HR Compliance Connection

The Debate About Electronic Distribution

2008-10-05T15:14:54-07:00

A recent Ninth Circuit Court of Appeals decision [Gertjejansen v Kemper Insurance Companies, Inc., No. 06-563929 (9th Cir.2008)] highlights the need for employers to think carefully about whether electronic distribution of SPDs is appropriate.

While the advantage of electronic distribution of SPDs is obvious�??eliminating (or at least reducing) printing, warehousing and postage costs�??employers should consider whether they are prepared to meet all of the requirements for doing so. Not meeting these requirements could have serious repercussions.

The Safe Harbor Rules

Back in October of 2002, the DOL issued safe harbor regulations to help employers use electronic media when distributing documents such as SPDs [see DOL Reg. §2520.104b1(c)]. In general, electronic distributions that meet the regulations are considered to have met the distribution requirements.

To satisfy the safe harbor in the regulations, all of the following requirements must be met with respect to participants to whom the SPD is being distributed electronically:

Each participant must be notified electronically or in writing:
o That the SPD is being provided electronically
o Why the SPD is important
o That the participant can ask for a paper copy of the SPD from the plan administrator and get one at no charge
The plan administrator must provide a copy of the electronic document in paper form, at no charge, to any participant who asks for one.
Active employees must be able to access their employer�??s electronic information system at their work location, whether on site, in the office, at home or on the road. Further, the employee�??s access to the employer�??s electronic information system must be essential to his or her work duties.
Participants who do not meet the access requirements described above (e.g., retirees, beneficiaries, active employees who do not use the employer�??s electronic distributions system) must provide consent and an email address in order to receive SPDs electronically at offsite locations. Further, the participant must be told that consent can be withdrawn at any time (without charge), what the procedures are for withdrawing consent and/or updating addresses or other information, and what the software and hardware requirements are to access and save the documents.

Electronic delivery systems�??whether email, intranet or portal�??must ensure actual receipt, confidentiality and participant consent (where applicable). Electronic features such as return receipt or return of �??undeliverable�?? emails, as well as periodic reviews to confirm receipt of sent information, will meet the standard.

As for the electronic SPDs themselves, they must meet the same content, style, format and notice requirements that apply to paper SPDs.

Distribution �?� Making Available

The key thing to remember is that there is a difference between �??distributing�?? an SPD, and simply making it available. Hence the requirement that the plan administrator take appropriate measures to ensure actual receipt of the SPD.

The final regulations issued in 2002 explicitly noted that providing information only at a centrally located kiosk does not satisfy the safe harbor. This year�??s Gertjensen ruling further noted that posting the document on the employer�??s intranet site, alone, is not a sufficient means of distribution under ERISA and the DOL regulations.

In Gertjansen, the employer had merely posted the SPD on their intranet site. While the SPD contained specific language stating that the plan administrator had �??discretionary authority�?? to interpret the plan�??s provisions, because the plan had not been properly distributed, the court refused to use the �??abuse of discretion�?? standard of review in considering the case�??instead using the �??de novo�?? standard. (With a de novo review, the court simply proceeds to evaluate whether the plan administrator correctly or incorrectly denied benefits, without regard to what the plan administrator actually decided. Under an abuse of discretion review, the court will uphold the plan�??s decision to deny a claim as long as the plan administrator did not abuse its discretion in doing so.)

So Is It Right for You?

Electronic distribution certainly has its place. It can make sense for a large part of an employer�??s participant population, either as a sole or supplemental means of distribution. But doing so is a decision that should be discussed with your communications team and, more importantly, legal counsel.

Not only are employers who fail to meet all of the requirements for electronic distribution running the risk of less favorable rulings should a case go to court, they are also potentially leaving themselves open to fines of up to $110 per day per participant for each day (more than 30) that the participants do not receive their SPDs. Particularly in today�??s economy, that�??s a risk few employers can afford.

The Readability Crisis--Why It Matters

2008-08-15T11:07:56-07:00

The DOL regulations that apply to SPDs clearly state that they are to be �??written in a manner calculated to be understood by the average plan participant.�?? More often than not, that phrase is completely overlooked in the mad dash to meet the timing and content requirements of those same regulations.

In recent years, however, there�??s been an increasingly loud drumbeat calling for increased readability.

In October 2006, the Employee Benefits Research Institute (EBRI) released a report entitled �??How Readable Are Summary Plan Descriptions for Health Care Plans?�?? Not surprisingly, the answer was, �??not very.�?? EBRI reviewers found many SPDs harder to read than graduate school or technical material. The best of those reviewed came in at the ninth grade reading level.

