Greenberg Traurig Alert
Legal Pitfalls in Welfare Benefit Plan Documentation
By Jeffrey D. Mamorsky, Greenberg Traurig,
New York Office
How familiar is this scenario? Western Widget Works of Walla Walla, Washington owes
much of its success to its excellent approach to employee relations. It sponsors a
generous program of the most modern employee benefits, including just about every form of
pension and welfare program available. Its benefits manager keeps close tabs on the
insurer, HMOs and administrators with whom Western Widget contracts to provide those
benefits, and whenever any of them doesn't measure up to Western Widget's high performance
standards, the benefits manager doesn't hesitate to move on to another who will.
A Typical Generous Welfare Benefit Plan
The welfare benefits provided by Western Widget include the following:
- A group-term life insurance program that includes:
- Basic employer-pay-all group-term life insurance equal to one-times pay
- Optional employee-pay-all group- term life insurance equal to an additional
- Optional employee-pay-all depend ent group-term life insurance of up to $10,000 for each
child and up to $100,000 for a spouse
- A contributory cafeteria selection of medical programs that includes:
- a self-insured point-of-service pro gram administered by a major national insurer whose
network providers are used
- a selection of local HMOs operating in geographical areas in which Western Widget has
large concen trations of employees
- A separate self-insured prescription drug program that offers:
- a mail-order pharmacy charging small copayments
- a network of participating pharma cies where plan participants can buy their
prescription drugs for small copayments after incurring a $75 per person deductible ($150
- an indemnity arrangement paying 75% of the cost of prescription drugs bought from
out-of-network pharma cies after a $125 per person deductible with a maximum benefit of
$1,000 per covered person per year
- A contributory cafeteria selection of dental programs that includes:
- a self-insured point-of-service program administered by a major national insurer
- a selection of three local DMOs operating in geographical areas in which Western Widget
has large concentrations of employees
- An employer-pay-all insured short term disability income program providing up to 26
weeks of short term disability income benefits equal to 67% of pay
- An employee-pay-all insured long term disabil ity income program with a 6-month
exclusion period providing long-term disability income benefits equal to 50% of pay,
subject to the usual carve-outs for social security disability income benefits, workers'
compensation and other income replacement benefits
- A self-insured vision care program administered by the same local TPA
- A health care FSA
- A dependent care FSA
- An employee assistance program that provides a limited amount of counseling for mental
health, alcohol and substance abuse and marital counseling, and also provides referrals
for more extensive counseling
Contributions towards the cost of medical and dental coverage are modest, and for most
programs, contributions may be made through salary reduction, so they are made on a
A Typical Practical Approach to Managing a Welfare Benefit Program
As is typical of such arrangements, the documentation supporting the pension programs
has always been in order. However, the same can't be said of the documentation supporting
the welfare benefit programs. Part of the problem is that there are so many welfare
benefit programs which are explained in a host of booklets provided by the insurers, HMOs
and administrators, some of which are very current and others of which haven't been
updated for years. There's an annual open enrollment for the plan, at which time each plan
participant is given a very brief up-to-date summary of all programs available for the
upcoming year. There's never been a complaint from a plan participant based on lack of
information about what's covered and what's not covered, at least as far as the benefits
Whenever an employee brings a claim problem to the attention of the benefits manager,
she gets right on the problem and chases the appropriate insurer, HMO or administrator
until the matter is resolved. Her job involves keeping track of claim and administrative
expenses, troubleshooting questions from plan participants about financial results,
preparing the filing of the Form 5500s, planning for the next open enrollment, and
supervising the enrollment process.
Every now and then one of the insurers, HMOs or TPAs has fallen down on the job. In
those cases a pattern of persistent complaints about claims processing developed. Whenever
that happened, the benefits manager didn't hesitate to replace the insurer, HMO or TPA.
