EMPLOYEE BENEFITS: THE IMPORTANCE OF THE OFFICIAL PLAN DOCUMENT
“Every employee benefit plan shall be established and maintained pursuant to a written instrument.” That is the first sentence in ERISA’s fiduciary responsibility provision. The ERISA-mandated “written instrument” – the official plan document – is a powerful document; it defines the employer’s contractual undertaking with respect to the plan’s participants. In recent decisions, courts have distinguished between a writing that is enforceable as “the plan” and other plan-related instruments such as the summary plan description (“SPD”), an insurance policy, or an administrative services agreement (“ASA”).
This distinction is important because unless a particular plan design choice is included in the document that a court will recognize as constituting “the plan” – and for this purpose there is only one such document – it likely will not be a judicially enforceable term of the plan. For example, any delegation to the plan’s claims administrator of authority which construes the terms of the plan and determines entitlement to benefits likely will not be effective if such delegation appears only in the SPD or in another plan-related document. Similarly, contractual limitations periods governing the time within which a disappointed claimant must challenge an adverse decision in court are enforceable, but only if they appear in “the plan.” And the right of a group health plan to recover from a third party liable for injuries to a plan participant for which benefits were paid must be spelled out in “the plan” itself.
Generally, it is not difficult to identify “the plan” in the context of tax-favored pension or retirement plans, which are subject to the Internal Revenue Code’s myriad of qualification rules. The official plan document, likely to be quite lengthy, is easily distinguishable from the SPD. Welfare plans (group health, disability, life, severance, etc.), however, are a different story. In the world of welfare plans, the SPD historically has often doubled as the plan document from the point of view of employers, claims administrators, and plan participants. Or an insurance policy or certificate of coverage or the summary of benefits might be thought of as the governing instrument. Or all of those written instruments in combination might be treated as embodying the plan’s terms. The courts, however, don’t see it that way.
You need an official plan document, and you need to have that document at your fingertips. It should bear a title that plainly identifies it as “the plan,” such as “XYZ Inc.’s Group Health Plan.” It may be permissible to combine “the plan” with the SPD, in which case the title would so specify: “XYZ Inc.’s Voluntary Severance Plan and Summary Plan Description.” The U.S. Supreme Court has emphasized that “the Plan” and the SPD are provided for separately in ERISA, and it is not a sure bet that the double-duty approach would pass muster. The Court’s approach makes sense in the context of pension plans – a 100-plus-page document (“the plan”) plainly is not a summary written in language calculated to be understood by the average plan participant, as the SPD rules require. Welfare plans in general (other than group health plans, at least) can be relatively simple. A single document could include the operative contractual terms of the arrangement the employer intends to put in place and, at the same time, be understandable to the average plan participant and include language specifically required to be included in an SPD, such as the so-called statement of ERISA rights.
For the time being in light of existing judicial precedent, an abundance of caution might militate in favor of creating and maintaining two separate documents – an official plan document and an SPD. In connection with the official plan document, it appears that incorporation by reference works. In other words, there can be an official plan document, so designated, that incorporates by reference the claims adjudication provisions of an administrative services agreement between the employer and the claims administrator, for example. Delegation to the claims administrator of discretionary claims adjudicative authority in the administrative services agreement would thereby become a term of “the plan” and enforceable in the courts.
It seems that nothing is easy in the world of employee benefit plans, and it is not possible to cover the nuances of a particular subject in this format. Our purpose here is to alert employers to an issue that might not otherwise receive attention. As always, we recommend that you consult with experienced benefits counsel for advice concerning your specific situation and circumstances.