Most experts suggest shooting for a sixth grade reading level. And the Department of Education reports that 43% of adults read on or below the basic level of literacy and 34% are either at or below the basic level of literacy needed to understand information about medicines or health care.

Obviously, there�??s a huge disconnect between SPDs and their intended audiences.

Why is this so important? First, if your plan participants (and remember, that isn�??t just employees�??that means spouses, dependent children, retirees, etc.) can�??t understand their SPDs, they can�??t understand their benefits. Chances are that means:
�?� you and your employees are spending money for benefits they don�??t appreciate or use
�?� your HR department or service center will be tied up answering questions participants should have been able to answer themselves.

Equally important are the legal implications of confusing language. Cases such as Watts v. BellSouth (US Court of Appeals, Eleventh Circuit, Dkt. No. 02-13230, January 2003), point out the need for clear, unambiguous language. (In this case, the use of �??may�?? instead of �??must�?? enabled an employee to sue BellSouth in court rather than being required�??as intended�??to exhaust administrative procedures first.)

That�??s why it�??s critical that your ERISA counsel participates actively throughout the drafting and review process, and signs off on all changes�??even punctuation. As any of you who�??ve been challenged to punctuate the sentence �??A woman without her man is nothing�?? knows�??the placement of a comma, colon or dash can change meaning completely. (For the punctuation obsessed among you, I recommend Lynn Truss�?? wonderful and hilarious book, �??Eats, Shoots and Leaves: The Zero Tolerance Approach to Punctuation.�??(http://www.amazon.com/gp/reader/1592400876/ref=sib_dp_pt#reader-link)

So what�??s an employer to do?

�?� Make sure whoever is writing your SPDs is skilled in and knowledgeable about benefits and communications�??and has at least a passing familiarity with current regulations. This reduces the chances that rewriting to improve readability will end up changing the meaning of the provisions in the plan.
�?� Write your documents in conversational English�??to the extent plan provisions and your lawyers will permit.
�?� Review your SPDs as if you knew little or nothing about benefits. Does the language make sense?
�?� Better yet, test your SPDs with your employees. A few focus group sessions can provide a wealth of information about what your employees understand and how they use their SPDs�??or what�??s stopping them from doing so.
�?� Run readability tests. The Flesch Reading Ease and Grade Level tests, the Gunning-Fog index, and other tests can show you just how readable�??or not�??your SPDs are.
�?� Start small. Simple changes, like using �??if�?? instead of �??in the event of,�?? or �??before�?? instead of �??prior to�?? can make a difference.
�?� Don�??t stop at the words�??pay attention to the layout of your SPDs. White space, call out boxes and even icons can make it easier for your participants to find and understand the information they need.

For more information about improving the user-friendliness of your SPDs�??or for a free readability analysis�??contact us at kbuckey@highroads.com.

The Pros and Cons of Vendor SPDs

2008-07-02T12:15:25-07:00

For many employers faced with the need to get SPDs out quickly, the notion of using the materials your vendor(s) offer can be a Godsend. They�??re readily available, they�??re cheap (often provided as part of your contract) and they�??ve already been �??vetted�?? by an attorney. And some of them are quite well done. But there are some definite downsides.

(1) It may not be an SPD. Calling it an SPD doesn�??t make it so. Be sure to read it carefully to make sure it contains all of the information legally required to be in an SPD. If you do go this route, make sure you have your own ERISA counsel review the documents carefully.

(2) It may have information no one needs. Some documents touted as SPDs were actually created to meet the requirements of the state insurance boards�??not ERISA. That usually means your employees will have to slog through pages of information that doesn�??t affect them before they get to the �??good stuff."

(3) It promotes the vendor, not you. Most vendor-provided SPDs are off-the-shelf documents, possibly with a series of riders attached to �??tailor�?? it to your plan design. More often than not, the only company mentioned by name will be the vendor�??not your organization.

(4) It may not be customizable for your organization. As a corollary to #3�?�if you�??ve invested a lot of money and effort to create a brand for your benefits program or even HR, you may not be able to apply it to these off-the-shelf materials. If you refer to your employees as �??associates�?? or �??staff�?? and the vendor SPD refers to �??employees,�?? you�??re typically out of luck. Unless, of course, you want to pay an additional fee.

(5) It won�??t match your other SPDs. If you have more than one vendor, there won�??t be any consistency across your SPDs in terms of style, tone, format, terminology and even organization. How are your employees supposed to figure out how to use their benefits if every SPD they look at describes them differently and has the information they need in a different spot?