Working through a consultant-broker, the troublesome program was put out to bid and a new
insurer, HMO or TPA was chosen. This was always a very hectic time because, in addition to
the regular work just described, the benefits manager now had to supervise the transfer of
in-force and claim information from the old insurer, HMO or TPA to the new one, deal with
the disruption to plan participants when the new medical or dental networks didn't include
the health care providers they used, and generally deal with all the unique problems that
crop up when such a change is made.
The last change took place about a year ago when the current TPA was chosen to replace
a TPA that wasn't performing to Western Widget standards. The transition wasn't very
smooth, but after 7 or 8 months, all the bugs seemed to have been worked out, and the
present service seems to be better than it's ever been. However, in the last week or so,
the benefits manager received a substantial document from the TPA which turned out to be
its standard administrative services agreement (ASA) that was presented for the signature
of Western Widget. Since it was a contract, the benefits manager referred it to the law
department. Western Widget's lawyers are extremely expert in the arcane and intricate
legal affairs of widget manufacturing, but they referred the draft ASA to their outside
benefits counsel, and took this as an opportunity to ask for a quick review of their
compliance with all welfare benefits requirements.
A Typical Array of Potential Legal Problems
Along with the proposed ASA, benefits counsel received copies of all the booklets
describing the programs that make up the welfare benefits plan. Some were very detailed
and very current. Others were a bit old and dog-eared. The eligibility provisions of the
programs differed to some degree, and while the differences weren't very radical, there
was no apparent rationale for them.
None of the booklets in and of themselves contained all the elements of a complete and
adequate summary plan description (SPD). Not all COBRA provisions of the programs that are
subject to COBRA were identical in their terms and provisions. Western Widget didn't have
all the group insurance policies for its insured programs.
Benefits counsel determined that the proposed ASA was not completely consistent with
the request for proposal (RFP) that was given by Western Widget to the new TPA during the
selection process, and there wasn't much in the way of documentation to indicate why this
was so. They couldn't tell whether the discrepancies were accidental, intentional, agreed
to, or arbitrarily inserted. The ASA contained no provisions setting forth performance
standards and guarantees, much less anything that linked them to reports that would be
furnished periodically to Western Widget.
If this scenario sounds familiar, it's because it is quite typical. And if you're
concerned about legal liabilities and potential legal costs, you have good reason to be.
There are serious and potentially costly legal problems that should be addressed.
Much of the cost-savings feature of a proper managed health care program stems from the
ability of the program to promote preventive medicine or dentistry. The benefits manager
knows that when medical or dental problems are caught and solved before they get out of
hand, it almost always result in lower costs than when problems are ignored until a crisis
develops. Yet, many forward-looking plan sponsors (and highly competent on-the-ball
benefit managers like Western Widget's) turn a blind eye to just that kind of preventive
care when it comes to the legal issues related to the proper documentation of welfare
Let's take a look at the potential legal problems our friends at Western Widget have
and what they could have done (and can do) to eliminate them at a lower cost than would be
incurred to clean up the problems today. There are two immediate problems. First, there's
the need to conclude the ASA with the TPA. Second, there's a need to get a complete
up-to-date SPD in place and distributed.
Problems with the Administrative Service Agreement
The current arrangement between Western Widget and its TPA has been in place for about
a year, and right now everything seems to be going along just fine. Obviously this wasn't
the case with the previous TPA, which is why the programs were put out to bid and why the
new TPA was selected. The benefits manager seems to have a good record of keeping track of
performance. She immediately looks into any reported problem and has great success in
getting those problems solved. She checks whatever reports are submitted by the insurer,
HMOs and TPAs and reports on financial and other matters to senior management.
It's obvious that once the new TPA was selected, everyone's attention had to be and
indeed was, focused on the many complex tasks of transferring information from the old TPA
to the new TPA and on getting the programs up and running. Neither Western Widget nor the
TPA had the time or personnel to devote to resolving the legal issues. The
broker-consultant was properly focused on developing the specifications for the request
for proposal (RFP) and on evaluating the responses to the RFP from those who submitted
proposals. There's an unbelievable amount of technical and financial details that must be
considered, and that's where everyone's attention was directed.
