Combined SPD/Plan Document

[Christine Roberts]

Seeking comments on the pros/cons of using a combined SPD/Plan document, for a self-funded arrangement that encompasses group health, dental and flex benefits. Also, any insights on how to document the employer's transition to combined document from current situation, in which plan document is maintained separately from SPD.

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[Guest Hillary P]

I would recommend against combining the plan document and the SPD. For one thing, doing so means that the document participants would get has to be longer and more complex than what they're getting now. . . in turn increasing the risk of running afoul of the ERISA sect. 102 requirement that SPDs "be written in a manner calculated to be understood by the average plan participant."

[Guest Patricia Ibbs]

I would recomend a combined document. You are assured of internal consistency with a combined document. You also will not be administering the plan from a document the employees never see.

As far as the length and understandability issues, you can incorporate other documents onto the plan document by amendment thereby keeping the SPD in a shortened form.

ERISA gives strict guidelines for SPDs and then refers to "plan documents" in the plural. No one thinks that even the longest plan document contains all the administrative and procedural rules necessary to the plan. The plan documents include COBRA procedures, claims manuals, QMCSO procedures, and many other documents.

Because of this, I see no reason not to combine the PD/SPD for consistency and ease of administration.

[KIP KRAUS]

I agree with Hillary P. I don't really see a reason to combine them anyway. Ther are, by necessity, too many references to Code Sections and the law in plan documents that would muddy the waters for the average plan participant.

By the way, it is my opinion that information such as COBRA, HIPAA, QMSCO and FMLA which are required to be in the Plan Document are also required to be in the SPD. Actually, I feel more detail is required to be in the SPD

regarding these issues than is required in the plan document. The Plan Document can merely reference the actual laws without going into detail.

I'm not sure what is accomplished by having both documents combined into one?

[Greg Judd]

Good exchange going here on a perennially important issue in benefit communications.

The "mix SPD/plan document(s)?" debate is practically as old as ERISA.

Combining the 2 eases management of communications logistics (and communications budgets), and at least in theory reduces employee confusion about what info they have vs what they're entitled to from the sponsor.

At the same time, laying 'officially required' info next to generally more plan-friendly plan document content can create 'marketing' issues (cognitive dissonance, I believe the social scientists called it once).

Statutory language re: SPDs and other required communications, intended as is all law to act as a guide wire rather than an all-encompassing pipe, is not definitive here--and for once I believe that's not an oversight on legislators' part.

I lean towards combining the two, and 'transitioning' by simply labelling the section where the required stuff goes as "required stuff" (insert preferred heading here), with perhaps an explanation that the plan document expands on how the plan operates day-to-day.

[Guest victoria davis]

I think by far the best solution is to use a wrap plan document rather than doing separate or combined documents. With a wrap plan, all of the technical and legal mumbo jumbo/boilerplate stays in the plan document where it belongs and you don't run the risk of having inconsistent provisions between the plan and SPD. You also save alot of money since full blown medical plans are very expensive to draft. The wrap plan merely incorporates the SPD, insurance certificate booklets, etc by reference. It is very inexpensive to do and gives you the best of both worlds. We have moved all of our clients to this approach.

[Kirk Maldonado]

I don't think that you can legally combine them. The SPD is supposed to be in plain English. Health plans are anything but plain English.

In that regard, I'd like to point out that the Ninth Circuit has refused to enforce an exclusion that it considered to be "buried" in a plan document. My feeling is that unless the limitations and exclusions are clearly specified in a relatively short SPD, courts will be reluctant to enforce them.

Also, I have a conceptual difficulty with a combined doucment. I would like somebody to explain to me how a document can be a summary of itself. (Remember that the SPD is required to be a summary of the material provisions of the plan document; not the plan document.)

I realize that combined documents are routinely done. However, that does not mean that they comply with ERISA; it just means that there is massive noncompliance.

[Guest Rich Kennedy]

My vote is not to combine the plan document and spd (although not all in my office agree).

