disclosed to employees as part of the plan’s open enrollment materials. Those open enrollment materials can serve as the SMM for the material changes, and therefore there is no ERISA compliance-based urgency to distribute the new or updated carrier/TPA materials. This should be a relief to employers who often fret when carriers and TPAs delay availability of these updated materials until more than 90 days after the start of the plan year.
The only relevant 90-day compliance deadline is that newly covered participants must receive an SPD within 90 days of plan enrollment. Fortunately, the employee’s access to the SPD plus the open enrollment/new hire election materials—which, again, can serve as an SMM to the SPD to inform employee so the material changes of the new plan year—will still satisfy the disclosure requirement to provide the SPD plus all SMMs which have not been incorporated into the SPD.
Bottom Line: It is fair to take the position that it is best practice to distribute any new or updated carrier/TPA materials as soon as possible after the start of the year, and ideally within a 90-day target timeframe, to ensure employees have timely access to a full listing of the covered benefits and any other relevant terms. However, employers should not be concerned when the carriers and/or TPAs delay availability to these materials until after 90 days because there is no specific requirement to distribute these documents within any set timeframe.
How to Distribute SPDs and SMMs
Employers must distribute the wrap SPD, the underlying insurance carrier and TPA materials (e.g., EOCs, policies, certificates of coverage, benefit summaries, etc.), and SMMs by using measures that are “reasonably calculated to ensure actual receipt of the material.” U.S. mail and hand delivery will always satisfy this standard.
It is far more common at this point for employers to distribute these materials electronically. The DOL provides an electronic delivery safe harbor with two basic standards:
Safe Harbor: Employees with Work-Related Computer Access Integral to Their Job Duties–These employees can receive electronic distribution of the SPD and other ERISA materials by default. In other words, there is no employee consent required to satisfy the safe harbor. Employers must include a notice of the significance of the document in the disclosure, as well as the right to request and obtain a paper version of the documents.
Safe Harbor: Employees without Work-Related Computer Access Integral to Their Job Duties–These employees must electronically affirmatively consent to electronic distribution of the SPD and other ERISA materials to satisfy the safe harbor. In other words, they must affirmatively consent to electronic disclosure (i.e., opt-in). The form of the affirmative consent must reasonably demonstrate the individual’s ability to access information in the electronic form that will be used (e.g., the internet or email). The “opt-in” electronic consent has set content requirements, including the right to request a paper copy.
Operating Outside the DOL’s Electronic Disclosure Safe Harbor–The DOL electronic disclosure safe harbor is often misunderstood as a required condition for employers to distribute the SPD and other ERISA materials electronically. However, employers can satisfy the ERISA requirements for electronic disclosure even if they do not meet the safe harbor.
For example, employers often choose to operate outside the safe harbor by using electronic disclosure for employees that do not have work-related computer access integral to their job duties regardless of whether those employees have completed a valid “opt-in” affirmative consent. When following this approach, employers must meet the general standard that they “use measures reasonably calculated to ensure actual receipt of the materials.”
Employers operating outside the safe harbor should take care to monitor employee concerns and issues accessing any materials provided electronically to ensure they have taken all appropriate steps to defend the position that they have met that general standard if ever challenged by the DOL or a participant.
Bottom Line: If all of the employees have work-related computer access that is integral to their job duties, the DOL safe harbor makes it clear that no authorization is required to distribute ERISA documents electronically. If there are employees who do not meet this standard, the safer approach is to meet the DOL’s safe harbor by receiving their affirmative consent to electronic disclosure of ERISA documents. However, many employers today will confidently take the position that electronic disclosure outside the safe harbor (i.e., without an “opt-in” affirmative consent) is still valid as “reasonably calculated to ensure actual receipt” because electronic media (e.g., internet, intranet, email, etc.) is so commonly used and easily accessed by all Americans.
Although there is no specific penalty for failure to satisfy the ERISA plan document and SPD requirements, there are potential $110/day penalties for failure to provide either document within 30 days of an employee or dependent written request.