The amount of time taken to get the programs up and running were not unusual, and the
outcome of the transfer also appears to be typical. Bugs were found, and one by one the
problems were resolved. As usual, it took a bit of time, but everything ended up working
well, And, with constant monitoring, any problems in the future will be detected and
solved. If they aren't it's going to be "back to the bidding process."
As is true in most business transactions, most parties to them are professional and
reputable. Everyone knows you can't succeed in business if you don't keep your promises,
and so it's in everyone's best interest to make only those promises that can be kept, to
do whatever it takes to keep those promises, and to keep the customer happy. Everyone
knows that problems arise, and it isn't the occurrence of problems that causes a loss of
confidence but rather the failure to resolve those problems satisfactorily when they do
So why worry about a contract? Why not just sign whatever the reputable TPA put forward
and be done with it? As long as it doesn't contain a provision that locks the parties into
an unbreakable marriage, there's no problem that can't be solved by a quick divorce.
Wrong! This typical story brings to surface several problems that the absence of a
proper contract could have avoided, or at least minimized. Some are financial. Others are
legal. Let's look at a few of them.
The Unseen Costs of Replacing Errant Administrators: Western Widget's first concern
would be financial because it's a typical business that always has to keep its eye on the
bottom line. It should have asked why things went wrong with the previous TPA. Probably
one of two things happened. First, there might have been an unfortunate turn-over of
competent staffing that was replaced with less competent staffing. If this is what
happened, it might have been detected before problems started increasing if there had been
an agreement with appropriate performance standards and guarantees related to staffing
coupled with appropriate regular reporting.
Second, as the relationship between that TPA and Western Widget continued, the cost of
administering the claims may have been increasing faster than the compensation paid by
Western Widget for the service. This could have led the TPA to cut back on its servicing
in several ways. Again, this could have been detected if there was an agreement with
appropriate performance standards and guarantees related to the quality of service, also
coupled with appropriate regular reporting.
Even though the problems with the previous TPA were solved by replacing it, the
replacement process was costly. At least a year of the benefits manger's time was taken up
with the replacement; first by working with the broker-consultant to establish the
specifications for the RFP; then in reviewing bidders; and then in making the transfer to
the new TPA. The services of the broker-consultant had to be paid for, and that amount
came out of Western Widget either by direct payment of a fee or through the new TPA who
paid a commission to the broker which has to be included in it's ASA fee.
And, it looks as if there's no way of avoiding similar problems with the new TPA. Sure,
these problems won't arise right away, unless the RFP set forth clear performance
standards and guarantees and provided for adequate and timely but inexpensive reporting.
Unless they are incorporated into the ASA, and unless the new TPA provides adequate and
timely reports that will disclose negative shifts in performance as they occur Western
Widget will be right back in the same place sooner of later.
If the benefits manager gets an early warning of a developing problem, the likelihood
is that it will be properly addressed once it's called to the TPA's attention. The TPA is
most likely to monitor its own performance when it knows the client has its eye on the
ball. And, no client is likely to fault a TPA for occasional slips; as long as the
mistakes are addressed promptly and corrected in a timely and professional manner, the
relationship stays healthy.
And speaking of staying healthy, we often fail to document practices and procedures
because we have too much to do and because such documentation takes too much time and
effort. However, when the important details of a complex transaction are set down in
writing, the chances are enormously improved that both parties to the transaction will
know what its rights and responsibilities are, and that they won't be overlooked when key
personnel are no longer around to remind Western Widget of what's required.
Just as with a properly managed health care program, it's always easier and less costly
when you catch and resolve problems when they're starting to develop. A slip in claim
accuracy or timeliness of payment is most likely to be reversed if it's caught early and
called to the TPA's attention.
Potential Legal Problems; Fiduciary Responsibility
We can't overlook the potential legal problems. Although welfare benefit programs don't
involve the volume of plan assets that retirement programs involve, there is a fiduciary
obligation to maintain the place at the lowest reasonable cost. It is the plan sponsor's
fiduciary duty under ERISA to act prudently and reduce the cost of administrative
expenses. Obviously, incurring the additional expenses of replacing an unsatisfactory TPA,
insurer or HMO, as a result of inadequate oversight does not comport with this
responsibility. Indeed, what most plan sponsors forget is that it is their fiduciary duty
under ERISA not only to prudently select service providers such as TPAs but also to
monitor their performance on a periodic basis (see DOL Regulations §2509.75-8, FR 17).