I do not believe that a combined document can properly address the different purposes and requirements for plan documents and spds. Leaving aside the pure drafting issue of writing style, including whether the combined document should be written in second or third person, there are certain items that are more appropriately addressed only in the plan document or addressed in more detail in the plan document (e.g., amendment procedures, allocation and delegation of fiduciary requirements,subrogations provisions, provisions for the adoption of the plan by other employers, and the details of provisions applying only to few participants), while others are more appropriately addressed in more detail in the spd (e.g., COBRA procedures and elections, HIPPA enrollment procedures, benefit examples, and the general identifying data required by DOL regulations).

Also, largely because of the above, I find it easier and faster to prepare separate documents.

[Guest Paul]

As a practical matter, people do not file lawsuits because of technical violations to the requirements applicable to plan documents and/or spds. They file lawsuit because plan benefits have not been paid. I would vote for a wrap around document because they are inexpensive and there will be consistency with the documents.

[Guest Sophia Chrusciel]

I believe the practice of one document evolved from group health insurance contracts which included a "certificate of insurance" (participant booklet)detailing the coverage provisions for the insured but forming a substantial part of the insurance contracts. Many insurers and third party administrators for plans converting to a self-insured basis use what is essentially certificate language and turn it into a summary plan description, with an added execution page that turns the SPD into the "plan document." In my experience, it is done because it is cost-efficient and relatively easy, quick and seems to be the norm with smaller self-insured plans. (Besides, in reality everyone writes their SPD first before they tackle the document.) There is no government filing involved as in qualified retirement plans so that imposed discipline is missing. Unfortunately, these vendor produced documents often don't get legal review. If there are never any claim disputes about eligibility or benefit coverages, COB, or subrogation, it may appear to work fine. However, every claim dispute I have been involved with in 17 years of practice could have been avoided with complete and clear plan document language. The SPD didn't address the issue, described the provision erroneously or incompletely or oversimplified it, thus rendering it "ambiguous" (participant wins in many cases). Group health plans with all the layers of different coverage (medical, dental, vision, EAP, drug), utilization review, ppo, indemnity and pos options, multiple vendors, and a pre-tax contribution (flex) component are extremely complex and involve a lot of detail. COBRA, FMLA and HIPAA made this worse. This is before you even get to the exclusions and definitions of "experimental" or "medical necessity" or "custodial care" or "domestic partner" or "disabled". I think a separate plan document is by far the "best practice" way to go, and what most larger companies that can afford it prefer. I think consistency is achievable. However, a well written and relatively detailed SPD with a good "wrap around document" for the legally required ERISA document provisions and fiduciary/delegation/plan amendment/Firestone language provisions can work well to beef up the SPD and is much cheaper to prepare. As in qualified retirement plans, other documents can be incorporated by reference (e.g., qualified medical child support order procedures, domestic partner provisions, leave of absence coverage duration and contribution terms). Finally, keep in mind that a cafeteria plan under section 125 (flex plan) needs to be maintained pursuant to a written document and the IRS is auditing plans and disqualifying them for failure to meet this formality. Not a good thing for participants or the employer who is then hit with huge employment tax liability.

[Guest Mikev]

We should also keep in mind the "Employee" in our employee communications efforts. Whether the documents are combined or kept seperate, they are both legally mandated and, as a result, contain an overload of information. If not completely unreadable, they are are certainlly a turnoff to employees seeking information and answers to their benefits related questions.

After we have answered the question "Combine or keep seperate?" We should ask: Have these documents met the objectives of my employee communications strategy?

[Guest Peter Abarbanel]

I generally advise my clients against combining the plan document and the SPD, for the following reasons:

1) The plan document is probably beyond the comprehension of the average plan participant. Furnishing it to employees will therefore not relieve the plan sponsor of the responsibility for providing an SPD that can be understood by the "average plan participant."

2) For the reasons outlined in #1 above, the inclusion of the plan document will probably add to -- not mitigate -- employee confusion over the terms of the plan, or perceived discrepancies between the SPD and the document language.

3) From a practical standpoint, updating of such a combined SPD/plan document would be more difficult and expensive.

4) Employee confusion over the terms of the plan as stated in the SPD vs. the plan document could add to -- not reduce -- the possibility of employee complaints, questions, and/or litigation.

Rather than providing a combined SPD/plan document, plan sponsors would be better advised to focus their efforts on developing SPDs which clearly and accurately reflect the terms of the plan in question.

[This message has been edited by Peter Abarbanel (edited 06-17-99).]