Plan Documents Count: Know Their Terms
A recent Sixth Circuit Court decision, Clarcor, Inc. v. Madison National Life Insurance Company, Inc. [2012 WL 3089339 (6th Cir., July 31, 2012) unpublished], reminds us of the importance of plan documentation.
As background, ERISA requires that plans subject to it must have a written plan document defining the terms and conditions of the plan. This plan document must then be summarized by way of a summary plan description (SPD); it is this plan summary that must be provided to plan participants.
An initial SPD must be distributed to participants and beneficiaries within 120 days of the date the plan becomes subject to ERISA's disclosure requirements. New participants must be provided an SPD within 90 days of becoming a participant in the plan. Subsequent to the initial distribution, an SPD reflecting plan changes must be distributed every five years. If there are no changes to the plan, the SPD need only be distributed every ten years. The SPD must be distributed to participants and beneficiaries by the 210th day following the close of the relevant plan year to which the SPD applies, unless there is a material reduction in benefits; in which case, a summary of material modification must be provided within 60 days of the adoption of the change. Also note, the Affordable Care Act imposes a new summary of benefits and coverage (SBC) requirement, and an advanced 60-day notice of any change in the information contained in the SBC.
The plan document itself need only be provided upon request, but if the participant or beneficiary requests the plan document, all related plan information, including the plan document, must be provided within 30 days of the request.
As mentioned above, the plan sets forth the rules that govern it. In the Clarcor v Madison case, a problem arose in that COBRA was not offered upon the occurrence of a qualifying event. The employer extended health plan eligibility through its self-funded health plan for the duration of the short term disability period. When the employer later offered COBRA to the employee, the reinsurer denied coverage on the grounds that she was no longer eligible. The problem arose because the plan document and related reinsurance contract did not reflect continued eligibility during the period of a short term disability.
It is very important that the plan document and all related components including but not limited to the reinsurance contract, accurately and completely reflect the employer’s intent and practices.
The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.
As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.