In any event, it's always wiser to adopt a course of conduct that is more likely to nip
problems before they get out of hand. Remember, Western Widget owes its success to being
very employee oriented, and if it can follow an approach to plan management that's more
likely to avoid the costs of replacing unsatisfactory TPAs, insurers and HMOs, it will
have more money available to either enhance plan benefits or avoid the need to scale them
back (or increase employee contributions).
Also, as a plan sponsor, Western Widget should be exercising due diligence in selecting
its insurers, HMOs and TPAs. The use of a qualified broker-consultant is evidence of this,
but there's an absence of performance standards coupled with the reports that provide
measures of performance. This inhibits monitoring of performance which is required by
ERISA. In addition, the acceptance of an ASA that varies from the specifications in the
RFP can be evidence of failure of exercise of due diligence.
There's also the quest of designation of plan fiduciaries. Historically, TPAs and many
insurers have refused to accept ERISA fiduciary responsibilities. This seemed to be based
on the view that they weren't really sure what it took to be an ERISA fiduciary, but they
were sure that the potential liabilities were more than they wanted to assume. However,
DOL regulations (see Reg. §§2509.78-8, D3 and FR-16) make it clear that the ERISA
statutory definition of fiduciary encompasses services providers such as TPAs who have
discretionary responsibility in the administration of the plan and/or have responsibility
with respect to plan assets (see ERISA Sec. 3(21)(A)). For example, in a recent decision,
the Ninth Circuit Court of Appeals determined that a TPA was a fiduciary even though his
agreement with the employer said otherwise in view of the TPA's discretionary authority
and control of plan assets. (See IT Corp. V. General American Life Insurance Company, 107
F3d 1415 (9th Cir., 1997), cert, denied, 118 S. Ct. 738 (U.S.S. Ct. 1998.)
On the other hand, if you ignore the required naming of a claim review fiduciary that's
called for by ERISA, the statute provides that the plan sponsor employer (or trustees in
the case of a multiemployer plan) is the claim review fiduciary. This is the case even
though the insurer, HMO or TPA is actually the one handling the claims. Accordingly, it's
essential that the entity handling claims agrees to be the ERISA fiduciary. This important
point should be part of the RFP process because you can't subsequently name an insurer,
HMO or TPA as a claim review fiduciary if it's standing there and stamping its figurative
foot insisting that it isn't a fiduciary. One year after the arrangement with the TPA is
in operation certainly isn't the best time to confront this issue, especially if you're
dealing with an old-fashioned TPA that has a policy of refusing to be designated as having
any fiduciary responsibility.
Potential Legal Problems: Indemnification, Legal Liability and Litigation Expenses
Another issue is indemnification responsibilities and liability for failure to perform.
If legal counsel for the TPA is doing its job, it probably will try to incorporate a
provision that limits the TPA's liability for failure to perform or to indemnify only in
the most egregious situations. However, if the TPA is assuming fiduciary responsibilities,
this simply won't do. The TPA should, as a matter of contract, hold itself out to be a
qualified expert in the performance of the responsibilities it assumes, and it should
accept legal responsibility for its own failure to meet that standard in its performance.
On the other hand, it should not be expected to assume liability to the extent the client
fails in the performance of its own responsibilities. The provision on liability and
indemnification should be fair and balanced, and it should be agreed to up front in the
RFP process not a year after the program is in operation.
