The Pension Protection Act Blog

Summary plan descriptions can be easier and harder to write than the actual plan document. Summary plan descriptions are harder to write because it requires condensing a 100+ page plan document down to 20 or 30 easy to read pages without missing any of the plan nuances. On top of that, the Department of Labor imposes a number of requirements on how SPDs are written that are not imposed on plan documents. For example, Labor Reg. 2520.102-2 provides the requirements for style and format for the SPD. Labor Reg. 2520.102(a), also known as the plain language requirement, states:

(a) Method of presentation. The summary plan description shall be written in a manner calculated to be understood by the average plan participant and shall be sufficiently comprehensive to apprise the plan’s participants and beneficiaries of their rights and obligations under the plan. In fulfilling these requirements, the plan administrator shall exercise considered judgment and discretion by taking into account such factors as the level of comprehension and education of typical participants in the plan and the complexity of the terms of the plan. Consideration of these factors will usually require the limitation or elimination of technical jargon and of long, complex sentences, the use of clarifying examples and illustrations, the use of clear cross referrences and a table of contents.

As pension geeks know, ERISA is written in long, complex sentences. Maybe because it is written primarily by pension geeks for pension geeks, ERISA does not easily lend itself to being described in a manner which eliminates the use of long, complex sentences.

Labor Reg. 2520.102-2(b) provides the cautionary admonitions on what not to do when writing a summary plan description. It states:

(b) General format. The format of the summary plan description must not have the effect to misleading, mis-informing or failing to inform participants and beneficiaries. Any description of exception, limitations, reductions, and other restrictions of plan benefits shall not be minimized, rendered obscure or otherwise made to appear unimportant. Such exceptions, limitations, reductions, or restrictions of plan benefits shall be described or summarized in a manner not less prominent than the style, captions, printing type, and prominence used to describe or summarize plan benefits. The advantages and disadvantages of the plan shall be presented without either exaggerating the benefits or minimizing the limitations. The description or summary of restrictive plan provisions need not be disclosed in the summary plan description in close conjunction wih the description or summary of benefits, provided that adjacent to the benefit description the page on which the restrictions are described is noted.

A large part of writing the summary plan description is ensuring that it does not have the effect to mislead, misinform or fail to provide the participants with the required information, and that the advantages and disadvantages of he plan are presented without exaggerating the benefits or minimizing the limitations.

During the life of a plan, the plan document can be amended and restated several times. As the terms of the plan document change, participants are required to be provided the updated information. At times, this means that the SPD will need to be rewritten so that it reflects the current terms of the plan document. Labor Reg. 2520-104b-2 also contains a number of time frames for providing participants and beneficiaries with an updated SPD, which can be generally remembered as roughly every five years, give or take some time. All of which provides another degree of difficulty to SPDs, which is making sure that the information in the SPD always matches the terms of the plan document.

What happens when they do not match was recently addressed by the 5th Circuit Court of Appeals, in Washington v. Murphy Oil USA, No. 05-31063 (5th Cir. Aug. 16, 2007). In a dispute over whether the participant had sufficient vesting credit to qualify for a long-term disability benefit, the plan document and SPD contained very different information on the amount of required vesting credit. The plan document provided that a participant with 10 years of vesting service qualifies for the long-term disability benefit sought by the participant. The SPD stated that a participant would qualify for the long-term disability benefit sought by the participant with 5 years of vesting service. The participant had more than 5 years of vesting service credit but less than 10 years, which is where the issue arose. Following the vesting requirements described in the SPD meant that the participant receives the benefit. Following the vesting requirements contained in the plan document meant that the participant did not receive the benefit.

The 5th Circuit decided that the description in the SPD applied, and affirmed the district court decision to apply the vesting requirements contained in the SPD instead of the vesting requirements contained in the plan document. The 5th Circuit held:

that when the terms of an SPD and an ERISA plan conflict and the terms of the conflicting SPD unequivocally grant the employee with a vested right to benefits, the employee need not show reliance or prejudice. We find that this approach is most consistent with ERISA, which is designed to protect employees; and most consistent with our opinion in Hansen, which refused to place the burden of conflicting SPDs on plan beneficiaries. Because the SPD in this case unequivocally vests disability benefits after five years of service and Washington has at least five years of vesting credit, as a matter of contract law, his right to disability benefits vested and it cannot be taken away. Thus, the district court was correct in concluding that Washington need not show reliance or prejudice.

This type of conflict between the SPD and the plan document can happen in a variety of ways. The most likely cause was that at some point, the plan document was restated, or the SPD was updated, and the plan document and SPD were not subjected to a side-by-side comparison to make sure that the information contained in the SPD was not misleading or mis-informing the participants and beneficiaries regarding the plan’s benefits.

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