Amendments to Summary Plan Description Regulations; Final Rule [11/21/2000]
Volume 65, Number 225, Page 70225-70244
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Part VII
Department of Labor
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Pension and Welfare Benefits Administration
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29 CFR Part 2520
Amendments to Summary Plan Description Regulations; Final Rule
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Part 2520
RIN 1210-AA69; RIN 1210-AA55
Amendments to Summary Plan Description Regulations
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Final rule.
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SUMMARY: This document contains a final rule amending the regulations
governing the content of the Summary Plan Description (SPD) required to
be furnished to employee benefit plan participants and beneficiaries
under the Employee Retirement Income Security Act of 1974, as amended
(ERISA). These amendments implement information disclosure
recommendations of the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry, as set forth in
their November 20, 1997, report, ``Consumer Bill of Rights and
Responsibilities.'' Specifically, the amendments clarify benefit,
medical provider, and other information required to be disclosed in, or
as part of, the SPD of a group health plan and repeal the limited
exemption with respect to SPDs of welfare plans providing benefits
through qualified health maintenance organizations (HMOs). In addition,
this document contains several amendments updating and clarifying
provisions relating to the content of SPDs that affect both pension and
welfare benefit plans. This document also adopts in final form certain
regulations that were effective on an interim basis implementing
amendments to ERISA enacted as part of the Health Insurance Portability
and Accountability Act of 1996 (HIPAA). This final rule will affect
employee pension and welfare benefit plans, including group health
plans, as well as administrators, fiduciaries, participants and
beneficiaries of such plans.
DATES: The amendments contained herein will be effective January 20,
2001. Except as otherwise provided, the amendments contained herein
will be applicable as of the first day of the second plan year
beginning on or after January 22, 2001.
FOR FURTHER INFORMATION CONTACT: Nalini Close, Office of Regulations
and Interpretations, Pension and Welfare Benefits Administration, U.S.
Department of Labor, Washington, DC (202) 219-8521. This is not a toll-
free number.
SUPPLEMENTARY INFORMATION:
A. Background
On September 9, 1998, the Department published in the Federal
Register (63 FR 48376) proposed amendments to 29 CFR 2520.102-3 and
2520.102-5, governing the content of the Summary Plan Description
(SPD). A number of these amendments were proposed to implement
recommendations of the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry for improved
disclosure by group health plans. The Commission's recommendations were
set forth in its November 20, 1997 report, entitled ``Consumer Bill of
Rights and Responsibilities.'' The Department also proposed several
additional amendments to the SPD requirements intended to generally
update and clarify the information required to be disclosed by welfare
and pension plans.
Other amendments affecting the SPD requirements were published in
the Federal Register on April 8, 1997 (62 FR 16979). These amendments,
published as interim rules, served to implement amendments to ERISA's
disclosure rules enacted as part the Health Insurance Portability and
Accountability Act of 1996 (HIPAA). The interim rules addressed certain
content requirements for SPDs of group health plans and the furnishing
of summaries of material reductions in covered services or benefits.
After consideration of the public comments received on both the
proposed and the interim rules referenced above, the Department is
adopting final rules affecting the content of SPDs (Sec. 2520.102-3),
the limited exception for SPDs of welfare plans providing benefits
through a qualified HMO (Sec. 2520.102-5), and the furnishing of
summaries of material reductions in covered services or benefits by
group health plans (Sec. 2520.104b-3).\1\ A discussion of the specific
amendments and the public comments follow.
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\1\ Rules governing the use of electronic media for distribution
of SPD and similar documents will be published separately. In this
regard, the Department intends to address the interim rule in 29 CFR
2520.104b-1(c) regarding the use of electronic media for furnishing
SPDs, SMMs and updated SPDs to participants in group health plans in
conjunction with the promulgation of a final rule on the use of
electronic communications and recordkeeping technologies by employee
benefit plans generally (See 64 FR 4506, January 28, 1999).
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B. Amendments Relating to the Content of SPD
1. Section 2520.102-3 (d)--Type of Plan
Section 2520.102-3(d) currently requires plan administrators to
specify in the summary plan description the type of welfare or pension
plan they administer. In an effort to update that requirement, the
Department proposed adding ``ERISA section 404(c) plans'' to the list
of examples of types of pension plans and ``group health plans'' to the
list of examples of types of welfare plans. One commenter expressed the
view that the specific disclosures required under the regulation
section governing section 404(c) plans (29 CFR 2550.404c-1(b)) should
be adequate to inform participants and beneficiaries as to the nature
of the plan and that, in some instances, the relief provided by section
404(c) may not extend to the entire plan. Other commenters suggested
adding categories of plans to the list of examples, such as defined
contribution plans, 401(k) plans, ``cash balance'' plans, etc. Upon
consideration of these comments, the Department has, for purposes of
the final regulation, decided to retain ``ERISA section 404(c) plan''
as an example in the list of types of pension plan, and to further add
``defined contribution plan,'' ``401(k) plan,'' and ``cash balance
plan'' to that list. The list of examples is not intended to be
exhaustive. Rather, section 2520.102-3(d) requires plan administrators
to clearly communicate in the SPD information to participants and
beneficiaries about the type of plan in which they participate and the
features of such plan. In this regard, the Department notes that where
section 404(c) is intended to apply to only certain aspects of a plan
or where participants have the right to direct only certain investments
in their account, such information should be communicated in the SPD in
a clear, understandable manner. There were no comments raising concerns
regarding the addition of ``group health plan'' as an example of
welfare plan. Accordingly, that change is being adopted as proposed.
With regard to cash balance plans, the Department notes that two
recent reports issued by the General Accounting Office (GAO) recommend
changes to the SPD requirements that the GAO believes will serve to
better inform participants and beneficiaries covered by such plans, or
involved in a conversion to such a plan, of their rights and benefits
under the plan.\2\ The
[[Page 70227]]
Department notes that the requirements governing the content of SPDs
currently require the disclosure of information regarding a pension
plan's requirements concerning eligibility for participation and
benefits; a statement of conditions that must be met for eligibility to
receive benefits; a summary of the benefits; circumstances that may
result in ineligibility, loss of denial of benefits that a participant
might otherwise reasonably expect the plan to provide on the basis of
the description of benefits; and a description of the service required
to accrue full benefits.\3\ The Department further notes that the
required information must be sufficiently comprehensive to reasonably
apprise the plan's participants and beneficiaries of their rights and
obligations under the plan and must be written in a manner calculated
to be understood by the average plan participant.\4\ The Department
believes that the foregoing SPD provisions require a reasonably
comprehensive and clear description of the provisions of a cash balance
plan and how a prior conversion may have affected benefits that classes
of participants may have reasonably expected the plan to provide. In
this regard, the Department encourages sponsors of cash balance plans
to review their SPDs to ensure compliance with current disclosure
requirements. The Department, however, also shares the concerns raised
by the GAO and agrees that more needs to be done to ensure that
participants fully understand plan changes and the impact of such
changes on their benefits under the plan. In this regard, the
Department invites the views of interested persons on whether, and to
what extent, changes to the SPD requirements would help ensure better
communications with participants and beneficiaries about a cash balance
plan and cash balance plan conversions. The Department also invites
views on whether standardized language should be develop for the
disclosure of such information to participants and beneficiaries.
Suggestions for such language also are invited.
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\2\ See ``CASH BALANCE PLANS--Implications for Retirement
Income'' (GAO/HEHS-00-207, dated September 29, 2000) and ``PRIVATE
PENSIONS--Implications of Conversions to Cash Balance Plans'' (GAO/
HEHS-00-185, dated September 29, 2000). Both GAO reports are
available for viewing at www.gao.gov. The GAO's recommendations were
for the Department to amend the disclosure regulations under ERISA
to require that SPDs/SMMs include: (i) a clear statement regarding
the difference between the hypothetical account balance and the
accrued benefit payable at normal retirement age under the cash
balance plan; (ii) specific information about the impact timing of
interest crediting has on deferred pension benefits for terminating
workers; (iii) standardized language providing plan participants
with their rights to contact PWBA and/or IRS if they are unable to
understand the information provided and the relevant addresses and
telephone numbers necessary for such contacts; (iv) a clear
statement regarding the hypothetical nature of cash balance
accounts, including that employees do not own the accounts and how
such accounts differ from any defined contribution accounts an
employer may also provide; and (v) a clear statement identifying the
potential of the conversion to reduce future pensions accruals and
early retirement benefits and under what circumstances such
reductions are likely to occur.
\3\ See: 29 CFR 2520.102-3(j), (l), and (n), respectively.
\4\ See: 29 CFR 252.102-2(a).