Another "legal" issue that should always be addressed includes allocation of
responsibility for defending lawsuits involving denied claims. Clearly, with a
self-insured program, the plan sponsor always bears the full financial liability for
claims (and it should protect itself financially by obtaining whatever stop-loss insurance
is appropriate). The plan sponsor should bear the cost of defending a claim that it
mishandled its obligations to act (or refrain from acting). There should also be a
provision dealing with sharing of legal counsel when it's practical and ethical to have
the lawyers for one of the parties take the lead in any defense or assume the defense for
Other Potential Legal Problems
Both the TPA and the client usually have confidential and/or proprietary information
that they must share, and the agreement should require non-disclosure and address proper
mutual protections of confidentiality. On the other hand, there may be confidential and/or
proprietary information that needs to be disclosed to plan participants as the result of
ERISA requirements. For example, DOL has taken the position that the criteria for
"usual and customary" provider reimbursement must be disclosed to plan
participants even thought insurers may consider such information confidential or
proprietary (see DOL Advisory Opinion 96-14A). Important matters such as this should be
agreed to up front in the RFP process. And, of course, there's the usual legal
"boiler-plate" that should be in any complex contract.
How to Make It Happen: Can this be done realistically? After all, remember that the
broker-consultant, the benefits manager and the TPA were consumed for several months with
the nuts and bolts of getting the program to work. The lawyers came in later, after the
smoke cleared. The truth is that most of the details of the ASA can be worked out before
the bidding process ended. It's obviously best to have all those details worked out before
the TPA is selected, but having most issues worked out is far better than having none of
The way to do this is set up the RFP so that the bidders know in advance that when the
field is cut to the finalists, the RFP will be expanded to include the "legal
language" that the client wants to appear in the ASA. The written RFP with those
provisions, together with the final proposal of the successful bidder, should be
designated as the ASA, except for those provisions that are expressly excluded by the
successful bidder's proposal and that can't be negotiated by the time the deal is struck.
This eliminates the need for a formal ASA. It establishes a binding legal document at
the time the TPA is chosen. The RFP and the successful proposal or bid not only sets forth
the details of the services to be provided and the price (and the mechanism for renewal
and future price changes), but also all performance standards and guarantees, all
reporting requirements, and all "legal" provisions. If any of the
"legal" provisions haven't been agreed to, they'll be specified in the proposal
that's accepted by the client. This process should leave an adequate paper trail
indicating the final position of the client and the TPA, thereby at least establishing the
parameters of the area of disagreement. The client and the TPA can then choose to enter
into the agreement with a full understanding of the areas of disagreement and the scope of
the disagreement. Everyone is much better off in that position than Western Widget is in
our story with nothing agreed to and a proposed ASA that probably contains unacceptable
provisions and doesn't fully match up to the specifications in the RFP.
Problems with the SPD
Generally, the problem most plan sponsors have with their SPDs can be summed up in one
word: non-existence. This non-existence comes in two general varieties. First, there's the
form of non-existence in the Western Widget case where there are lots of pieces, but
nothing that can stand up as a complete and accurate SPD. Second, there's another typical
situation where there is a document that does contain many (or maybe even all) of the
elements of an SPD, but pieces of it are out-of-date, and other required pieces simply
aren't in writing and/or aren't incorporated into the SPD.
Use of a Wrap-Around SPD
The most recent proposed DOL regulations on SPDs suggest an easy-to-follow approach to
developing an all-inclusive SPD. They set forth the requirements for the contents of an
SPD and permit the plan sponsor to meet those requirements by incorporating independent
documents into it by reference.
Western Widget is in an excellent position to make use of this technique. It has
booklets from its insurers, HMOs and administrators that should, for the most part,
adequately describe the programs each of them insure or administer. There's no need to
repeat or try to summarize what's in those booklets. (Western Widget might want to take a
detailed look at the plan design of the self-insured medical and dental indemnity programs
to be sure that they cover whatever Western Widget doesn't want to be covered, but that
usually doesn't involve legal issues.)
Repetition isn't necessary. One might say it would be redundant to be repetitious. And
summarizing what's in the booklet isn't helpful because when you summarize something you
necessarily omit details and you wouldn't want to have a court find the plan liable
because something was left out of the summary. Besides, most booklets prepared by insurers
and HMOs that describe their benefits are carefully constructed to comply with the
requirements of state insurance or health departments that regulate those programs, and
many of them are really quite well written.
