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Your Summary Plan Description is a Treasure Trove of Info(k)
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By Clifton Linton
Senior Writer, mPower |
Do you know what your 401(k)
summary plan description says? Do you even know where it is?
If you're like most 401(k)-plan
participants, you received this copy of your plan rules when you enrolled. And, like most
participants, you skimmed it and tossed it out, or stuck it in a pile of papers never to
be found again.
"For most employees, the summary
plan description looks pretty unappetizing. The employers say 'look at this' and the
employees throw it away," said David Wray, president of the Profit/Sharing 401(k)
Council of America, a trade group representing 401(k) plan sponsors.
Yet, this is one of the most critical
pieces of paperwork that you have about your 401(k) plan. Here's why you shouldn't
casually toss it aside.
What It Is
As the name says, a summary plan
description (SPD) is a summary of the key features of your 401(k) plan. The plan's full
rules are laid out in a longer report called the plan document, but that is too unwieldy
for companies to automatically distribute to all employees.
All SPDs lay out plan rules such as:
- when you are eligible to participate,
- the vesting schedule for
employer-matching contributions (if applicable),
- the size and timing of employer
matching contributions (if applicable),
- how to qualify for, apply for and
receive hardship withdrawals (if applicable),
- how to apply for a loan, and interest
rate calculations for loans (if applicable),
- withdrawal procedures (at retirement
and for rollovers),
- employee contribution rates,
- your rights under the Employee
Retirement Income Security Act (ERISA),
- contact information of the plan sponsor
and trustee, and the plan identification number (necessary if you want to review filings
with the IRS or Department of Labor),
- the appeals process if plan rules
aren't followed, including the person or firm to be contacted if you file suit against the
plan.
The document typically runs anywhere
from 12 to 20 pages long.
Say you want to take a loan or make a
hardship withdrawal. The SPD will tell you what documentation you will need, and might
also give you an idea how long it may take to receive your check.
This is the document to refer to when
you are about to retire or leave your job. It spells out the rules for getting your money.
Another reason to keep this document handy: if you die, your beneficiary or relatives will
need it to make a claim on your benefits.
Legalese, but Readable
The prose contained in the average SPD
is not likely to win a Pulitzer Prize, because it's often pretty legalistic. The intent,
though, is for the document to be understandable by the average employee.
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| "Should
you read it cover-to-cover? Nah! Look at it when you have things that are relevant." |
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| — Ted
Benna, creator of the first 401(k) plan and president of the 401(k) Association. |
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Most employers use common SPD
"templates" provided by their 401(k) providers. This saves costs and typically
ensures that all the legal fine points are covered.
Your SPD isn't likely to be to be
scintillating reading, but it's an important reference document, observed Ted Benna, the
creator of the first 401(k) plan and president of the 401(k) Association. "Should you
read it cover-to-cover? Nah! Look at it when you have things that are relevant," he
suggested.
Some employers have taken the time to
make their SPDs more readable by having staff writers turn them into glossy, attractive
documents with charts, photos and more interesting text.
Required by Law
Federal law requires employers to give
you a copy of the SPD when you enroll in the plan. Your employer is also required to hand
out new copies after five years if there are changes to the plan or after 10 years if
there is no change.
But, changes to the federal laws are
made frequently enough that many employers hand out updated copies more often than every
five years, said Cindy McCabe, owner of CGM Communications, an employee communications
consulting firm in Corte Madera, Calif.
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| Handing
out a "SPD is a legal requirement of the plan sponsor, because the government
believes that someone has to tell you your benefits and your rights and the employer's
obligations." |
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| — Ann
Plank, manager of retirement plan product services with Franklin Templeton, in San Mateo,
Calif. |
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Your employer is also required to let
you see a copy of your SPD any time you ask. Some companies post it on their corporate
intranet so it's always available for employees to read. According to anecdotal evidence
collected by the American Benefits Council, about one-third of large employers currently
offer their SPDs via a corporate intranet or Internet site, about one-third are thinking
of doing so, and the last third don't plan to offer the SPD electronically at all.
Still, just posting it on an intranet
may not be enough. The Department of Labor is still deciding whether this is an acceptable
substitute for delivering a paper copy, said John Scott, director of retirement policy
with the American Benefits Council. "It is a bit of a gray area," he said.
Handing out an "SPD is a legal
requirement of the plan sponsor, because the government believes that someone has to tell
you your benefits and your rights and the employer's obligations," said Ann Plank,
manager of retirement plan product services with Franklin Templeton, in San Mateo, Calif.
The SPD outlines the terms of your
participation in your 401(k) plan, so in a sense it is a part of a legally binding
contract. "The employer is required to follow the terms laid out in the SPD,"
Benna said.
The only exception is if the plan
document, the longer, official set of rules for your plan, says something
different from the SPD. This can occasionally happen when plan documents are amended, even
though employers and benefits providers try to avoid such conflicts. The plan document is
considered the definitive word on your plan, Plank said.
If your employer fails to operate the
401(k) plan according to the rules laid out in the plan document, the plan could be
disqualified, she said.
Your employer is also required to make
the plan document available for you to see at any time.
Only Communication
If your company has only a bare-bones
401(k) plan, the SPD may be one of the few pieces of information you get about your plan.
So, it's a good idea to hang on to
this document.
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The information provided here is intended to help you understand the general issue and
does not constitute any tax, investment or legal advice. Consult your financial, tax or
legal advisor regarding your own unique situation and your company's benefits
representative for rules specific to your plan.
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