Is it Time to Update Your Summary Plan Description?

Like many other employers who sponsor a tax-qualified retirement plan, you may have recently amended your plan to make changes required by the tax and pension laws.

These laws, enacted in the 1990s and known collectively as “GUST,” required significant modifications to written plan documents — so much so that most employers have simply adopted new plan documents written specifically for the GUST changes. When adopting the GUST amendments, many sponsors have also amended their plans to incorporate tax and pension law changes enacted in 2001 (which are not part of GUST).

Communicating the Changes

Since many retirement plan sponsors amended their plans in 2002, another pension law requirement is now on the horizon.

The law requires the plan administrator to explain the plan amendments to all plan participants and to beneficiaries receiving benefits. (In most cases, the employer sponsoring the plan is the official plan administrator.) To do this, the plan administrator must give a revised Summary Plan Description (SPD) or a Summary of Material Modifications (SMM) to participants and beneficiaries within 210 days after the close of the plan year in which the changes were adopted. (With a major overhaul like the GUST amendment, most plan sponsors have chosen to revise the SPD.)

So, for a calendar-year plan that was amended in 2002, the deadline for providing the revised SPD or SMM is July 29, 2003. If you have adopted the 2001 law changes, an SMM for those changes should be distributed with the revised SPD or SMM for the GUST changes.

What Must the SPD Contain?

The pension law and regulations state what information an SPD must contain. This information includes such items as: the plan’s name; the employer’s name, address, and employer identification number; the type of plan; information about the plan administrator and, if applicable, the trustee; and a description of the plan’s various provisions and the participants’ rights and responsibilities under the plan.

Note that, beginning on January 1, 2003 (for calendar-year plans), new rules went into effect requiring that additional information be included in the SPD. The entity that provided your plan document — a financial institution, for example — may be able to provide a model SPD or SMM for your use.

The SPD must be written in a manner understandable by the average plan participant. The format must not “hide” important information such as limits and exceptions; these items must be no less prominent than a description of the plan’s benefits. Where a sufficiently large portion of a plan’s participants are literate only in a common non-English language, the plan administrator must provide a notice in that language that offers those employees assistance in learning about the plan.

How Must the SPD Be Delivered?

A plan administrator can provide the SPD or SMM by in-hand delivery, by regular mail, or in the form of an insert in a company communication such as a newsletter or newspaper. If all regulatory requirements are met, the SPD or SMM may also be delivered by electronic means (e.g., by e-mail), but participants must be provided with a paper version of the SPD on request.

Can We Help?

Failure to provide an SPD or SMM in a timely manner can result in substantial penalties. And, not only must retirement plans provide SPDs, but certain health and other welfare benefit plans are also subject to these disclosure rules. (The requirements vary according to the type of plan and the size of the employer.) In any event, the guidance of a professional advisor in determining what your responsibilities are in this area is highly recommended. If we can be of assistance to you, please let us know.

The information provided in the newsletter has been obtained from sources believed to be reliable but its accuracy is not guaranteed.