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2. Section 2520.102-3(j)--Eligibility for Participation and Benefits
a. Procedures Governing QDRO and QMCSO Determinations
The Department proposed to amend Sec. 2520.102-3(j)(1) to require
that the SPD of a pension plan include either a description of the
plan's procedures governing qualified domestic relations order (QDRO)
determinations or a statement indicating that participants and
beneficiaries can obtain, without charge, a copy of such procedures
from the plan administrator. Similarly, the Department proposed
amending paragraph (j)(2) to require that the SPD of group health plans
include either a description of the plan's procedures governing
qualified medical child support order (QMCSO) determinations or a
statement indicating that participants and beneficiaries can obtain,
without charge, a copy of such procedures from the plan. The Department
did not receive any comments requesting modification of these
provisions; accordingly, these amendments are being adopted as
proposed.
b. Pension Plan Disclosures
A number of commenters suggested that paragraph (j)(2) of
Sec. 2520.102-3 be changed to expressly require plan administrators to
explain in pension plan SPDs the difference between the plan's
requirements for eligibility to participate in a plan and the
requirements for eligibility to receive benefits. These commenters
stated that many participants in pension plans do not understand that
satisfying eligibility requirements to participate in a plan does not
necessarily mean that the participants are necessarily vested in the
benefits provided by the plan. The current regulation requires that
pension plan SPDs describe ``the plan's provisions relating to
eligibility to participate in the plan, such as age or years of service
requirements,'' and include ``a statement describing any other
conditions which must be met before a participant will be eligible to
receive benefits.'' Accordingly, it is the Department's view that the
current regulation already requires that SPDs include a description,
written in a manner calculated to be understood by the average plan
participant, both of the requirements for eligibility to participate in
a plan and of any additional conditions for eligibility to receive
benefits. The Department, therefore, has determined that the requested
clarification is not necessary.
c. Group Health Plan Disclosures
In responding to recommendations of the Health Care Commission, the
Department proposed amending paragraph (j) of Sec. 2520.102-3 to add a
new subparagraph (3) clarifying the information that must be included
in the SPD of a group health plan.\5\ Specifically, subparagraph (3),
as proposed, would require that the SPD of a group health plan
describe: any cost-sharing provisions, including premiums, deductibles,
coinsurance, and copayment amounts for which the participant or
beneficiary will be responsible; any annual or lifetime caps or other
limits on benefits under the plan; the extent to which preventive
services are covered under the plan; whether, and under what
circumstances, existing and new drugs are covered under the plan;
whether, and under what circumstances, coverage is provided for medical
tests, devices and procedures; provisions governing the use of network
providers, the composition of the provider network and whether, and
under what circumstances, coverage is provided for out-of-network
services; any conditions or limits on the selection of primary care
providers or providers or specialty medical care; any conditions or
limits applicable to obtaining emergency medical care; and any
provisions requiring preauthorizations or utilization review as a
condition to obtaining a benefit or service under the plan.
Subparagraph (3) also provided that, in the case of plans with provider
networks, the listing of providers may be furnished to participants and
beneficiaries as a separate document, provided that the SPD contains a
general description of the provider network and indicates that provider
lists are furnished, without charge, in a separate document. In
discussing the new subparagraph (3) in the preamble to the proposal,
the Department expressed its view that the information more
specifically delineated in the new subparagraph is already required to
be disclosed pursuant to paragraph (j)(2) of Sec. 2520.102-3, and that
the amendment is merely intended to remove any ambiguity as to the
disclosure
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requirements applicable to group health plans.
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\5\ The term ``group health plan'' is defined in ERISA section
733(a).
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The Department received a number of comments relating to the
requirements of proposed paragraph (j)(3). While many commenters agreed
that much of the information delineated in the proposal is currently
provided to participants and beneficiaries, a number of the commenters
indicated that the information is not provided as part of an SPD. In
this regard, commenters expressed concern that requiring specific
detailed information relating to covered drugs, preventive services,
cost-sharing provisions, and provider networks to be included in the
SPD itself will be burdensome and costly to plans and not helpful for
participants and beneficiaries. Some commenters indicated that having
to amend SPDs to reflect frequent changes in specific benefits, such as
the addition of new drugs, medical tests or devices, would also
increase burdens and costs for plans. Other commenters expressed
concern about having to provide all plan participants and beneficiaries
with an SPD containing all the required disclosures when the plan
provides different insurance or HMO options or different premium or
cost-sharing provisions applicable to different categories of
participants.
Under ERISA, the SPD is the primary vehicle for informing
participants and beneficiaries about their rights and benefits under
the employee benefit plans in which they participate. It is the view of
the Department, therefore, that the SPD is the appropriate vehicle for
providing participants and beneficiaries the information described in
proposed paragraph (j)(3). It is important to note, however, that the
Department did not intend paragraph (j)(3) to be construed as requiring
the SPD to list each and every drug, test, device, or procedure covered
by a group health plan. Rather, paragraph (j)(3) is intended to ensure
that SPDs adequately inform participants and beneficiaries whether and
under what circumstances the benefits referenced in paragraph (j)(3)
will or will not be covered by the plan, and to direct participants and
beneficiaries as to where additional information may be obtained, free-
of-charge, about plan coverage of a specific benefit, i.e., a
particular drug, treatment, test, etc. It is the view of the Department
that paragraph (j)(2) of Sec. 2520.102-3 continues to govern the
required disclosure of detailed schedules of benefits, including
schedules and listings of specific preventive services, drugs, tests,
devices, procedures, and other benefits described in (j)(3), by group
health plans. In this regard, Sec. 2520.102-3(j)(2) provides, among
other things, that ``[i]n the case of a welfare plan providing
extensive schedules of benefits (a group health plan, for example) only
a general description of such benefits is required if reference is made
to detailed schedules of benefits which are available, without cost to
any participant or beneficiary who so requests.''
The Department also believes that its current law and regulations
provide group health plans with sufficient flexibility so that they
will not have increased burdens and costs resulting from having to
amend SPDs to reflect frequent changes in specific benefits, such as
the addition of new drugs, medical tests or devices. Rather, to the
extent that there is a material modification in the terms of the plan
or a change in the information required to be included in the SPD,
ERISA section 104(b)(1) and the Department's regulations allow the
administrator to furnish participants covered under the plan and
beneficiaries receiving benefits with a summary of material
modification, or SMM.
A few commenters requested that Department define specific itemized
terms, such as ``preventive services'' and ``provider network.''
Because the meaning of such terms or concepts may vary from plan to
plan, the Department believes that, in the context of describing
covered benefits, such terms are best defined by reference to
applicable plan provisions, rather than by regulation. Accordingly, the
Department has not adopted these suggestions.
With regard to descriptions of group health plan provisions
requiring preauthorization or utilization review as a condition to
obtaining a benefit or service under the plan, the Department notes
that, while only a summary of these provisions is required, the summary
must be sufficient to apprise participants and beneficiaries of their
rights and obligations under such provisions. With regard to the
disclosure of cost sharing information, the Department notes that,
while specific premium amounts would not have to be disclosed in the
SPD, the SPD must clearly communicate the circumstances and extent to
which participants and beneficiaries will be liable under the plan for
premiums, deductibles, copayments, etc. Deductibles, copayments,
benefit caps or limits on the benefits payable under the plan should be
set forth in sufficient detail to reasonably enable participants and
beneficiaries to assess their responsibility for medical care, hospital
and other costs under the plan.
For the above reasons, the Department does not believe that
requiring inclusion of the benefit information described in paragraph
(j)(3) will either impose undue burdens on plans or undermine the
usefulness of the SPD for plan participants and beneficiaries. To the
contrary, the Department believes that inclusion of such information in
the SPD is necessary to ensure that participants and beneficiaries are
provided basic information concerning their plan's coverage of
preventive medical services, drugs, tests , devices, etc., even if more
detailed information concerning specific benefits is available on
request.
The Department continues to believe, however, that, unlike
schedules and listings of specific benefits that may be furnished upon
request, complete listings of network providers should be furnished
automatically to each participant and beneficiary. The Department
believes that, where the availability of specific medical services or
benefits under a plan may depend in whole or in part on knowing the
specific service provider from whom services may be obtained, the
selection of a service provider becomes a particularly significant
benefit decision. The Department believes that, under such
circumstances, participants and beneficiaries will be in the best
position to evaluate and assess their medical provider options when
they can review a complete listing of the providers available to them
under the terms of the plan, rather than having to inquire on a
service-by-service or provider-by-provider basis. For this reason, the
Department is retaining the requirement that detailed provider lists be
furnished automatically, without charge, to participants. The
Department recognizes, however, that requiring all providers to be
listed in an SPD may undermine the usefulness of SPDs as a disclosure
document. The Department, therefore, is also retaining the proposed
provision in paragraph (j)(3) permitting the network provider listings
to be furnished in a separate document, provided that the SPD contains
a general description of the provider network and, as noted, that
provider lists are furnished automatically, without charge.
In response to commenter concerns about having to provide
participants and beneficiaries with an SPD containing detailed benefit,
premium, network provider, and other information that may not be
equally relevant to all participants and beneficiaries, the Department
notes that plan
[[Page 70229]]
administrators may utilize different SPDs for different classes of
participants and beneficiaries, as described at 29 CFR 2520.102-4. In
general, the regulation provides that where an employee benefit plan
provides different benefits for various classes of participants and
beneficiaries, the plan administrator may fulfill the requirement to
furnish an SPD by furnishing each class of participant and beneficiary
a copy of the SPD appropriate to that class. The regulation further
provides that, while the SPD may omit information not applicable to the
class of participants and beneficiaries to which it is furnished, the
SPD must clearly identify on the first page of text the class of
participants and beneficiaries for which the SPD was prepared and the
plan's coverage of other classes. It is the view of the Department that
where a plan has varying premium structures or benefits for different
classes of participants and beneficiaries, different SPDs can be
prepared and furnished in accordance with Sec. 2520.102-4. For example,
for purposes of Sec. 2520.102-4, participants and beneficiaries may be
classified by the benefit coverages they select under the plan (e.g.,
fee-for-service option or HMO option), thereby permitting separate SPDs
to be prepared for each coverage option available under the plan.
