Are Your Clients' SPDs Accessible and Readable?

Plan advisers can consult with plan sponsors about their SPDs and determine if they are simple enough for employees to understand while also not subjecting sponsors to legal trouble.

Do your clients’ employees understand their benefit plan’s summary plan description (SPD)?

While a number of plan sponsors might say yes, they may want to rethink their answer. Defined as a key document in summarizing all plan rights, benefits, and responsibilities in a simple, easy fashion, the SPD has transformed into a sort of defense mechanism formed by plan sponsors, with pages upon pages of compound information and lengthy sentences to avoid legal concerns.

“The Unfortunate Truth About Your SPDs,” by Katherine Tange-duPré, a consultant at Bryan, Pendleton, Swats & McAllister, LLC, highlights the significance for plan sponsors to simplify SPDs, addresses worries among plan sponsors fretful of legal repercussions, and explores options for building a readable, clear document for employees.

“Think about what the SPD is, and think about where the audience is,” says Tange-duPré. “The SPD is the primary source of information that an employee is going to get—the most comprehensive source—other than a plan document. So, it has to be simple enough for them to understand.”

Described as a reference tool for the employee, Tange-duPré notes how an SPD must have two qualities: accessibility and ease of reading. Loaded with information about when employees may begin participating in plans, benefits involved, vesting and so on, the language utilized in SPDs is critical. Because of this, some plan administrators hold concerns surrounding potential legal repercussions, fretful that in simplifying a document too much, they will accidentally miss a specific detail and land themselves into a lawsuit. “A lot of people think, ‘well if we simplify, we’re going to leave things out’,” Tange-duPré tells PLANADVISER.

Court decisions in the Amara v. CIGNA Corp. ordering plan reformation after finding that CIGNA misled employees about benefits in its pension plan’s SPD, may also fuel plans sponsors’ legal concerns. However, Tange-duPré notes that it was the misleading, not the simplifying, that caused the trouble. 

“We don’t want to mislead anybody, but simplifying doesn’t mean leaving stuff out,” she says. “It simply means that you make it understandable.”

NEXT: Considerations for simplifying SPDs

In order to avoid legal repercussions, Tange-duPré advises—when forming the SPD—to review the carrier and type (such as health insurance, retirement planning, etc.), and to focus on what message the SPD will convey to participants.

Also helpful is the Flesch-Kincaid, a statistics tool that uses numeral scores to analyze readability, including grade levels, reading ease, and more, Tange-duPré writes in her article. The higher the score number, the simpler the text reads; the lower the number, the more difficult. To ensure participants can read the SPD without mistake, Tange-duPré advises lowering readability grade levels. Also helpful are focus groups, which can collect specific information regarding a participant’s readability. 

She says you want to aim the reading level of the SPD to the employee with the lowest rank of education.

Additionally, to evade misperception or confusion, Tange-duPré suggests adding glossaries and examples that can boil down compound terms and statements. “Just giving somebody the formula really isn’t enough,” she says. “That’s very simple, very straightforward. To really make it understandable, put some examples.”

In her article, Tange-duPré points out how participants may not utilize an SPD until a major life event occurs. Because of this, she recommends arranging the SPD in a “life event” order to parallel with specific occasions, such as marriage, divorce, change in career, etc.

To confirm all simplifications have been made, Tange-duPré mentions how checklists may come in handy.

“In every SPD that I write, I’ve used a checklist to make sure,” she says. She notes how even the most expert SPD writers can forget a thing or two regarding key tools to assist participants. “Even though I’ve written hundreds, there’s always a piece you’re just going to forget about.”

Tange-duPré’s article is available here.