Readability of Summary Plan Descriptions
ERISA requires that every employee benefit plan provide to all participants and beneficiaries a “Summary Plan Description” that contains a laundry list of information. 29 U.S.C. §1022(b) outlines the information SPDs must contain. This section of ERISA carries out one of the statute's primary purposes: full disclosure to employees and their dependents of material information about their pension and welfare benefits. ERISA also requires that SPDs be written so as to be understandable by the average plan participant.
So how effective are SPDs at conveying information about employee benefits in a comprehensible way? The Employee Benefit Research Institute recently published a report on the degree to which SPDs are readable. You can review it here.
Some points of interest: the range of readability of SPDs in the study extended from the 9th to the 16th grade levels. The study found no meaningful difference between SPDs provided by multi-employer plans compared to single employer plans. Not surprisingly, the report notes that one of the barriers to effective SPDs is our society’s relatively low level of fundamental literacy. Obtaining complete and accurate comprehension of a comparatively difficult subject such as health insurance is hard enough for people who read and write at college levels. But when a third of the adults in the country have limited ability to read English at all, drafting SPDs that are accessible to the average employee is a daunting job. In its conclusion, the report restates what is self-evident: “the primary communication tool used to provide important information to workers who participate in their employer’s health care plan often may be unreadable to them.”
There are many inherent obstacles to carrying out ERISA’s disclosure mandate. Working to improve the fundamental literacy of the 160 million individuals covered by ERISA plans in this country is a worthy ideal. But comparing it to the requirement that drafters of SPDs eliminate abstruse and ambiguous language, is like the comparison between eliminating world hunger and building a mass transit system in an urban area. Both are difficult and time consuming but one is much more achievable and realistic than the other. The problem I see is that insurers and ERISA plan administrators have little reason to believe that violating the disclosure mandates of 29 U.S.C. Sec. 1022 has any adverse consequence. In fact, the way in which ERISA has been interpreted in the last two decades establishes strong incentives for ERISA plan drafters to leave significant ambiguity and wiggle room within their SPDs. And that rarely ends up benefiting participants and beneficiaries. I'll explain why in the next post.