3. Section 2520.102-3(1)--Disclosure of Plan Termination Information
The Department proposed to amend paragraph (1) of Sec. 2520.102-3
to incorporate principles set forth in Technical Release 84-1 and to
clarify the application of those principles to plan amendments.
Specifically, the proposal would require that SPDs include the
following information: (1) A summary of any plan provisions governing
the authority of the plan sponsor or others to terminate the plan or to
eliminate, in whole or in part, benefits under the plan, and the
circumstances, if any, under which the plan may be terminated and
benefits amended or eliminated; (2) a summary of any plan provisions
governing the benefits, rights and obligations of participants and
beneficiaries under the plan on termination of the plan or amendment or
elimination of benefits under the plan, including, in the case of an
employee pension benefit plan, a summary of any provisions relating to
the accrual and the vesting of pension benefits under the plan upon
termination of the plan; and (3) a summary of any plan provisions
governing the allocation and disposition of assets of the plan upon
termination of the plan.
Several commenters argued against adopting this provision on the
basis that it would be difficult for plan administrators to anticipate
and describe in an SPD all the possible circumstances under which plans
may be terminated or benefits eliminated. The Department does not view
the proposed amendment of paragraph (1) as requiring an exhaustive
listing or description of every circumstance that might result in the
elimination of benefits or termination of the plan. Rather, SPDs should
include a clear, understandable summary of the sponsor's authority
under the plan, as well as limitations thereon, to eliminate benefits
or terminate the plan. The level of detail provided in the SPD,
however, may vary depending on the nature of the plan and the plan
provisions involved. The Department continues to believe, as it has
since the issuance of Technical Release 84-1, that the disclosure of
the information relating to the circumstances under which benefits
might be eliminated or the plan terminated, and the effects of such
actions on benefits, is of significant importance to participants and
beneficiaries. For this reason, the Department is adopting, without
change, the proposed amendment to paragraph (1) of Sec. 2520.102-3.
A few commenters suggested that the regulations should prohibit
conflicts between provisions of the SPD and the plan document by
requiring the use of clear terminology and definitions, prohibiting the
use of disclaimers in SPDs, and providing that ambiguous SPD provisions
will be interpreted against the drafter. To the extent these comments
concern the understandability of SPDs to plan participants and
beneficiaries, the Department believes that its current general
standards on style and format of SPDs in 29 CFR 2520.102-2 are
appropriate and further regulatory guidance is not necessary. Some of
these comments, such as the request to prohibit ``disclaimers'' in SPDs
and establishing a rule calling for interpreting ambiguous provisions
in SPDs against the drafter, raise issues that are beyond the scope of
these SPD regulations.
Several commenters suggested that the Department clarify the
requirement regarding disclosure of subrogation provisions in a plan's
SPD. It is the Department's view that subrogation, reimbursement, and
other provisions of a plan that may serve to eliminate, reduce, offset
or otherwise adversely affect the amount of benefits to which a
participant or beneficiary is entitled must be disclosed in the SPD
pursuant to Sec. 2520.102-3(l). Similarly, it is the view of the
Department that, for purposes of satisfying Sec. 2520.102-3(l), the SPD
must include a description of any fees or charges that may be imposed
on a participant or beneficiary, or their individual account, as a
condition to receiving a benefit, inasmuch as any such fee or charge
may, directly or indirectly, serve to reduce the benefits the
participant or beneficiary might otherwise reasonably expect to
receive. Paragraph (l) has been clarified in this regard.
4. Section 2520.102-3(m)--PBGC Coverage
Section 2520.102-3(m) requires pension plan SPDs to include a
statement indicating whether benefits of the plan are insured under
Title IV of ERISA and, if insured, a description of the pension benefit
guaranty provisions of Title IV and a statement indicating that further
information can be obtained from the plan administrator or the Pension
Benefit Guaranty Corporation (PBGC). The regulation provides that a SPD
is deemed to meet the requirements of paragraph (m)(2) if it includes a
model statement included in the regulation. The Department proposed to
amend the model statement in accordance with changes provided by the
PBGC to more accurately reflect the benefits guaranteed under Title IV,
as well as update the information relating to the PBGC.
A commenter stated that the model statement was not appropriate for
use in SPDs of multiemployer plans because a broader range of
circumstances can give rise to a plan termination and the level of
guaranteed benefits may be substantially below the level of benefits
promised under the plan. In response to this comment, the PBGC prepared
separate model statements for single-employer plans and multiemployer
plans, and the Department modified the proposal to include the model
statement for single-employer plans in paragraph (m)(3) and the model
statement for multiemployer plans in paragraph (m)(4).
5. Section 2520.102-3(o)--COBRA Rights
Under the proposal, paragraph (o) of Sec. 2520.102-3 would be
amended to address the requirement that participants and beneficiaries
in group health plans subject to the COBRA continuation coverage
provisions of Part 6 of Title I of ERISA be provided information
concerning their rights and obligation under those provisions.
[[Page 70230]]
Two commenters expressed concern about having to provide detailed
COBRA information in the SPD. One of the commenters suggested
permitting the information to be furnished in a separate document, like
the disclosures permitted with respect to QDRO and QMCSO determination
procedures. The COBRA provisions confer important substantive rights
upon participants and beneficiaries concerning the continuation of
their health plan coverage. For this reason, the Department continues
to believe that participants and beneficiaries should be informed about
these rights, and their obligations with respect to the exercise of
these rights, in the summary plan description. The Department,
therefore, is adopting the proposed amendment of paragraph (o) of
Sec. 2520.102-3 without change.
One commenter requested a clarification as to whether the section
606(a)(1) COBRA notice provided through the SPD should be provided at
the time the participant first becomes covered under the plan or when
the participant becomes eligible for COBRA continuation coverage.
Pursuant to ERISA section 104(b)(1), and the Department's regulations
issued thereunder, an administrator must distribute an SPD within 90
days of an individual's becoming a participant or beneficiary under the
plan. ERISA section 606(a)(1), however, requires group health plans to
provide covered employees and spouses, if any, with notification of
their COBRA rights at the time of commencement of coverage under the
plan, i.e., when the individual becomes a participant or beneficiary.
As noted in the preamble to the proposed regulation, the Department has
taken the position that the disclosure obligation under section
606(a)(1) will be satisfied by furnishing to the covered employee and
spouse, at the time coverage commences under the plan, an SPD that
includes the COBRA continuation coverage information required by
section 606(a)(1).\6\
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\6\ The Department is currently considering the issuance of
additional guidance, in form of regulations, that would serve to
clarify the information disclosure and notification requirements
under the continuation coverage provisions of Part 6 of Title I,
including the requirements of section 606(a)(1) of ERISA.
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Two commenters raised issues concerning spousal notification. One
commenter inquired whether hand delivery of an SPD with COBRA
information to a participant at a worksite location with written
instructions to share the SPD with the spouse would satisfy the section
606(a)(l) disclosure requirement. The other commenter expressed concern
that including COBRA information in the SPD may lead some to conclude
that spousal notification is not required. The mere fact that COBRA
information is required to be set forth in the SPD does not relieve
group health plan administrators from their obligation to provide
notice to an employee's covered spouse under 606(a)(1). The Department,
however, has taken the position that where a spouse's last known
address is the same as the covered employee's, a single mailing of the
required COBRA disclosure (which could be in the form of an SPD),
addressed to both the employee and the spouse, will constitute good
faith compliance with the COBRA notice requirements of section
606(a)(1) (See Technical Release No. 86-2). It is the view of the
Department that, in the absence of specific contrary regulations, in-
hand delivery to an employee at his or her worksite location of an SPD
containing COBRA information would not constitute adequate notice to
the spouse of that employee for purposes of section 606(a)(1).
6. Section 2520.102-3(q)--Funding Medium Information for Group Health
Plans
On April 8, 1997, the Department published in the Federal Register
(62 FR 16970) an amendment to paragraph (q) of Sec. 2520.102-3
implementing statutory changes to the SPD disclosure requirements
enacted as part of the Health Insurance Portability and Accountability
Act of 1996. The amendment was intended to ensure that SPDs clearly
inform participants and beneficiaries about the role of health
insurance issuers in their group health plan, particularly in those
cases where the plan is self-funded and an insurer is serving as a
contract administrator or claims payor, rather than as an insurer. In
the preamble to the September 9, 1998, proposed SPD amendments (63 FR
48386), the Department noted that it intended to adopt paragraph (q) as
a final regulation in conjunction with the adoption of other amendments
to the SPD requirements.
