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SPD incorporated into Plan Document


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I'm reviewing a (cafeteria) plan document (drafted by another organization) that specifically incorporates the Summary Plan Description into the plan. It goes so far to refer to the SPD for many of the definitions of plan terms.

(Examples: "Company": The organization named in the SPD as the "Employer"; Participant Termination: A Participant will cease to be a Participant as of the earlier of the dates set forth in the SPD.)

I think incorporating the SPD into the plan document is poor practice at best, but it's so pervasive in the document that I would have to recommend a nearly complete re-write of the plan document to correct it. Any comments as to how common this practice is? Should suggest a re-write, and if so, how strongly should I suggest it?

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If there are multiple plans, multiple employers, multiple eligibilities, etc. I don’t see anything wrong with the plan document incorporating these provisions by referring to the SPDs. This of course assumes that the SPDs are accurate and kept updated. Typically, more plan details are in the SPDs any way.

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jstorch,

I read your post to mean that there is no separate SPD just 1 document that serves both purposes. Is that correct?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I was given the SPD and plan as separate documents. I assume participants will get only the SPD. For the employer's purpose, however, the "plan" consists of both documents (plus an adoption agreement plus a "Plan Information Summary").

The plan is set up to be used by different (unrelated) employers, but so is the SPD--the only customization of the SPD is the employer's name on the cover. (Which apparently is the only way to get to the definition of "Company" in the plan in my earlier example.)

I have no problem with the plan document refering to an adoption agreement for additional terms or use with multiple employers but think it would be better practice and not too much more difficult to keep the SPD separate.

However, I'm just reviewing, not drafting, the plan. While I think there is risk of incorporating the SPD in the plan (e.g., participant/administrative confusion; plaintiff's attorney arguing that a participant never received a SUMMARY plan description because if the SPD is part of the plan, how can the SPD summarize itself?), it is slight. My thought is to point out my concerns to the employer for future revisions, but not push for a rewrite at this stage.

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I agree that it is poor practice to incorporate spd wholesale into plan document. The plan document and summary plan description are separate instruments with different purposes and requirements, and hence, different writing styles. To me sounds like an economy move so the plan document does not to be modified at all for different employers.

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Kirk-

I agree fully with your comment. My question is whether this is significant enough to require a plan re-write at this late stage.

In theory, it could just entail 1) changing certain references to the SPD to refer to the adoption agreement, and 2) cut and paste SPD information into the plan. However, I'd estimate there are 50-75 SPD references in the plan that would have to be corrected. Since I'm not the drafter, I'd have to convince the employer and the drafter that it is necessary to do this work.

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I disagree with Kirk. The Plan Document is not a detailed description of the plan(s). It is a formal document that merely establishes the plans upon corporate resolution and describes eligibilities, duties, responsibilities and authorities of the participants and/or plan sponsor(s).

I see nothing wrong with referring to SPDs in the plan document for practical purposes.

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Kip:

You don't just disagree with me; you disagree with the DOL and ERISA. Here is the relevant portion of the regulation:

The summary plan description shall be written in a manner calculated to be understood by the average plan participant and shall be sufficiently comprehensive to apprise the plan' participants and beneficiaries of their rights and obligations under the plan. In fulfilling these requirements, the plan administrator shall exercise considered judgment and discretion by taking into account such factors as the level of comprehension and education of typical participants in the plan and the complexity of the terms of the plan. Consideration of these factors will usually require the limitation or elimination of technical jargon and of long, complex sentences, the use of clarifying examples and illustrations, the use of clear cross references and a table of contents. Labor Reg. Section 2520.102-2(a)

Kirk Maldonado

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Just to confuse the issue some more, see Q&A 32 of the ABA's questions to the IRS earlier this year:

http://www.abanet.org/jceb/2003/qa03irs.pdf

This is in conjunction with whether or not a limit in the SPD (but not the document) qualifies as a plan-imposed limit for determining catch-up contributions to a 401(k).

Although I've read it a couple of times, I can't figure out if the IRS is agreeing that a reference to the SPD is OK, or whether they are saying you can't do it. They appear to put it on whether or not the "sponsor believes". We need more regulations like that...if the sponsor believes they are in conformity with the law, then they are.

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Kirk:

I'm not sure I follow how the regulation you cite would preclude the plan document incorporating portions of the Summary Plan Description by reference. The situation described does not necessarily mean that the language in the SPD is complex or technical. Rather, the plan document could merely be referring to simple language in the SPD, such as name and address of sponsor or trustee, eligibility requirements, etc.

Personally, I don't like the idea, but I am not convinced that your reference is on point.

...but then again, What Do I Know?

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WDIK:

The concept is that the SPD is a summary of the Plan; not the plan document itself. If the definitions are contained in the SPD, then the SPD is the plan document.

I wish that somebody could explain to me how a document can be a summary of itself.

Kirk Maldonado

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Kirk:

I can understand the basis for your more recent argument against incorporating the SPD into the plan document. Here are some counter-arguments:

1) Is the Summary Plan Description a summary of the actual document, or a summary of the plan provisions? If the latter, the SPD would not be a summary of itself.

2) Many business reports have included in them an executive summary. Isn't the executive summary both a part of the report and a summary of the report? Would the same logic apply with respect to the SPD?

3) I have not done an exhaustive search, but the language that I found in the regulations did not define an SPD so much as it described what the SPD should contain and the need to use understandable language. Where do the regulations indicate that the SPD cannot be part of the plan?

I'm not trying to be difficult, just thorough. (Remember I don't think it's a good idea.)

...but then again, What Do I Know?

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Kirk and WDIK both make good points.

I think from a logic viewpoint, a document shouldn't summarize itself, but "executive summaries" are common. However, SPDs by law have to be furnished to participants, so the stakes are a little higher than in documents with executive summaries. Still, I haven't come to anything concluding that integrating the plan and SPD per se violates the DOL's regulations.

If you're interested, I've included below how I informed the client about my concerns. (Many of the points have already been discussed here.) The client's decision was for me to create a new plan for them, with the SPD separate.

"f the SPD is part of the plan, can the SPD summarize itself? Beyond merely being a brain-teaser, this raises several additional questions about potential legal liability: When the Plan issues the SPD to participants, has it satisfied the guidelines on furnishing summary plan descriptions? If the SPD is part of the Plan Document, does the Plan need to provide participants a copy of the Plan Document in addition to the SPD? If so, does the Plan Document satisfy the "plain language" requirement for SPDs? As these questions suggest, a plaintiff's attorney could attack the current Plan structure on many fronts. While I think the risk of a disputed claim turning on this issue is slight, it would be one more factor for a court to consider in deciding a case, and it does open the door to penalties for lack of providing a proper SPD should a disputed claim go against the Plan."

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