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When is an SMM required?

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If the change to the welfare plan is only service providers, but actual contributions, benefits, eligibilties etc all remain the same, is an SMM actually required? Or is it sufficient to provide this information on the annual Open Enrollment paperwork?

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You could argue that might constitute a material modification if it changes how employees interact with claims processing or something else practical from a participant perspective.  But even if it does, you don't need a stand-alone SMM to address it.

For one, most OE materials are designed as an SMM for all changes taking effect for the upcoming plan year.  If this is taking effect at the start of the new plan year, that information could just be included with those OE materials.  Also, I assume this isn't going to result in a change to the SBC or a material reduction in covered health services.  So there wouldn't be any urgency to the disclosure.

Here's some template language I usually recommend including with OE materials to also address the SMM requirements for the upcoming plan year changes:

This document serves as a Summary of Material Modifications (“SMM”) to the [ENTER PLAN NAME LISTED IN WRAP PLAN DOC/SPD AND FORM 5500] (“Plan”). This SMM summarizes changes to the Plan that are effective as of [DATE].

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, the official Plan Document will govern.

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The standard ERISA disclosure rules provide that ERISA-required documents must be provided to participants in a manner that’s “reasonably calculated to ensure actual receipt” by the intended recipient.

The DOL has a safe harbor under which plans will be deemed to meet this standard.  This method is sometimes misunderstood as a requirement—it is not.  It is merely the only guaranteed way to satisfy ERISA’s disclosure requirements by electronic media.  The safe harbor generally requires either (a) the employee has work-related computer access that is integral to his or her job duties (i.e., employee works at a desk with a computer), or (b) the employee’s electronic affirmative consent to electronic disclosure.

There are no specific penalties for failure to properly distribute these documents (unless there is a written request for the document, in which case the penalty is $110/day if the employer does not provide the document within 30 days of the request).  However, the employer may not be able to enforce the written terms of the plan in a claim for benefits lawsuit if the plan documentation was not properly disclosed.  There are many unfortunate cases where courts have come to this conclusion.

Summary: If all of the company’s employees have work-related computer access that is integral to their job duties, it is clear that no authorization is required to distribute ERISA documents electronically.  If there are employees who don’t 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.

Here's a quick slide summary:

Newfront Office Hours Webinar: ERISA for Employers


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Assuming they're not going to operate outside the safe harbor for electronic disclosure, the rules say to use an approach that is "likely to result in full distribution."  The examples they use are to provide by mail or hand delivery.

29 CFR §2520.104b-1(b)(1):

(b) Fulfilling the disclosure obligation.

(1)   Except as provided in paragraph (e) of this section, where certain material, including reports, statements, notices and other documents, is required under Title I of the Act, or regulations issued thereunder, to be furnished either by direct operation of law or on individual request, the plan administrator shall use measures reasonably calculated to ensure actual receipt of the material by plan participants, beneficiaries and other specified individuals. Material which is required to be furnished to all participants covered under the plan and beneficiaries receiving benefits under the plan (other than beneficiaries under a welfare plan) must be sent by a method or methods of delivery likely to result in full distribution. For example, in-hand delivery to an employee at his or her worksite is acceptable. However, in no case is it acceptable merely to place copies of the material in a location frequented by participants. It is also acceptable to furnish such material as a special insert in a periodical distributed to employees such as a union newspaper or a company publication if the distribution list for the periodical is comprehensive and up-to-date and a prominent notice on the front page of the periodical advises readers that the issue contains an insert with important information about rights under the plan and the Act which should be read and retained for future reference. If some participants and beneficiaries are not on the mailing list, a periodical must be used in conjunction with other methods of distribution such that the methods taken together are reasonably calculated to ensure actual receipt. Material distributed through the mail may be sent by first, second, or third-class mail. However, distribution by second or third-class mail is acceptable only if return and forwarding postage is guaranteed and address correction is requested. Any material sent by second or third-class mail which is returned with an address correction shall be sent again by first-class mail or personally delivered to the participant at his or her worksite.

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