One commenter suggested that paragraph (q) should require that SPDs
include an explanation of the importance of whether health benefits
provided by a plan are guaranteed by an insurer, including a disclosure
that participants and beneficiaries in self-insured group health plans
do not have access to the consumer protections afforded to participants
and beneficiaries of plans utilizing state-licensed insurers and HMOs
(for example, solvency requirements and governmental administrative
assistance in the event of disputes over coverage). The Department does
not believe that the SPD is the appropriate vehicle for comparing
various types of funding arrangements, without regard to whether such
arrangements are actually utilized by the plan. The Department,
therefore, is adopting paragraph (q) of Sec. 2520.102-3, without change
and as it was adopted in interim form, as a final rule.
7. Section 2520.102-3(s)--Claims Procedure Information
The Department proposed to amend paragraph (s) of Sec. 2520.102-3
to make clear that the claims procedure in the SPD of a group health
plan must include any plan procedures for preauthorization, approval,
or utilization review. The proposed amendment also made clear that a
plan is not precluded from furnishing the plan's claims procedures as a
separate document that accompanies the plan's SPD, provided that the
separate document satisfies the style and format requirements of
Sec. 2520.102-2, and, provided further that the SPD contains a
statement that the plan's claims procedures are furnished
automatically, without charge, as a separate document. While commenters
generally supported the provision allowing the plan's claims procedures
to be provided in a separate document, a few commenters argued that,
given the importance of the claims procedures to participants and
beneficiaries, the full claims procedures should be required to be in
the SPD.
The Department agrees that the procedures governing a plan's
benefit claims and appeal processes are of critical importance to
participants and beneficiaries. The Department also recognizes that
requiring incorporation of detailed claims procedures in the SPD, which
contains a wide variety of benefit-related information, may in some
instances minimize the importance of the procedures or overwhelm some
participants. It is the view of the Department that the proposed
conditions for utilizing a separate document for purposes of disclosing
a plan's benefit claims and appeals procedures will ensure that
participants and beneficiaries receive clear and complete information
about their plan's benefit claims procedures, while providing plan
administrators the flexibility to choose which method of communication,
integration in an SPD or furnishing a separate document with the SPD,
will best serve their plan's participants and beneficiaries. The
Department, therefore, is adopting the
[[Page 70231]]
proposed amendment to paragraph (s) of Sec. 2520.102-3 without change.
8. Section 2520.102-3(t)--Statement of ERISA Rights
The proposal would amend paragraph (t)(2) of Sec. 2520.102-3 to
improve and update the model statement of ERISA rights that plans may
use to satisfy the requirement to furnish participants and
beneficiaries with the statement of ERISA rights described in section
104(c) of the Act. Specifically, the Department proposed to amend the
model statement to incorporate references to participant rights under
the COBRA continuation provisions of Part 6 of ERISA and the
portability provisions of Part 7 of ERISA. The proposal also would
extend to all employee benefit plans the model statement changes
applicable to group health plans on an interim basis as a result of
amendments to ERISA enacted as part of the Health Insurance Portability
and Accountability Act of 1996. It does so with the addition of a
sentence to the model statement directing participants and
beneficiaries who have questions about their ERISA rights to the
nearest office of the Pension and Welfare Benefits Administration or
the Division of Technical Assistance and Inquiries in Washington, D.C.
Other changes to the statement include: modifying the reference of ``up
to $100 a day'' to ``up to $110 a day,'' to reflect the fact the civil
monetary amount under ERISA section 502(c)(1) has been increased to
take inflation into account, as required by the Debt Collection
Improvement Act of 1996; \7\ clarifications to the language discussing
the types of documents participants and beneficiaries have the right to
examine and receive copies of upon request; the addition of a sentence
indicating that issues involving the qualified status of domestic
relations orders and medical child support orders may be resolved in
Federal court; and clarifying the rights of participants and
beneficiaries under the plan's claims procedures.
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\7\ See 62 FR 40696 (July 29, 1997).
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A number of commenters suggested that the style and readability of
the model statement could be improved by, for example, varying font
sizes and using headings and indented text. Other commenters suggested
that the Department include information concerning the availability of
Departmental assistance in obtaining SPDs and copies of plan documents,
while others requested that the Department include a statement urging
participants and beneficiaries to contact their plans before filing
complaints with the Department or suing regarding problems with claim
denials or issues on benefit entitlements.
In response to these comments, the Department has added headings to
the model statement that are intended to make the statement easier to
read. Administrators are encouraged to explore other steps that might
be taken to enhance readability, without compromising or undermining
the substantive information provided in the model statement. The
Department also has modified the proposed model statement to include
provisions informing participants and beneficiaries that they may
obtain copies of annual reports (Form 5500s) filed for their plan from
the Public Disclosure Room of the Pension and Welfare Benefits
Administration (PWBA) and a notice that assistance is available from
PWBA's regional offices in obtaining from plan administrators documents
under which the plan is established or operated.
With respect to the suggestion that participants be encouraged to
contact their plans about claims and benefit issues prior to contacting
the Department of Labor, the Department believes that language of the
proposed statement--directing plan questions to the plan
administrator--provides direction to plan participants without
inhibiting their pursuing issues with the Department. Accordingly, no
changes to the model statement are being made in this regard.
9. Section 2520.102-3(u)--Newborns' and Mothers' Health Protection Act
Disclosure
On September 9, 1998, the Department published in the Federal
Register (63 FR 48372) a revised interim rule setting forth the
information required to be disclosed in the SPD concerning the
provisions of the Newborns' and Mothers' Health Protection Act
(Newborns' Act), codified at section 711 of ERISA. A concern was
expressed to the Department that the interim rule in Sec. 2520.102-3(u)
required all Title I group health plans to include information in their
SPDs about federal law requirements under the Newborns' Act while
section 711(f) provides an exception from those requirements for health
insurance coverage in certain states. Specifically, section 711(f)
provides that the requirements of section 711 shall not apply with
respect to health insurance coverage if a state law regulating the
coverage: (1) requires such coverage to provide for at least a 48-hour
hospital length of stay following a vaginal delivery and at least a 96-
hour hospital length of stay following a cesarean section; (2) requires
such coverage to provide for maternity and pediatric care in accordance
with guidelines established by the American College of Obstetricians
and Gynecologists, the American Academy of Pediatrics, or other
established professional medical associations; or (3) requires, in
connection with such coverage for maternity care, that the hospital
length of stay for such care is left to the decision of (or required to
by made by) the attending provider in consultation with the mother. The
commenter expressed concern that participants and beneficiaries could
be confused by an SPD disclosure describing federal law requirements in
situations where only state law applies.
The Department agrees that plans that are exempt from the federal
law requirements of section 711 because state law requirements apply
should be able to focus their SPD disclosure on the applicable state
law requirements for hospital length of stay following newborn
deliveries. The final rule therefore modifies the requirement in
Sec. 2520.102-3(u) to provide that, for a group health plan, as defined
in section 733(a)(1) of the Act, that provides maternity or newborn
infant coverage, the SPD must contain a statement describing the
federal or state law requirements applicable to the plan or any health
insurance coverage offered under the plan, relating to hospital length
of stay in connection with childbirth for the mother or newborn child.
The final rule makes it clear that if federal law applies in some areas
in which the plan operates and state laws apply in others, the SPD must
describe the federal and state law requirements that apply in each area
covered by the plan. The final rule also sets forth a model statement
that group health plans subject to section 711 of the Act may use to
comply with paragraph (u) of this section relating to the required
description of federal law requirements.
C. Repeal of Limited Exemption for SPDs of Plans Providing Benefits
Through a Federally Qualified HMO
The proposal would repeal the limited exemption, at 29 CFR
2520.102-5, for SPDs of welfare benefit plans providing benefits
through a qualified HMO, as defined in section 1310(d) of the Public
Health Act, 42 U.S.C. 300e-9(d). Such SPDs are not required to include
the information described in Secs. 2520.102-3(j)(2), (l), (q) and (s),
provided certain conditions are met. Several commenters objected to the
repeal of Sec. 2520.102-5, expressing concern that this change would
result in
[[Page 70232]]
voluminous and unhelpful SPDs. Specifically, they stated that HMOs
already provide much of the information described in Secs. 2520.102-
3(j)(2), (l), (q), and (s) directly to participants and beneficiaries,
that a typical group health plan could provide a choice among benefits
under a large number of different HMOs, and, in such a case, the plan's
SPD would have to include extensive and, for some participants and
beneficiaries, potentially irrelevant information on each of the HMOs.
Commenters also argued that HMO information changes frequently, which
would require frequent amendment to SPDs. The elimination of
Sec. 2520.102-5 would, according to those commenters, result in
increased plan expenses. Other commenters complained that it would be
unfair to require plan administrators to be responsible for providing
information on HMOs to participants and beneficiaries because typical
HMO contracts preclude the employer from having access to such
information.
The Department continues to believe that, given the legislative and
other changes affecting the operation of group health plans since the
adoption of Sec. 2520.102-5 in 1981,\8\ the information required to be
disclosed through the SPD and summaries of changes thereto are as
important to participants and beneficiaries electing coverage through a
federally qualified HMO as any other group health plan participant or
beneficiary. The Department is not convinced that the disclosure
obligations otherwise applicable to federally qualified HMO are
adequate to ensure that participants and beneficiaries receive both
timely and useful information.
