SPD formula descriptions

[John Feldt ERPA CPC QPA]

A prospect wants to their SPD for their cash balance formula to state something like the text below (instead of naming the individuals or the specific officer titles with their specific accrual formulas like the plan document does):

"Group A will consist of senior executive officers. For each Participant of Group A, the cash balance credit will vary by officer. For details, see your Plan Administrator if this affects you."

We're thinking that this may not satisfy the disclosure requirements for a summary plan description.

Could the SPD be this vague and be alright? If not, what methods are others out there using to disclose accrual formulas in a not-so-revealing fashion?

[Andy the Actuary]

"Group A will consist of senior executive officers. For each Participant of Group A, the cash balance credit will vary by officer. For details, see your Plan Administrator if this affects you."

Might suggest wording, "The Plan Administrator will advise if this affects you," since "you" will likely not know whether or not you should contact PA or more realisticly, will even read The Little Golden Book of Pension Plans.

[David MacLennan]

Perhaps you could have a unique SPD for every participant, which has their formula only. Then there would be no vagueness in the SPD.

[Guest mcw]

I have the exact same issue. Do you mind sharing what you decided?

[John Feldt ERPA CPC QPA]

Sure, here's what we looked at:

§2520.102-4 Option for different summary plan descriptions.

In some cases an employee benefit plan may provide different benefits for various classes of participants and beneficiaries. For example, a plan amendment altering benefits may apply to only those participants who are employees of an employer when the amendment is adopted and to employees who later become participants, but not to participants who no longer are employees when the amendment is adopted. (See §2520.104b-4.) Similarly, a plan may provide for different benefits for participants employed at different plants of the employer, or for different classes of participants in the same plant. In such cases the plan administrator may fulfill the requirement to furnish a summary plan description to participants covered under the plan and beneficiaries receiving benefits under the plan by furnishing to each member of each class of participants and beneficiaries a copy of a summary plan description appropriate to that class. Each summary plan description so prepared shall follow the style and format prescribed in §2520.102-2, and shall contain all information which is required to be contained in the summary plan description under §2520.102-3. It may omit information which is not applicable to the class of participants or beneficiaries to which it is furnished. It should also clearly identify on the first page of the text the class of participants and beneficiaries for which it has been prepared and the plan's coverage of other classes. If the classes which the employee benefit plan covers are too numerous to be listed adequately on the first page of the text of the summary plan description, they may be listed elsewhere in the text so long as the first page of the text contains a reference to the page or pages in the text which contain this information.

Thus, we believe it is okay to provide one SPD that describes the benefits to one class (e.g. the owners) as long as it explains, on page 1, that the plan also covers other classes of employees, but that this SPD only describes the benefits for [describe the owner class covered]. Then in the next SPD, we believe it is okay to provide one SPD that describes the benefits to another class (e.g. non-owners) as long as it explains, on page 1, that the plan also covers other classes but this SPD only describes the benefits of [describe the non-owner class covered].

We threw out the idea to say "For details, see your Plan Administrator if this affects you." We don't think that would fly.

What do you think?

[John Feldt ERPA CPC QPA]

Now, if you take this route, be careful that there are not so many SPD's out there that the employer can't keep it straight. Label them clearly on the cover page of the SPD regarding who they are for, and perhaps put "CONFIDENTIAL" on any SPDs that are only for the HCEs and/or owners.

There are some DOL penalties for not providing the proper SPD disclosures. In one case, where 6 levels of benefit accruals existed in a plan, we simply provided just 2 SPDs. One for the shareholders of the employer, and one for everyone else.

If they have employees that might move around from one class to the other (like NHCE to HCE due to pay changes), it might be best to put that language in just one SPD.

[Guest mcw]

Thanks. That was very helpful. Looks like we are going to do the same thing and prepare two SPDs, one for owners and one for non-owners.