Our favorite approach to an SPD in a situation like the one before us is to have the
SPD explain in great detail what might be called the plan's eligibility rules; that is, a
description of how and when coverage begins, is maintained, and ends. This section of the
SPD would start with definitions of who is eligible for coverage. It would go on to
explain how enrollment is done (describing the initial enrollment process, special
enrollment situations, annual open enrollment, and, if applicable, late enrollment rules).
It would then explain some special rules for coverage, including:
- when coverage starts for newborn children;
- when coverage starts for older children who are adopted or placed for adoption when they
no longer qualify as newborns;
- how the plan handles coverage when both spouses or a parent and child both work for the
employer (sometimes called "internal coordination of benefits"); and
- special rules to comply with Qualified Medical Child Support Orders (QMCSOs).
The section should then explain the rules applicable for paying employee contributions
towards the cost of coverage. Since contribution rates change over time, it's not helpful
to list the current costs in the document. What this provision should cover is to explain
the salary reduction arrangement, and to identify those coverages where salary reduction
isn't used (either because the law won't permit it, as is the case with dependent
group-term life insurance, or because it may not afford the kinds of advantages the plan
sponsor wants to provide, as may be the case with optional employee-pay-all group-term
life insurance and/or long term disability income benefits). It should also explain how
the plan combines coverages for experience and how dividends will be allocated if and when
they're paid by the insurers.
Since Western Widget has a cafeteria plan subject to section 125 of the Internal
Revenue Code, this section of the SPD should contain a provision setting forth the
circumstances under which plan changes will be allowed during the year. Obviously, these
circumstances should include only those permitted by current law and regulation, and
within those, only the ones the plan sponsor wants to administer.
Finally, the section should explain exactly when the employer-provided coverage will
end, specifying the exact date on which coverage ends. This could be either the date of
termination of employment (or other terminating event) or the last day of the month in
which the terminating event occurs (since the premiums for the insured coverages are
generally paid through the end of each month). If the plan will terminate coverage for
cause (usually for submission of fraudulent claims or similar fraudulent activities
relating got plan benefits), this should be stated.
And, it's very important to set forth the rules that apply when a person goes on family
or medical leave or military leave, and (if it's applicable) on any other unpaid leave of
absence or sabbatical. In addition, it's very important to explain the plan's obligation
to provide a certification of coverage as required by the Health Insurance Portability and
Accountability Act (HIPAA).
Indeed, the latest DOL regulations make it clear that the SPD should contain or
incorporate by reference all rules and procedures applicable to QMCSOs, leaves under the
federal Family and Medical Leave Act (FMLA) and the Uniformed Service Employment and
Reemployment Rights Act (USERRA), and the procedures relating to exclusion of pre-existing
conditions and certification of coverage required by HIPAA. Each of those rules and
procedures generally run only one or two pages at most, and we think it's best to include
them in the SPD document to be sure that they are indeed in writing and readily available.
We think that it's best to incorporate program booklets into the SPD by reference because
they are invariably multiple pages in length.
Incorporation of Program Booklets by Reference
If the plan includes any self-insured and self-administered programs, it's probably
best to include a description of those programs in this SPD. Otherwise, the program
booklets should be incorporated by reference. This is best done by providing a chart that
identifies every program and the insurer, HMO or administrator that's responsible for it,
plus a specific description of the booklet (using its full formal title and any document
reference number appearing on it). In this chart, it's best to describe only the programs
in operation during the current plan year. The text of the SPD should explain that each
year thereafter, at the time of the annual open enrollment, a new updated chart describing
the programs applicable in that year will be provided to all plan participants and
eligible employees who aren't yet plan participants at no charge.