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\8\ See 46 FR 5884, January 21, 1981.
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Moreover, as noted earlier, plan administrators may, pursuant to
Sec. 2520.102-4, utilize different SPDs for different classes of
participants within a single plan. Where a group health plan offers
multiple benefit options, it is the view of the Department that
participants and beneficiaries may be classified by the benefit
coverages they elect under the plan (e.g., fee-for-service option or
HMO option), thereby permitting separate SPDs to be prepared pursuant
to Sec. 2520.102-4 for each coverage option available under the plan.
The Department believes that this flexibility permits plan
administrators to avoid the problems raised by commenters, while
ensuring that participants and beneficiaries receive relevant
information about their coverage. With respect to the comments
expressing concern about administrators being responsible for the
information provided about federally qualified HMOs, the Department
notes that administrators currently are responsible for the information
provided to participants and beneficiaries under non-federally
qualified HMO coverage and benefit options offered by group health
plans. For the reasons discussed above, the Department continues to
believe that extending that same responsibility to the information
provided about federally qualified HMOs is appropriate.
Finally, certain commenters argued that the proposal exceeded the
Department's authority because it is the option to join the HMO that is
the plan benefit and not the medical coverage provided by the HMO.
Therefore, the commenters contended, the only HMO information that the
Department can require to be included in the SPD is information
regarding eligibility to join the HMO. The Department disagrees with
this view. As the Department stated in the preamble to its 1981 rule
providing limited relief to welfare benefit plans that include
membership in a qualified HMO as an option, ERISA applies to a plan
that offers benefits listed under section 3(1) of ERISA, regardless of
whether the benefits are offered through a qualified HMO or otherwise.
See 46 FR 5882 (January 21, 1981).
As a result, the Department is adopting the proposal without
change.
D. Amendments Relating to Furnishing Summaries of Material
Reductions in Covered Services or Benefits
Section 104(b)(1) of ERISA requires, among other things, that the
administrator furnish to each participant, and each beneficiary
receiving benefits under the plan, copies of modifications in the terms
of their plans and changes in the information required to be included
in the SPD not later than 210 days after the end of the plan year in
which the change is adopted. Section 101(c)(1) of HIPAA amended ERISA
section 104(b)(1) to provide that, in the case of any modification or
change that is a ``material reduction in covered services or benefits
provided under a group health plan,'' participants and beneficiaries
must be furnished the summary of such modification or change not later
than 60 days after the adoption of the modification or change, unless
the plan sponsor provides summaries of modifications or changes at
regular intervals of not more than 90 days.
On April 8, 1997, the Department published an interim rule (62 FR
16985) amending 29 CFR 2520.104b-3 by adding a new paragraph (d) to
implement the statutory change to section 104(b)(1). Specifically,
section 2520.104b-3(d)(1) provides that summaries of any modification
to the plan or change in the information required to be included in the
SPD that is a material reduction in covered services or benefits must
be furnished by administrators of group health plans to each
participant covered under the plan, and each beneficiary receiving
benefits under the plan, not later than 60 days after the date of
adoption of the modification or change. Section 2520.104b-3(d)(2)
provides that the 60-day period for providing such summaries does not
apply to any participant or beneficiary who would reasonably be
expected to be furnished such summary in connection with a system of
communication maintained by the plan sponsor or administrator, with
respect to which plan participants and beneficiaries are provided
information concerning their plan, including modifications and changes
thereto, at regular intervals of not more than 90 days. Section
2520.104b-3(d)(3)(i) defines a ``material reduction in covered services
or benefits'' to mean any modification to the plan or change in the
information required to be included in the SPD that, independently or
in conjunction with other contemporaneous modifications or changes,
would be considered by the average plan participant to be an important
reduction in covered services or benefits. To facilitate compliance,
paragraph (d)(3)(ii) set forth a listing of modifications or changes
that generally would constitute a ``reduction in covered services or
benefits.''
One commenter expressed confusion over the requirement to provide
these disclosures to ``beneficiaries receiving benefits under the
plan'' given the fact that pursuant to 29 CFR 2520.104b-2 only
beneficiaries receiving benefits under a pension plan are required to
be furnished a summary plan description. While the included language
regarding beneficiaries tracks the language of Sec. 2520.104b-3(a), the
Department agrees with the commenter that the reference to
``beneficiaries receiving benefits under the plan'' appears to conflict
with other regulatory provisions that indicate that beneficiaries
receiving benefits under a welfare plan are excepted from the
disclosure requirement. In addition to the provisions in
Sec. 2520.104b-2 noted by the commenter, the Department notes that 29
CFR 2520.104b-1(a), governing the furnishing of documents required to
be furnished by direct operation of law
[[Page 70233]]
(such as SPDs and SMMs), specifically excepts from that disclosure
obligation ``beneficiaries under a welfare plan.'' Accordingly, the
Department is eliminating the reference to ``each beneficiary receiving
benefits under the plan'' from paragraph (d) of Sec. 2520.104b-3. The
Department, nonetheless, would be interested in receiving comments from
interested persons on whether, and under what circumstance, the current
regulations should be amended to require disclosure of SPD and related
information to beneficiaries receiving benefits under a welfare plan.
With respect to the provision in the interim rule defining
``material reduction in covered services or benefits,'' one commenter
suggested that the ``average plan participant'' standard contained in
the definition is too strict for chronically ill patients. Another
commenter recommended that the Department adopt a standard that is more
objective and easier to ascertain. The ``average plan participant''
standard has been the standard that plan administrators have used for
more than twenty years in determining whether an SPD satisfies the
requirements of Sec. 2520.102-2(a). That general standard is warranted
because of the variety of plan participants and the impossibility of
adopting a standard that accounts for all of the circumstances of
individual plan participants. Therefore, it is the Department's view
that the ``average plan participant'' standard should be used in
determining whether a modification or a change is a material reduction
in covered services or benefits.
E. Applicability Dates
The Department expressed its view in the proposal that the
information delineated in paragraph (j)(3), applicable to group health
plans, paragraph (j)(1) and paragraph (l) of Sec. 2520.102-3 is
currently required to be disclosed under the disclosure framework of
ERISA. Accordingly, the Department considered the proposed addition of
the new paragraph (j)(3) and the amendment of paragraphs (j)(1) and (l)
as clarifications of existing law, rather than new disclosure
requirements. With regard to the other proposed amendments, the
Department proposed to require plans to comply with the new
requirements no later than the earlier of: (1) The date on which the
first summary of material modification (or updated SPD) is required to
be furnished participants and beneficiaries following the effective
date of the amendments or (2) the first day of the second plan year
beginning after the effective date of the final rule.
Several commenters disagreed with the Department's view of
paragraphs (j)(3), (j)(1) and (l) of Sec. 2520.102-3, and requested
additional time to comply with these paragraphs of the regulation.
Commenters also asked the Department to coordinate the applicability
date of these regulations with that of the Department's final
regulations governing plans' benefit claims procedures to make it
possible for plans to coordinate the revision of their claims
procedures with the revision of their SPDs. Additionally, one commenter
suggested coordinating the applicability date of this regulation with
the date that qualified plans subject to ERISA must be restated under
the Small Business Jobs Protection Act (SBJPA) and the Taxpayer Relief
Act of 1997 (TRA '97). The commenter expressed concern that if the
applicability date is not coordinated, many plans may have to revise
their SPDs twice in a very short period of time leading to confusion
and needless expenditure of plan assets.
The Department continues to adhere to its view that the information
delineated in paragraphs (j)(3), (j)(1) and (l) of Sec. 2520.102-3 is
currently required to be disclosed under the existing disclosure
framework of ERISA. In response to the other comments, however, the
Department has determined to modify the proposal and to adopt a single
applicability date for the new SPD disclosures in the proposal.
Specifically, plans will be required to comply with the new SPD content
requirements being adopted in this regulation no later than the first
day of the second plan year beginning after the effective date of the
final rule.
Finally, the interim rules that are being finalized in this notice
are already effective, and accordingly, a special applicability date is
not required. Rather, the special applicability dates for the interim
rules codified in paragraph (v) of Sec. 2520.102-3 are obsolete and,
accordingly, are being removed as part of this final rule.
Economic Analysis Under Executive Order 12866
Under Executive Order 12866, the Department must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule: (1) Having an annual effect on the economy of $100 million
or more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this action is consistent with the President's
priorities with respect to ensuring that all participants in group
health plans receive understandable information about their plans, as
described in the report of the President's Advisory Commission on
Consumer Protection and Quality in the Health Care Industry entitled,
``Consumer Bill of Rights and Responsibilities.'' The added cost
estimated to be associated with the amendments to existing regulations
implemented in this final rule total $208 million in 2002, the year in
which these amendments are expected to be applicable for the majority
of plans. Therefore, this notice is ``significant'' and subject to OMB
review under Sections 3(f)(1) and 3(f)(4) of the Executive Order.
Accordingly, the Department has undertaken to assess the costs and
benefits of this regulatory action. The Department's assessment, and
the analysis underlying that assessment, is detailed following the
statements concerning the Regulatory Flexibility Act and the Paperwork
Reduction Act.
