Release 6/30/2016

DirectPath Responds to Comment Request by the DOL on Summary Plan Descriptions

Recently, the Department of Labor (DOL) requested comments on the Summary Plan Description (SPD) requirements under the Employee Retirement Income Security Act of 1974 (ERISA). As no changes to the regulation were proposed, the request for comments was merely a regulatory formality.

We at DirectPath used this opportunity to make two requests of the DOL: first, that it revisit its policy on electronic distribution given the dramatic increase in internet use over the past 15 years, and second, that it place additional emphasis on SPD readability.

Under the current regulations, electronic distribution is only available when an employee has reasonable access to a computer as part of his or her job, or where the participant has opted into receiving documents electronically. According to research from the Pew Research Center, today more than 89% of adults in the United States are internet users, up from only 60% when the current regulations were initially released in 2002. Of individuals under age 65, 72% have internet access via smartphones. Given today’s widespread access to the internet itself as well as means to such access, DirectPath recommends that electronic distribution should be the norm, and participants should instead opt into paper.

Electronic distribution offers a number of benefits, including enhanced access to information for both participant and family members, reduced participant confusion, an opportunity for significant cost-savings and real greening benefits. Further, liberalizing these regulations would bring consistency with other federal regulations on this topic, such as DOL rules addressing distribution of summaries of benefits and coverage (SBCs) and IRS rules for plan- and fee-related disclosures.

Second, we asked the Agency to mandate measurement of SPD readability. While the very first provision of the regulation (29 CFR 2520.102-2) focuses on style and format, noting that the SPD “is to be written in a manner calculated to be understood by the average plan participant,” employers too often focus on thespecific information that must be included in an effort to “check the box” of compliance. In this age of increasingly poor health and financial literacy and increasingly complicated benefit plans, it is more important than ever that plan provisions be described simply and clearly.

The Department of Education reports that 43% of adults read at 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. A joint report by the DOE and the National Institute of Literacy found that 21% of adults in the U.S. read below the fifth grade level. Further, a recent study reported in The Journal of Health Economicsfound that 86% of people cannot define deductible, copay, coinsurance and out-of-pocket maximum—some of the most basic health care concepts.

We urge the Department to reiterate the “readability” standard and to provide discrete examples as to how employers could better communicate this key information. Further, while we appreciate that a complete rewrite of existing materials may not be practical, it’s important for organizations to understand where their documents stand now, so they have a baseline for improvement.

Many options exist for measuring readability—from tools embedded in Microsoft Word, to the “Flesch test” and even the federal government’s own readability standards.  It’s time the Agency spells out a process for compliance just as it spells out requirements for content and distribution.

To read DirectPath’s comment letter in its entirety, click HERE.