New England Biz Law Update
Almost every employer has some kind of benefit program governed by The Employee Retirement Income Security Act of 1974 (ERISA), whether it’s a simple arrangement for medical coverage or a complex defined benefit pension plan.
While much of ERISA is focused on the substance of benefit plans, ERISA also regulates the disclosure of benefit plan information to employees. As is often the case with ERISA, while the specific requirements seem straightforward, in practice these seemingly simple principles can catch an unwary employer off guard.
While employers may view these procedures as an unnecessary bother, the law requires a high standard of care in communicating benefit information to employees. The procedures can help employers comply with the law and can also protect against unanticipated liability for faulty employee communications.
Written communication of plan benefits
ERISA requires a “Summary Plan Description” (SPD). This so-called “summary” is actually quite complex. Some of the items the SPD must address include:
The SPD must “be written in a manner calculated to be understood by the average plan participant” and must be “accurate and comprehensive.” If a certain percentage of participants are literate only in a foreign language, notices must be given in that language.
An employer must provide a copy of an SPD within 30 days of a request by an employee. The employer can be sanctioned with a $100 daily fine for each day it fails to provide a copy of an SPD after 30 days of receiving the request. These sanctions don’t apply, however, to certain life, health and disability plans that have fewer than 100 participants.
In certain instances, an employee can sue to recover benefits under an incorrect SPD. Let’s assume, for example, that an employer publishes an SPD indicating that a particular surgery is covered, without indicating any restrictions. However, the insurance policy covers the surgery only if it is non-cosmetic.
Let’s also assume that an employee elects to have the surgery solely for cosmetic reasons and the insurance company denies the claim. Can the employee sue the employer to recover the cost of the surgery?
The answer is, yes, under these circumstances.
While different courts have reached different conclusions in this type of situation, the federal courts in Massachusetts have taken an approach based more on fairness than on any hard or fast rule. Under recent cases, an employee has been allowed to recover benefits under an incorrect SPD, but only if the employee has relied on the incorrect provision.
This result might be different, though, if the employer can show the employee never read the SPD, or that the correct benefit information was given to the employee before the surgery.
Avoiding liability
While this can be an extremely complex issue, there are some simple steps an employer can take to protect itself against this type of unanticipated liability.
Rosalie A. Beith, of counsel with Fletcher Tilton & Whipple, P.C., concentrates her practice in ERISA and employee benefits, including compensation plans and arrangements, as well as public company equity compensation matters and Sarbanes-Oxley. Ms. Beith was formerly corporate counsel to a nationally-known financial services company, where she worked on all aspects of the establishment and administration of pension, welfare, compensation, and stock compensation plans. To reach Ms. Beith, please e-mail her at [email protected] or call (508) 532-3500.