The Consumer Bill of Rights and Responsibilities states that,
``Consumers have the right to receive accurate, easily understood
information about their health plans, facilities and professionals to
assist them in making informed health care decisions.'' The purpose of
this final rule is to implement this principle within the framework of
existing disclosure requirements under ERISA, based on the September 9,
1998 proposal and comments received in response, as well as to
generally update the disclosure requirements for both welfare and
pension plans.
Currently available information supports the conclusion that many
group health plans already provide the majority of information
identified in these amendments, including benefits and limitations,
whether drug formularies are used and how drugs and
[[Page 70234]]
procedures are deemed experimental, information on cost sharing, and
appeal procedures.\9\ Comments received in response to the proposal
support this conclusion as well, although they point out, and the
respondents to the GAO survey included in its report on the
Commission's disclosure recommendations agree, that some group health
plans rely on a combination of documents to make disclosures. However,
it is understood that while many plans may conform with or exceed a
minimum standard of information disclosure, some portion of the very
large number of group health plans do not currently meet this standard.
To the extent that plans do not currently provide the required
information, they will be caused by these amendments to revise their
disclosure documents and distribute additional or modified information
to participants.
---------------------------------------------------------------------------
\9\ See ``Consumer Bill of Rights and Responsibilities Costs and
Benefits: Information Disclosure and Internal Appeals,'' The Lewin
Group, November 15, 1997; and ``CONSUMER HEALTH CARE INFORMATION--
Many Quality Commission Disclosure Recommendations Are Not Current
Practice'' (GAO/HEHS-98-137, April 1998). The GAO report indicates
that only about half of the information recommended by the
Commission to be provided to consumers is currently provided by
large purchasers. However, it is information on health plan features
such as covered benefits, cost-sharing, access to emergency services
and specialists, and appeal processes which is currently routinely
provided, while information about health care facilities and the
business relationships and financial arrangements among health
professionals, and quality and performance measures is not typically
provided. Although the Commission's recommendations go beyond
current practice, the provisions of this final rule are considered
to be reasonably consistent with the current practices of the large
purchasers surveyed by GAO.
---------------------------------------------------------------------------
Although the amendments pertinent to pension plans are
substantially more limited, many are expected to require certain
additions or revisions to their disclosure documents as a result of
this final rule. It is anticipated that these revisions will be readily
made either in connection with routine updating of these documents, or
through distribution of an SMM.
Based on the applicability date of the final rule, and an
assumption as to current compliance, it is estimated that approximately
30 percent of pension plans and 50 percent of group health plans will
be required to modify and distribute revised disclosure materials by
the end of calendar year 2002. The expenses expected to be associated
with the preparation and distribution of these additions and revisions
are relatively easily quantified, and constitute the estimated cost of
the regulation.
The Department estimates the cost of these amendments to be $47
million in 2001, rising to $208 million in 2002, falling to $24 million
in 2003 and in each year thereafter. The peak cost in 2002 reflects $32
million for the preparation of 155,000 different SPDs describing 1.2
million pension and welfare plans and $176 million for the distribution
of those SPDs to 36 million participants. The variation in cost over
this period reflects the interaction of the final rule's effective date
with the distribution of the recordkeeping years used by pension and
health plans years across the months of the year. Because more than
half of plans use a calendar plan year, the final rule will be
effective for a majority of plans in 2002. It is also assumed that
plans that would be making changes to their disclosure materials prior
to 2002, even absent the final rule, will elect to make both those
changes and revisions necessary as a result of this final rule at the
same time.
The benefits of the regulation are more qualitative in nature, but
are nevertheless significant for participants and beneficiaries, plan
sponsors, and the performance of the health care system in general. The
regulation will ensure that participants have better access to more
complete information about their benefit plans. Such information is
important to participants' ability to understand and secure their
rights under their plans at critical decision points, such as when
illness arises, when they must decide whether to participate in a plan,
or when they must determine which benefit package option might be most
suitable to individual or family needs. Participants generally desire
health care benefits which support their health and limit their
exposure to financial risk. In 1998, 131 million participants and
dependents had private employment-based health care coverage \10\, for
which they contributed an average of $123 per month for family
coverage, and $29 per month for single coverage. \11\ Adherence to
disclosure standards will enable participants to make effective choices
concerning this substantial investment, taking into consideration their
knowledge of their own health and financial circumstances, and accurate
information about their plans.
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\10\ March 1999 Current Population Survey
\11\ Average employee and employer monthly contribution figures
as reported in, ``Health Benefits in 1998,'' KPMG.
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These amendments will also assist plan administrators to meet their
statutory disclosure obligations with greater certainty, which is
expected to be helpful given the many changes that have occurred since
guidance on the required content of SPDs was originally issued in 1977.
In addition to their compliance with statutory and regulatory
disclosure obligations, plan sponsors are also concerned about the
pricing and availability of appropriate coverage options. Private
employers play a significant role in the acquisition of health care
coverage. Over 64 percent of the total population had private
employment-based health care coverage in 1998, for which employers
contributed an average of $318 per active employee. \12\ Better
information will also enhance the ability of plan sponsors to purchase
products that are appropriate to both their needs and the health and
financial needs of their employees.
---------------------------------------------------------------------------
\12\ ``National Survey of Employer-sponsored Health Plans,''
Foster Higgins, 1998.
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Information will promote the efficiency of the competitive market
through which this array of needs is met. There is wide-spread
agreement that the efficiency of the health care market can be improved
if purchasers, consumers, and patients are provided with better
information. Improved information is expected to promote efficiency by
fostering competition based on considerations beyond pricing alone, and
by encouraging providers to enhance quality and reduce costs for value-
conscious consumers. Complete disclosure will limit competitive
disadvantages that arise when, for example, incomplete or inaccurate
information on different benefit option packages is used for decision
making purposes. Information disclosure also promotes accountability by
ensuring adherence to standards.
Equally importantly, information disclosure under the SPD
regulation, if combined with additional disclosures pertaining to plan
and provider performance, and with other health system reforms that
promote efficient, competitive choices in the health care market, could
yield even greater benefits. The Lewin report points out that such
reformed systems, as exemplified by CalPERS and other examples of
privately sponsored ``managed competition,'' have successfully reduced
health care inflation, producing savings that dwarf the cost of these
amendments and other pro-competitive reforms. Better information,
clarified guidance to plan administrators, and improved market
efficiency thus constitute the benefits of the regulation.
The Department believes, therefore, that the benefits of this
regulation will substantially outweigh its costs. The disclosures it
describes are a component of evolving legislative, regulatory, and
[[Page 70235]]
voluntary private reforms that together are already improving health
care market efficiency.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency certifies that a final rule will not
have a significant economic impact on a substantial number of small
entities, section 604 of the RFA requires the agency to present a final
regulatory flexibility analysis describing the impact of the rule on
small entities at the time of publication of the notice of final
rulemaking. Small entities include small businesses, organizations, and
governmental jurisdictions.
For purposes of analysis under the RFA, PWBA continues to consider
a small entity to be an employee benefit plan with fewer than 100
participants. The basis of this definition is found in section
104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe
simplified annual reports for pension plans which cover fewer than 100
participants. Under section 104(a)(3), the Secretary may also provide
for simplified annual reporting and disclosure if the statutory
requirements of part 1 of Title I of ERISA would otherwise be
inappropriate for welfare benefit plans.
PWBA believes that assessing the impact of this rule on small plans
is an appropriate substitute for evaluating the effect on small
entities. Because this definition differs from the definition of small
business which is based on size standards promulgated by the Small
Business Administration (SBA) (13 CFR 121.201) pursuant to the Small
Business Act (5 U.S.C. 631 et seq.), PWBA solicited comments on the use
of this standard for evaluating the effects of the proposal on small
entities. One commenter was concerned that prior to adopting the
proposed size standard, the Department first consult with the Office of
Advocacy of the Small Business Administration (SBA) and provide an
opportunity for public comment. The Department consulted with the SBA
regarding its proposed size standard prior to publication of the
proposed amendments to the SPD regulation and its proposed regulation
relating to employee benefit plan claims procedures under ERISA, which
was also published on September 9, 1998 (63 FR 48390). The SBA has
agreed with PWBA's use of the proposed alternate size standard,
indicating in the claims regulation and other contexts that the
Department has provided a reasonable justification for its definition.
We are using the same justification in connection with this final rule.
No other comments were received with respect to this size standard. A
summary of the final regulatory flexibility analysis based on the 100
participant size standard is presented below.
This regulation applies to all small employee benefit plans covered
by ERISA. Employee benefit plans with fewer than 100 participants
include 693,000 pension plans, 2.8 million health plans, and 3.4
million non-health welfare plans (mainly life and disability insurance
plans).
The final rule amends the Department's existing SPD regulation,
which implements ERISA's statutory SPD requirements. Both ERISA and the
existing regulation require plans to provide SPDs that include certain
information and adhere to certain formats to participants according to
statutory schedules. The compliance requirements assumed for purposes
of this regulation consist of revising SPDs and preparing SMMs
consistent with the regulation's requirements, and distributing them to
participants consistent with the regulation's applicability date. An
extensive list of authorities may be found in the Statutory Authority
section, below.