(6) It won�??t match your other benefits communications. Chances are your open enrolment materials, newsletters and other benefits communications are well written, easy to read and nicely laid out. Most certificates and booklets�??are not.

(7) They�??ll be repetitive. Multiple vendors = multiple documents = multiple appearances of COBRA, HIPAA, and claims filing language, just to name a few. Think about it�?�if you�??re an employee, would you prefer one 60-page health plan SPD describing all of your plan options, or four or five SPDs totaling 120 pages, each repeating the same information over and over?

Why Not a Wrap?
Recognizing that most certificates of coverage or benefit booklets are not SPDs, some employers use a so-called �??wrap�?? SPD. A wrap SPD contains basic provisions that apply to all plans and incorporates the booklets prepared by insurers, TPAs or HMOs.

While this approach helps ensure that all critical and mandatory information appears in the SPDs (e.g., the name of the plan administrator or agent for service of legal process) and captures any recent law changes that may not be addressed in the certificates, it does nothing to solve the readability, repetition, inconsistency and extraneous information issues. And your wrap will require a careful read to make sure there are no conflicts with the information in your vendor materials, particularly those designed to BE SPDs.

In short�??there may be times when vendor SPDs are your best option, at least in the short term�??the DOL is breathing down your neck, you have no budget�??but in the long term, these documents are doing you and your employees a disservice.

Do You Have a Strategy?

2008-05-30T11:10:17-07:00

Welcome!

Welcome to the first issue of HR Compliance Connection, a monthly blog about all things Summary Plan Description (SPD). Check back often for commentary on HR trends, HR best practices, burning issues and even court cases affecting the content, management and delivery of summary plan descriptions and related documents. And we want your input, too�??look for a �??question of the month�?? with each issue.

Do You Have a Strategy?

Sure, you have a �??strategy�?? for your SPDs�??get them done as quickly and painlessly as possible. But having a real strategy, one that can serve as a roadmap for your entire team, can help keep everyone on track and ensure that the end product meets your�??and your employees�??�??needs.

Here�??s what your strategy should include:

Objectives
What do you want your SPDs to accomplish? Are you looking at them as a compliance tool, or as a communications tool? Do you want your SPDs to answer employee questions so HR can focus on other issues? Help your employees make educated decisions when they elect and/or need to use their benefits? Head off law suits? Are there�??or should there be�??different business, HR and communication objectives?

Role
Where do SPDs fit into your overall benefits communications strategy? For example, do you have other communication media that explain the differences among your medical plans, or do you need your SPDs to do that? When was the last time you communicated to employees just what SPDs are, where they can find them, how to use them and why they�??re important?

Audience(s)
Who will be reading these documents? Besides your active employees, family members are likely to refer to them. And don�??t forget your retirees, terminated vesteds, COBRA participants and QMCSO participants. Keep in mind that salaried, hourly and union participants may have different needs. And remember�??not all of your audience will meet your �??employee profile.�?? Just because you�??re an engineering firm, not all of your employees are engineers. If your cleaning people and secretaries and bookkeepers are covered, you can�??t write for rocket scientists.

Messages
What do you want to convey to all audience members? Do certain participants need special messages? (For example, if your hourly employees aren�??t participating in the 401(k) plans, you might want to include some messaging about the benefits of participating.)

Barriers
What problems do you expect? Are there language issues? Do you lack the resources you need to get the project done? Are you unsure of where the plan documents are, or even how many plans you have? Are there literacy concerns? Are your employees used to asking HR for help, rather than looking for the answers themselves?

Schedule
What�??s the timeline for getting your SPDs done? What are all the steps required to accomplish that? What�??s the plan for future updates? Do you need to issue revised SPDs right after union negotiations are concluded, or right before open enrollment? Get it on your calendar now! It�??s never a good thing to have to scramble to put one together when the DOL, a union or an attorney ask for one!

Distribution Plans
Are you going to post your SPDs, print them or both? Which groups get their SPDs distributed in which way? How are you going to track receipt? Will you distribute directly or rely on your locations to handle it?

Metrics
Are your goals to reduce time for producing new SPDs? By how much? Do you want to improve readership? How will you measure that? Updating your SPDs can be a big financial commitment, so you should have some way of measuring the return on your investment.

By getting all this information and answering all these questions in one place, you can ensure that your entire team will understand why, when, and how your SPDs need to be done and distributed.

For more information about SPD strategies, contact Kim at kbuckey@highroads.com.

QUESTION OF THE MONTH: What�??s your biggest concern related to SPDs?