The SPD should also include a "quick reference" chart that lists each program
and identifies by the person or office to contact for claim submissions, claim review,
questions, forms, etc., usually by title rather than name, showing the address, phone
number and, if available, e-mail address. This information can be gathered from each of
the program booklets. General questions should be directed to the benefits manager's
office. Again, the SPD should state that this chart is provided only for the current plan
year and advise that for future years, a fresh copy will be supplied at the time of the
annual open enrollment for that year to all plan participants and eligible employees who
aren't yet plan participants at no charge.
It may be helpful to include a section describing the claim submission and review
process in very general terms. Each program booklet usually describes the specific
procedures applicable for the benefits the program provides, but such a section is
necessary if any of the programs are self-insured and self-administered. It's too soon to
adopt the new claims submission and review procedures proposed by the DOL or proposed
legislation. Those procedures are quite controversial and they shouldn't be used until
they are finalized and made effective.
COBRA Continuation Coverage
The SPD should contain information about COBRA continuation coverage. We recommend
using the same text that would be used in an initial COBRA notice that's brought
completely up-to-date to comply with the recently published IRS final and proposed
ERISA and Other Information
Finally, the SPD should contain the usual ERISA information in an up-to-date version
complying with the latest requirements. This includes an updated statement of ERISA rights
and an explanation of how the plan may change or terminate any programs or benefits. We
also recommend some additional provisions that aren't required by any law or regulation
but that are extremely helpful to employers and plan sponsors. These include provisions
- Grant of discretionary authority to the plan administrator and its designees.
- A statement of the company's right to terminate employment at will.
- A disclaimer of liability of the company for the practice of medicine.
- A statement of the plan's privacy and confidentiality procedures.
- A reminder of the various requirements to furnish the plan with notices and
informationthat the plan needs for proper administration.
- A statement that headings don't modify plan provisions.
The Value of Writing a Complete and Up-to-Date SPD
It's true that Western Widget (and just about everyone else) has gotten along fine all
these years without a complete and up-to-date SPD. But, sooner or later, either Western
Widget or another plan sponsor will run into a problem where it will get caught without
the required documentation, and if that should occur at least two things could happen.
First, the plan sponsor may be unable to defend a denial of a claim. Second, and more
important, the plan sponsor may be assessed ERISA penalties of $110 per day for every plan
participant who hasn't received a proper SPD. Since there never was a proper SPD, the
period involved multiplied by the number of employees and multiplied again by $110 per day
can add up to a significant penalty.
It's pretty easy to fix the SPD problem. In most cases, the major pieces are available,
and all it takes is a little-time and effort to prepare the SPD "wrapper" and
assure that it's consistent with the program booklets and the requirements of each
insurer, HMO and/or TPA. Once again, this assures that the plan is complete and in
writing, with each piece clearly identified. After the plan participants have received the
document and the booklets incorporated by reference, they won't be able to complain that
they "never knew" the details of the plan.
Moreover, the people who have to administer the plan will have something clear and
correct to which they can refer whenever questions arise. The last thing the client needs
is to have someone in the organization say that he or she "never knew" the
details of the plan.
On the other hand, it's harder to fix the problems of the agreement with the TPA. An
ASA is a very useful document, as we explained, and it's best to confront and deal with
the problems that may be presented by the TPA's draft rather than ignore them. This is a
case where, as a client, you'll pay counsel more now than you would have had the matter
been attended to during the bidding process. The TPA is not under any pressure to get the
agreement done after it's been retained and the client willl have to pay for numerous
reviews and markups of the draft ASA with suggested changes, followed by a long period of
waiting for the TPA to respond, followed by a period to get back up to speed on the TPA's
responses, and so on and so on.
The solution to the dilemma is to retain counsel to prepare an adequate and complete
SPD and to make sure that all the elements of an ASA are included in the RFP process.
The Firm's Employee Benefits Group specializes in the evaluation of welfare benefit
plan compliance under ERISA and other applicable legislation through a Fiduciary Audit®
Operational Review and the preparation of cost-effective plan documents and SPD's that
meet all compliance requirements under all applicable laws. We are also available to
assist clients with the review and/or negotiation of RFP's from service providers,
insurance policies, TPA agreements and the analysis of ERISA fiduciary liablity under such
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This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.