The objective of this revised regulation is to ensure that employee
benefit plan participants and beneficiaries have complete and up-to-
date information about their plans. Certain provisions pertaining to
group health plans are being implemented in accordance with
recommendations of the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry in its November 20,
1997 report entitled ``Consumer Bill of Rights and Responsibilities.''
The Department believes that revising an SPD or describing changes
in an SMM requires a combination of professional and clerical skills.
Professional skills pertaining to employee benefits law and plan design
and administration are needed to draft language for inclusion in an
SPD, and therefore an average rate which takes into account wage rates
and overhead for attorneys and financial managers ($56 per hour) is
used to estimate the costs of needed professional services. Clerical
skills are needed to type, assemble and format SPD materials, and to
reproduce the materials and either mail or transmit materials
electronically to participants. A wage and overhead rate of $21 per
hour is used to estimate the cost of these functions.
The Department has estimated that about 30 percent of pension plans
and 50 percent of group health plans will be required to revise and
distribute SPDs or SMMs in response to this final rule, regardless of
plan size. The cost for small plans is moderated by the fact that small
welfare plans, the number of which is approximately 2.75 million, are
known to make use of a relatively small number of providers of service
to design plans and provide disclosure materials, which tends to
increase administrative efficiency and lower costs for small plans.
The cost of these amendments for small plans may be borne in a
variety of ways, depending upon a plan's governing rules, cost sharing
provisions of the plan, administrative practices, the terms of
contracts in place with administrators and insurers, and the magnitude
of the actual compliance cost. Insurers and administrators may choose
to absorb some costs to maintain competitive products, or may pass on
administrative or premium charges to policyholders. Sponsors may elect
to finance such cost increases, or may pass them along to participants.
The ultimate allocation of these costs cannot be accurately predicted.
The Department's assessment of the regulation's costs and benefits,
and the extent to which the Department has minimized the impact on
small entities, is detailed below, following the discussion of the
Paperwork Reduction Act. The Department estimates that the added cost
to small plans of complying with the regulation will amount to $17
million in 2001, $38 million in 2002, and $4 million in 2003 and
subsequent years. The peak year cost of $38 million in 2002 consists of
$3 million to prepare 124,000 unique SPDs describing 1.1 million plans,
and $35 million to distribute these SPDs to 8 million participants.
These costs amount to $34 per affected small plan and $5.08 per
affected small plan participant. By contrast, the added cost to large
plans in 2002 is estimated at $170 million, or $5,549 per affected
large plan and $5.93 per affected large plan participant. The principal
reason for the substantially greater per-plan cost for large plans is
the cost of distribution to greater numbers of plan participants.
The cost estimates for small plans are modest in large part because
the features of the majority of small health and other welfare plans
are chosen from a finite menu of products offered by insurers and HMOs.
The insurers and HMOs
[[Page 70236]]
prepare the majority of SPD material, describing their small plan
products, and provide that material to their small plan customers.
Thus, the cost of preparing a relatively small number of unique SPDs is
spread over a far larger number of small plans.
Finally, in promulgating this final rule, the Department has
minimized the economic impact on small entities by adopting a delayed
applicability date that lets plan administrators avoid the largest
component of the cost of a regulatory change in the SPD content
requirements (i.e., distribution expenses) by allowing them to
incorporate the required revisions into the periodic SPD updates that
they would otherwise be distributing as part of their usual and
customary business practices.
The Department is not aware of any rules or requirements which
overlap or duplicate the requirements of this final rule. State
insurance statutes typically require that certain disclosures be made
to policyholders, but these disclosures either do not overlap with the
requirements described in this regulation, or a single disclosure
package can be used to satisfy both state and federal requirements.
Paperwork Reduction Act
On September 9, 1998, the Pension and Welfare Benefits
Administration published a Notice of Proposed Rulemaking (September 9
proposal) concerning Amendments to Summary Plan Description Regulations
(63 FR 48376), which included a request for comments on its information
collection provisions. That proposal, if adopted as proposed, would
have revised the information collection request (ICR) included in
existing regulations relating to the content of Summary Plan
Descriptions under ERISA. Also on September 9, 1998, the Department
submitted the revised ICR to OMB for review and clearance under the
Paperwork Reduction Act of 1995 (PRA 95), and solicited public comments
concerning the revision of the information collection request (ICR)
included in the proposal.
Further, the Department submitted a revised ICR to OMB for
emergency clearance in connection with its Interim Rule Amending
Summary Plan Description for the Newborns' and Mothers' Health
Protection Act (63 FR 48372, September 9, 1998). OMB subsequently
approved the request for emergency clearance; OMB's consideration of
the revisions proposed in connection with the September 9 proposal was
deferred to the publication of the final rule and submission to OMB of
the ICR included in the final rule. The Department had also previously
submitted and received OMB's approval of the Summary Plan Description
ICR as amended in connection with the Interim Rules Amending ERISA
Disclosure Requirements for Group Health Plans (62 FR 16979, April 8,
1997). This final rule implements the information collection provisions
of the September 9, 1998 proposal, as modified in the final rule, along
with those of the April 8, 1997 Interim Final Rules as they pertain to
SPDs under ERISA.
An additional revision to the Summary Plan Description ICR was
subsequently made in connection with PWBA's Proposed Rule on the Use of
Electronic Communication and Recordkeeping Technologies by Employee
Pension and Welfare Benefit Plans (64 FR 4506, January 28, 1999). This
proposal included guidance on the use of electronic technologies to
satisfy notice and disclosure requirements of ERISA. OMB approved the
submission of this revised ICR which addressed electronic communication
of SPDs on June 1, 1999.
OMB has approved the ICR included in this Notice of Final Rule
relating to Amendments to Summary Plan Description Regulations. A copy
of the ICR, with applicable supporting documentation, may be obtained
by contacting the Department of Labor, Departmental Clearance Officer,
Ira Mills, at (202) 693-4122. (This is not a toll-free number.)
Statute and Existing Regulations
Pursuant to ERISA section 101(a)(1), the administrator of an
employee benefit plan is required to furnish a Summary Plan Description
(SPD) to each participant covered under the plan and each beneficiary
who is receiving benefits under the plan. The SPD is required to be
written in a manner calculated to be understood by the average plan
participant, and must be sufficiently comprehensive to apprise the
plan's participants and beneficiaries of their rights and obligations
under the plan. To the extent that there is a material modification in
the terms of the plan or a change in the information required to be
included in the SPD, ERISA requires that the administrator furnish
participants covered under the plan and beneficiaries receiving
benefits with a summary of such changes (Summary of Material
Modification, or SMM).
ERISA section 102(b) describes the types of information
specifically required to be included in the SPD. The Department has
previously issued guidance concerning the required contents of summary
plan descriptions in regulations at 29 CFR 2520.102-3.
Proposed Revisions and Final Rule
As described in the September 9, 1998 publication, revisions
proposed for Secs. 2520.102-3 and 2520.102-5 would have modified the
required contents of summary plan descriptions in a number of ways that
would be expected to affect the nature and burden of the information
collection under PRA 95. The proposal included amendments to
Secs. 2520.102-3(j) and (s) and Sec. 2520.102-5 that were designed to
implement certain recommendations of the President's Advisory
Commission on Consumer Protection and Quality in the Health Care
Industry as incorporated in the Consumer Bill of Rights with respect to
ERISA covered group health plans. Specifically, the proposal provided
that group health plans would not be deemed to have satisfied content
requirements unless they had provided understandable information in
their SPDs concerning any cost-sharing provisions, including premiums,
deductibles, coinsurance, and copayment amounts for which the
participant or beneficiary would be responsible; any annual or lifetime
caps or other limits on benefits under the plan; the extent to which
preventive services would be covered under the plan; whether, and under
what circumstances, existing and new drugs would be covered under the
plan; whether, and under what circumstances, coverage would be provided
for medical tests, devices and procedures; provisions governing the use
of network providers, the composition of the provider network and
whether, and under what circumstances, coverage would be provided for
out-of-network services; any conditions or limits on the selection of
primary care providers or providers of speciality medical care; any
conditions or limits applicable to obtaining emergency medical care;
and any provisions requiring preauthorizations or utilization review as
a condition to obtaining a benefit or service under the plan.
The April 8, 1997 Interim Final Rules implemented changes finalized
here with respect to the content and timing of disclosures by group
health plans, specifically, the timing of providing participants with
summaries of material reductions in coverage, disclosure of the role of
health insurance issuers, and disclosure of the availability of
assistance from the Department.
As explained earlier in this preamble, after consideration of
comments received in response to the proposal, the
[[Page 70237]]
Department has determined that it is appropriate to adopt the proposed
and interim final regulations essentially as published, with certain
clarifications, and modification of the proposed applicability date.
Although the underlying requirements are on the whole unchanged from
the proposal, the burden hour and cost estimates have been
significantly modified in response to public comment.
