QUESTION: At the beginning of the year, we distributed new SPDs to participants in our company’s ERISA-covered group health plan. We are planning to make some changes to the plan’s terms. When and how do we need to communicate these changes to participants?
ANSWER: ERISA requires that participants be notified of any material modification in a welfare plan’s terms or any change in the information required to be in an SPD. This can be done by providing a summary of material modifications (SMM) describing the change. In addition, under a special rule for group health plans, notice must be provided when there is a material modification in plan terms that affects content required to be included in the summary of benefits and coverage (SBC) and is not reflected in the most recently provided SBC. Here is an overview of the SMM rules:
- What Is a “Material” Change? Except for the definition of a material reduction in group health plan covered services (discussed below), there is no guidance regarding when a modification is material. It appears to be a facts and circumstances determination. We suggest that you err in favor of preparing and distributing SMMs.
- Who Must Receive SMMs? SMMs must be provided to the same individuals who must receive SPDs—generally, participants but not beneficiaries. Note that individuals who do not have the right to automatically receive SPDs or SMMs may have the right to receive a copy upon written request to the plan administrator.
- Deadlines for Providing SMMs. The timing requirements depend on the nature of the change. Any modification that is considered a “material reduction in covered services or benefits provided under a group health plan” must be disclosed no later than 60 days after the date the modification was adopted. (If participants regularly receive SMMs at intervals of not more than 90 days, a plan administrator may wait beyond the 60-day limit to describe the modification in the regularly published form.) Reductions in covered services or benefits include, among other things, the elimination or reduction of benefits payable under the plan, a premium increase, and the imposition of new conditions or requirements. For other changes (i.e., group health plan changes that are not material reductions and changes to plans other than group health plans), the SMM must be provided no later than 210 days after the end of the plan year in which the modification or change was adopted. We suggest a common-sense approach to these deadlines—depending on the type of modification, it may be advisable to provide the SMM before the statutory deadline. This is particularly true if the plan administrator wants the modification to apply on its effective date. Delivery methods must comply with the SPD distribution rules. If the change is included in an SPD that is distributed by the applicable SMM deadline, a separate SMM need not be furnished.
- Style and Content. Like SPDs, SMMs should be written in plain language and must comply with general understandability requirements. The SMM also must work in an understandable way with the SPD it is modifying—for example, by clearly identifying the SPD being modified and the affected SPD provisions. The DOL has provided no prescribed format or model language for SMMs. We suggest including the plan name, the SPD to which the SMM relates, a description of the changes (or the language to be substituted in the SPD) and their effective dates, an explanation that the SMM and SPD must be read together and should be kept together, and whom to contact with questions.
Source: Thomson Reuters