Even if the employee does not make a written request for the document, failure to properly distribute the SPD could result in the employer not being able to enforce the written terms of the plan in a claim for a benefits lawsuit. There are many unfortunate court cases addressing this concern.
Bottom Line: Numerous cascading potential problems in a DOL investigation, participant lawsuit, or other multiple other adverse situations could arise if employers do not have these foundational documents in place or properly distribute the SPD to employees.
Employers should establish a wrap plan document and wrap SPD to serve many purposes. However, employers do not need to update and re-distribute a new wrap SPD annually at the start of each plan year (generally required only once every five years), nor do they need to distribute the underlying updated materials prepared by insurance carriers and TPAs within 90 days (no specific deadline applies).
For more details:
29 CFR §2520.104b-2:
(a) Obligation to furnish.Under the authority of sections 104(b)(1) and 104(c) of the Act, the plan administrator of an employee benefit plan subject to the provisions of Part 1 of Title I shall furnish a copy of the summary plan description and a statement of ERISA rights as provided in §2520.102-3(t) , to each participant covered under the plan (as defined in §2510.3-3(d) ), and each beneficiary receiving benefits under a pension plan on or before the later of:
(1) The date which is 90 days after the employee becomes a participant, or (in the case of a beneficiary receiving benefits under a pension plan) within 90 days after he or she first receives benefits, except as provided in §2520.104b-4(a) , or,
(2) Within 120 days after the plan becomes subject to Part 1 of Title I.
(b) Periods for furnishing updated summary plan description.
(1) For purposes of the requirement to furnish the updated summary plan description to each participant and each beneficiary receiving benefits under the plan (other than beneficiaries receiving benefits under a welfare plan) required by section 104(b)(1) of the Act, the administrator of an employee benefit plan shall furnish such updated summary plan description no later than 210 days following the end of the plan year which occurs five years after the last date a change in the information required to be disclosed by section 102 or 29 CFR 2520.102-3 would have been reflected in the most recently distributed summary plan description (or updated summary plan description) as described in section 102 of the Act.
29 CFR §2520.104b-3:
(a) The administrator of an employee benefit plan subject to the provisions of Part 1 of Title I of the Act shall, in accordance with §2520.104b-1(b) , furnish a summary description of any material modification to the plan and any change in the information required by section 102(b) of the Act and §2520.102-3 of these regulations to be included in the summary plan description to each participant covered under the plan and each beneficiary receiving benefits under the plan. Except as provided in paragraph (d) of this section, the plan administrator shall furnish this summary, written in a manner calculated to be understood by the average plan participant, not later than 210 days after the close of the plan year in which the modification or change was adopted…
(b) The summary of material modifications to the plan or changes in information required to be included in the summary plan description need not be furnished separately if the changes or modifications are described in a timely summary plan description. For example, a calendar year plan adopts a material modification on June 3, 1976. The modification is incorporated in a summary plan description furnished on July 15, 1977. No separate summary of the material modification is furnished. The plan adopts another material modification September 15, 1977. A separate summary of the modification is furnished on or before July 29, 1978.
(c) The copy of the summary plan description furnished in accordance with §§2520.104b-2(a)(1)(i) and 2520.104b-4 shall be accompanied by all summaries of material modifications or changes in information required to be included in the summary plan description which have not been incorporated into that summary plan description.
(d) Special rule for group health plans.
(1)General.Except as provided in paragraph (d)(2) of this section, the administrator of a group health plan, as defined in section 733(a)(1) of the Act, shall furnish to each participant covered under the plan a summary, written in a manner calculated to be understood by the average plan participant, of any modification to the plan or change in the information required to be included in the summary plan description, within the meaning of paragraph (a) of this section, that is a material reduction in covered services or benefits not later than 60 days after the date of adoption of the modification or change.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).
Lead Benefits Counsel, VP, Newfront
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.Connect on LinkedIn