Frequently, when I ask a client—generally the person in human resources who is responsible for benefits administration—for a copy of the plan document, what I get back is a copy of the summary plan description (SPD). This tells me that the person responsible for administering the plan at the plan administrator level is relying upon the SPD to make determinations about plan provisions and to answer participant questions about the plan. But this is concerning because the SPD is not the plan document and should not be used to administer the plan, at least not on its own.
The SPD is an Incomplete Summary
By its very name and definition, the SPD is a summary of the plan document, not the actual plan document. To make SPDs even less reliable for plan administration, they are only designed to discuss key provisions of the plan, not all. Keep in mind that the SPD is a participant communication, so it only reflects the provisions that the IRS and DOL have determined are important for the participant to understand in determining their benefits and rights under the plan. Not all the messy innerworkings of the plan’s operation.
The SPD is a Translation and Inaccurate
The SPD is designed to be understandable to participants, who are generally (and hopefully) less sophisticated and knowledgeable than those responsible for the administration of the plan. Mistakes can be made in translation from the language of a formal document to the vernacular of the average participant. In fact, if the SPD is at all thoughtfully drafted, it should have language which says that where there is a conflict been the SPD and the plan document, the plan document will govern. So that means, if the SPD says something different that the plan document, then the SPD is wrong. Basing determinations on an inaccurate SPD, and communicating incorrect information to third party vendors and participants, can result in tax qualification failures and even lawsuits.
What is the Actual Plan Document?
A plan document is always a large document, and if it is adopted on a pre-approved plan document, it is generally contained in two documents that work together—the adoption agreement and the base plan document (BPD).
The adoption agreement is the document where the plan sponsor gets to elect the optional provisions that will apply to the plan such as eligibility, contributions, and vesting. The adoption agreement will need to be executed by the employer and sometimes by the trustee.
The BPD is a large document (generally 80-120 pages) with the boilerplate provisions of the plan. Don’t confuse “boilerplate” for “unimportant.” In fact, these provisions are highly important—they are the provisions that apply to ALL plans, and they are not just technicalities. The BPD is not signed by the employer, but by signing the adoption agreement, the BPD is incorporated and adopted.
Other Plan Documents
There may be other “plan documents” that govern plan provisions, these include trust agreements which govern the powers and responsibilities of the trustee, written procedures such as loan policies and procedures for the review of qualified domestic relations orders, investment policies, and written interpretations of plan provisions by the administrator. The benefits administrator should always go to the source to find answers.
Conclusion
This is not to say that a well-written SPD cannot be an aid to the benefits administrator when trying to determine and understand plan provisions, but it should always be read in conjunction with the full plan document for veracity, accuracy, and context. And when that results in an unclear answer, it is time to reach out to benefits professionals, such as legal counsel, to cut through the technical jargon and to clarify the situation.