SPD Failure: An Expensive Lesson (article)
A recent case, Snitselaar v. UNUM Life Insurance Company of America (1:17-cv-00014-LRR-MAR District Court, N.D. Iowa), provides a good reminder to employers of the importance of providing a summary plan description (SPD). The SPD is a summary of the plan document highlighting eligibility, benefits, plan operations, funding, claims procedures, as well as other general terms, conditions and exclusions of the plan. The SPD is required to be provided to each participant covered by a plan subject to ERISA. Generally, a plan subject to ERISA includes employer-sponsored welfare benefit plans, as well as retirement plans. Excepted from ERISA are plans sponsored by state and local governments and plans sponsored by churches.
Pursuant to ERISA’s reporting and disclosure requirements, the plan sponsor must provide the SPD to the participant within 90 days of the individual becoming covered by the plan. Further, the SPD must be provided every 5 years, unless no changes have been made to the plan, in which case, it need only be provided every 10 years. For changes made to the plan that occur prior to the time a full SPD is provided, a summary of material modification (SMM) must be provided. The SMM must be provided to plan participants within 210 days following the close of the plan year in which the change takes effect. However, prior litigation has shown that it is important to provide the SMM prior to the plan change taking effect in order to ensure that the participant has information that he or she needs in order to make informed plan decisions.
In the above-referenced matter, a married couple, covered under a group life insurance plan, divorced. Three months later, the plaintiff’s ex-spouse dies without converting the life insurance as a result of the divorce. The plaintiff argued that the couple did not know about the conversion rights because they were not provided the SPD by the employer/plan sponsor which would have contained such information. As a result, the plaintiff’s claim to the death benefit was denied by the insurer because under the terms of the contract, coverage terminated upon the date of the divorce. It was argued that if the couple initially been provided with the SPD that contained information about the right of conversion, such right could have been effectuated and thus, the surviving spouse could have received the death benefit. The Court agreed, compelling the employer to pay $60,000 to the plaintiff, which reflects the amount of dependent life insurance available under the group policy had the conversion been effectuated.