Member Article

A recent U.S. Court of Appeals decision underscores the importance to plan administrators of maintaining proper procedures for the distribution of summary plan descriptions (SPD’s) under ERISA. Each participant in a plan which is subject to ERISA must be furnished an SPD satisfying ERISA’s content requirements within 90 days after he or she becomes a participant. In addition, if an ERISA plan is modified, a summary of material modifications (SMM) to a plan must be distributed not later than 210 days after the close of the plan year in which the modification was adopted. Group health plans, however, generally must furnish an SMM of any “material reduction in covered services or benefits” not later than 60 days after the date of adoption of the reduction in benefits. The pertinent regulations provide that SPD’s must be sent by a delivery method likely to result in full distribution, and measures are to be used that are reasonably calculated to ensure actual receipt by the participants. After Allied Signal, Inc. acquired Textron, Inc., it replaced Textron’s life insurance plan with its own life insurance plan. Prior to transitioning to the new benefits, Allied Signal held employee meetings (four per day for three days) to explain the benefit changes and provide employees with SPDs and other enrollment materials. Notices of these meetings were mailed to all employees at their addresses of record, and notices were also posted on company bulletin boards and video monitors. Supervisors tracked employees who were absent from the meetings due to a leave of absence or known scheduling conflict and sent a package of materials, including an SPD, to them at their homes or work addresses. No one, however, took attendance at the meetings to identify other employees who may have missed the meetings for unknown reasons. An employee who allegedly did not attend any of the meetings and did not receive an SPD for the new life insurance plan, erroneously believing that he still had his original coverage of approximately $120,000, only selected $40,000 of additional coverage. In fact, his total coverage was only $100,000, since Allied Signal, Inc. had basic life insurance coverage of $60,000. After his death, his wife sued Allied Signal, for the additional $60,000, claiming the company had violated ERISA by failing to provide her husband with an SPD that would have disclosed the coverage reduction. The court of appeals upheld the district court's finding that the company breached its ERISA duty of disclosure by not using measures reasonably calculated to ensure actual receipt of the SPD by all participants. The district court ordered the Company to pay damages of $62,250, consisting of the difference between the amount the widow actually received and the approximately $160,000 of coverage her husband believed he maintained. Plan administrators must develop and implement procedures for distributing SPD’s that ensure receipt by all participants and provide proof that ERISA’s disclosure requirements have been satisfied. If you have any questions about this Alert or any other employee benefit matters, please contact any of the attorneys listed above.

 

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