Conflicts Between the Plan Document and the Summary Plan Description (SPD)

A problem many plan administrators face is dealing with conflicts between the plan document and the SPD. Unfortunately, this problem is more common with ESOPs than other retirement plans because the plan document is individually designed. This means that there are now two customized documents being written at different times in different styles, and in many cases, by different people, instead of one.

The plan document and the SPD are written at different times

As documented in our ESOP planning series, ERISA requires that you update the SPD every 10 years, assuming there are no plan changes. Most likely, your plan will have made some changes and you will need to update it every five years. Meanwhile, changes are made in the plan document real time. Unless the SPD is updated after every plan document amendment, there is a risk of a conflict arising due to the differences between the plan document and the most recently published SPD.

The plan document and the SPD are written in different styles

When Plan Document and SPD Conflict, No Good Can Follow and ERISA Reg. § 2520.102-2, Style and format of summary plan description highlight the differences in style and format of the SPD and the plan document.

• Labor Reg. 2520.102(a) - "Method of presentation. The summary plan description shall be written in a manner calculated to be understood by the average plan participant and shall be sufficiently comprehensive to apprise the plan’s participants and beneficiaries of their rights and obligations under the plan. In fulfilling these requirements, the plan administrator shall exercise considered judgment and discretion by taking into account such factors as the level of comprehension and education of typical participants in the plan and the complexity of the terms of the plan. Consideration of these factors will usually require the limitation or elimination of technical jargon and of long, complex sentences, the use of clarifying examples and illustrations, the use of clear cross references and a table of contents."
• Labor Reg. 2520.102-2(b) - "General Format. The format of the summary plan description must not have the effect to misleading, mis-informing or failing to inform participants and beneficiaries. Any description of exception, limitations, reductions, and other restrictions of plan benefits shall not be minimized, rendered obscure or otherwise made to appear unimportant. Such exceptions, limitations, reductions, or restrictions of plan benefits shall be described or summarized in a manner not less prominent than the style, captions, printing type, and prominence used to describe or summarize plan benefits. The advantages and disadvantages of the plan shall be presented without either exaggerating the benefits or minimizing the limitations. The description or summary of restrictive plan provisions need not be disclosed in the summary plan description in close conjunction with the description or summary of benefits, provided that adjacent to the benefit description the page on which the restrictions are described is noted."

The first citation contains the “plain language” requirements. The second citation ensures that the SPD does not mislead the participants. Based on these rules, the post asserts that the SPD is more challenging to write.

The plan document and the SPD are written by different people

While the plan document is written by counsel, the SPD is often written internally or by an employee benefits or communications consultant. Having two separate authors creates an additional barrier to ensuring the documents are and remain in sync.

Recent court cases provide that the SPD provisions and the interpretation of the provisions overrule the plan document if they benefit the participant

When Plan Document and SPD Conflict, No Good Can Follow discusses Washington v. Murphy Oil USA, No. 05-31063 (5th Cir. Aug. 16, 2007):

“In a dispute over whether the participant had sufficient vesting credit to qualify for a long-term disability benefit, the plan document and SPD contained very different information on the amount of required vesting credit. The plan document provided that a participant with 10 years of vesting service qualifies for the long-term disability benefit sought by the participant. The SPD stated that a participant would qualify for the long-term disability benefit sought by the participant with 5 years of vesting service. The participant had more than 5 years of vesting service credit but less than 10 years, which is where the issue arose. Following the vesting requirements described in the SPD meant that the participant receives the benefit. Following the vesting requirements contained in the plan document meant that the participant did not receive the benefit.

The 5th Circuit decided that the description in the SPD applied, and affirmed the district court decision to apply the vesting requirements contained in the SPD instead of the vesting requirements contained in the plan document.

The 5th Circuit held:that when the terms of an SPD and an ERISA plan conflict and the terms of the conflicting SPD unequivocally grant the employee with a vested right to benefits, the employee need not show reliance or prejudice. We find that this approach is most consistent with ERISA, which is designed to protect employees; and most consistent with our opinion in Hansen, which refused to place the burden of conflicting SPDs on plan beneficiaries. Because the SPD in this case unequivocally vests disability benefits after five years of service and Washington has at least five years of vesting credit, as a matter of contract law, his right to disability benefits vested and it cannot be taken away. Thus, the district court was correct in concluding that Washington need not show reliance or prejudice.”

Revisiting Conflicts Between Plan Documents & SPDs discusses Haus v. Bechtel Jacobs Co., 491 F.3d 557 (6th Cir. 2007):

“Haus adds an interesting twist to the post about Washington v. Murphy Oil. In Haus the Sixth Circuit ruled that, notwithstanding a deferential standard of review, it could not sustain a plan administrator's reading of the language of the plan documents that resulted in a conflict with the unambiguous language of the Summary Plan Description (SPD). The case is interesting because the opinion makes clear that while, on its face, the language in the plan documents did not necessarily conflict with the SPD, the way in which the plan administrator interpreted that language resulted in a conflict. This conflict with the SPD that resulted by the plan administrator's application of the language in the plan documents triggered the same reasons for reversing the Plan's denial of benefits as identified by the Sixth Circuit in earlier cases and the Fifth Circuit in Washington. The result is sound but it is nevertheless an explicit extension of the rule in Washington and many other Circuits that when the SPD is more generous than the plan documents, the SPD governs.”

Recent court case indicates absence of language in the SPD is not fatal if language is in other plan documents

Second Circuit on Discretionary Firestone Language and SPDs discusses Tocker v. Phillip Morris, No. 04-5904 (2nd Cir. Nov. 22, 2006) and how the absence of language in the SPD was not fatal as long as the language could be found in other documents:

“The court held that "[t]he arbitrary and capricious standard of review is warranted where the plan documents provide for discretionary authority, the summary plan description does not contain any conflicting language, and the applicable statutes and regulations do not require that the SPD contain provisions addressing the issue." The court noted that "those of our sister circuits to have considered the issue have reached the same conclusion [more particularly, the 8th, 9th, and 11th Circuits]." Since the trial court correctly applied the appropriate standard of review, the court affirmed as to the pension credit claim.”

Do participants even read the SPD?

Summary Plan Descriptions and Grants of Discretion disagrees with the previous court ruling and questions whether SPDs are even read by the participants:

"And some of this goes back to a fundamental issue, of whether participants really understand - or even read - the summary plan description, or whether it is instead simply something that gets pulled out by a participant’s lawyer after a claim for benefits has been denied. The summaries exist because we need to mandate disclosure, and certainly the more the better - but I don’t think it is realistic to structure a legal rule and indeed an entire regime around the myth that participants actually do read them, rely on them and understand them. When we do that, we move into simply creating traps that make the administration of plans more difficult and create loopholes to be exploited in litigation; while this may be good for lawyers’ wallets, I think we are all better served by legal rules that fit comfortably with how non-lawyers actually conduct themselves in their day to day lives.”

How do you resolve a conflict?

Unfortunately this is not something that is easily answered in a blog post. The plan administrator will need to work with their benefit advisors and counsel to determine the best way to resolve their individual situation based on the facts and circumstances. The best way to address a conflict is to prevent one from occurring.

What is a way to minimize the risk of errors?

A great way to minimize the risk of errors is to maintain a chart of plan provisions for both the SPD and the plan document and keep it current. Here is an example:

Plan Provision	Plan Document (12/25/05)	Reference	SPD (10/16/03)	Reference
Retirement Age	First of month after reaching age 65	Section 1.1, page 3	Age 65	Sec 2, page 4

Your third party administrator (TPA) or consultant should be able to provide you with this information.

UPDATE 5/23/08: SPD Language Providing Less Plan Benefits Overrules Plan Document Language stresses the importance of making sure your plan document and SPD contain the same plan provisions.