Specifically, changes in burden estimates have resulted from
adjustments to certain of the Department's underlying assumptions. For
example, commenters indicated that the 17 hours estimated for a plan
which must incorporate the changes recommended in the Consumer Bill of
Rights was understated. Although comments indicate that many plans in
fact presently provide the recommended Consumer Bill of Rights
disclosures, the Department finds these comments persuasive with
respect to those plans that have not yet undertaken to provide the
recommended disclosures, and has adjusted this assumption to an average
of 25 hours.
In response to specific comments, the Department has also added
previously omitted estimated printing costs (an average of $2.25 per
SMM or SPD for pension plans, and $3.50 for group health plans) to the
cost of distributing SMMs and SPDs, although this change does not
affect the incremental cost of this final rule except to the extent
that more printing is likely to be required as a result of these
amendments. Health plan materials are assumed to require an additional
$1.00 in printing costs in those circumstances in which SPDs have not
yet been revised to include the Consumer Bill of Rights disclosures.
The assumed printing costs are lower than the $7 to $12 unit
printing costs reported by the commenters because it is assumed that
some plans will be able to comply by providing SMMs, which would be
substantially less costly to print. The use of lower estimates is also
intended to account for the fact that some portion of the total
printing cost would be likely to be incurred as a usual business
practice in the absence of the statutory or regulatory requirements as
to SPD content. This assumption change has a very significant impact on
the total operating and maintenance costs for this ICR, more than
doubling the aggregate cost of the regulation.
Assumptions with respect to the rate of hourly wages have been
adjusted in response to comments upward from the $50 blended
professional rate and $11 clerical rate previously used in the
estimates for the proposal to $56 and $21, respectively. Adjustments
were also made based on updated data for enrollment in health plans,
numbers of pension plans, and rates of growth in wage and salary
employment.
Numerous comments indicating that plans already comply with the
proposed revisions, although not necessarily in exactly the manner
commenters construed the proposal to require (as to matters such as the
level of detail, or including numerous benefit options in a single SPD)
support the Department's original view that some portion of plans will
be unaffected by these amendments because they already comply. At the
time of the proposal, however, and in the absence of specific evidence
on the rate of current compliance in the record, the Department used
the conservative estimate that 100% of plans would be required to
revise SPDs or issue substantial SMMs. The Department has now revised
this assumption to reflect the estimate that in the aggregate only
about 30 percent of pension plans and 50 percent of group health plans
will be required to revise SPDs or issue substantial SMMs as a result
of changes implemented by this final rule.
In addition to commenters' questions about the appropriateness of
the assumptions used in the Department's analysis of the proposal, a
number of commenters also expressed concern that certain revisions
proposed would generate additional and unnecessary expense, and would
limit the usefulness of the SPD. Commenters indicated, for example,
that the SPD was not an appropriate vehicle for communicating time-
sensitive or frequently changing information because other
communication vehicles already provide the needed information promptly
and efficiently. Others stated that requiring a significant amount of
detail in an SPD on such matters as provider networks, premium and cost
sharing rates, coverage of experimental or investigational treatments
and drugs, would be costly and unnecessary, and would result in more
frequent change to maintain current information in such detail.
The Department has discussed its responses to these comments in
detail earlier in this preamble. In general, the Department has
clarified that certain required disclosures, such as claims procedures,
provider listings or extensive benefit schedules, may be provided
separately provided that the SPD directs participants and beneficiaries
to where additional information can be found. The Department has also
indicated that it did not intend the provisions of the proposal to be
construed to require an SPD to list every drug, test, device or
procedure, nor necessarily the dollar amount of premium or employee
contributions required for coverage, so long as a summary or
description is included that is adequate to communicate participants'
rights under the plan, and the manner in which they will become
responsible for expenses incurred under the plan. The Department also
notes that plan administrators may under existing regulations prepare
separate SPDs for different classes of participants, and may make use
of an SMM to inform participants of material changes in the information
required to be included in the SPD. Each of these options may have a
moderating effect on the cost of preparing and distributing disclosure
materials in accordance with these final rules.
Because the Department viewed the revised disclosure requirements
as proposed as requiring a more limited level of detail than apparently
understood by these commenters, on the basis of these clarifications,
the Department believes that SPDs amended pursuant to the requirements
of the final rules will provide participants and beneficiaries with an
appropriate level of detail and not result in unwarranted ongoing
expense. As a consequence, the analysis of the impact of these
amendments has not been changed, except as to the assumptions
specifically identified above.
With respect to the proposed elimination of the exemption from SPD
requirements for federally qualified HMOs, commenters stated that
causing a single SPD to be prepared to include information currently
provided by HMOs to enrollees but consistent with the style, format and
content requirements of the regulation would result in significant
costs and duplication of effort. Commenters also indicated that causing
all HMO options and other benefit options to be described in a single
SPD would result in unnecessary costs and unusably large and complex
documents. More than one commenter expressed the view that the
increased costs arising from this requirement would ultimately result
in elimination of HMO options currently available to participants and
beneficiaries.
The Department has responded to concerns that the inclusion of all
options in a single document would result in unwarranted costs,
impractical disclosure vehicles, and more limited benefit options by
noting that plan administrators may use different SPDs for different
classes of participants, including those classes identified by their
elected benefit coverages.
[[Page 70238]]
Furthermore, in the Department's view, the information required to be
incorporated in the SPD is important to participants and beneficiaries
electing coverage through a federally qualified HMO, even though an
expense may be associated with bringing the HMO disclosure material
into compliance. Accordingly, the Department has not modified its cost
estimates in response to these comments.
The resulting burden estimates are summarized below. A more
detailed description of the assumptions and methodology underlying
these estimates will be found below in the Analysis of Costs.
Agency: Pension and Welfare Benefits Administration.
Title: Regulations Regarding Required Contents of Summary Plan
Descriptions for Employee Benefit Plans (Final Amendments to Summary
Plan Description Regulations).
OMB Number: 1210-0039.
Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
Frequency of Response: On occasion.
Total Respondents: 943,779 (2001); 1,790,161 (2002).
Total Responses: 52,771,000 (2001); 88,911,000 (2002).
Estimated Burden Hours: 710,134 (2001); 1,117,801 (2002).
Estimated Annual Costs (Operating and Maintenance): $243,226,000
(2001); $400,056,000 (2002).
Persons are not required to respond to the revised information
collection unless it displays a currently valid OMB control number.
Analysis of Cost
The Department performed a comprehensive, unified analysis to
estimate the costs of the regulation for purposes of compliance with
Executive Order 12866, the Regulatory Flexibility Act, and the
Paperwork Reduction Act. The methods and results of that analysis are
summarized below, along with a discussion of comments received on the
analysis included in the original proposal.
To estimate the costs, it was necessary to estimate the number of
SPDs in the ERISA-covered employee benefit plan universe, the frequency
with which those SPDs are updated and distributed, and the number of
participants to whom they must be distributed. It was also necessary to
make certain assumptions about the cost of preparing and distributing
SPDs, in particular the cost of bringing SPDs into compliance with the
regulation's provisions. The Department separately estimated the
baseline cost of its existing SPD regulation and the incremental cost
of this final rule.
In response to its proposed rulemaking, the Department received a
number of comments bearing on the estimates of the economic impact of
the regulation. Several commenters stated the general view that the SPD
was not an appropriate vehicle for communicating time-sensitive or
frequently changing information because other communication vehicles
already in use provide the needed information promptly and efficiently.
Others indicated that requiring a significant amount of detail in an
SPD on such matters as provider networks, premium and cost sharing
rates, coverage of experimental or investigational treatments and
drugs, would be costly and unnecessary, and would result in more
frequent change in the future. Commenters also indicated that the speed
with which they would be required to make the very substantial
revisions to SPDs would increase the cost to comply.
With respect to the elimination of the exemption from SPD
requirements for federally qualified HMOs, commenters stated that
causing a single SPD to be prepared to include the information
currently provided by HMOs to enrollees but consistent with the style,
format and content requirements of the regulation would result in
significant costs and duplication of effort. Commenters also indicated
that causing all HMOs and other benefit options to be described in a
single SPD would result in unnecessary costs and unusably large and
complex documents. More than one commenter expressed the view that the
increased costs arising from this requirement would ultimately result
in elimination of HMO options currently available to participants and
beneficiaries.
Other comments indicated that in light of the very significant new
requirements, the Department's cost estimates were substantially
understated, despite the commenters' assertions that much of the
information is already provided. Concerns were expressed about the time
required and timing of the required revisions, the hourly wage rates,
and the omission of printing costs from the Department's estimates. The
Department has considered these comments in view of commenters'
apparent interpretations of the requirements of the proposed rules, and
has adjusted a number of its assumptions as specifically detailed below
to address comments on required resources, wage rates, and printing
costs. A revision was also made to the final rule's effective date to
address issues of flexibility and efficiency in plan administrators'
implementation of required revisions.
In response to concerns raised about the potential for the proposed
revisions to generate additional and unnecessary expense, and to result
in SPDs of limited usefulness, the Department has earlier in this
preamble expressed its views concerning the level of detail required to
be included in an SPD. In general, the Department has clarified that
certain required disclosures, such as claims procedures, provider
listings or extensive benefit schedules, may be provided separately,
provided that the SPD directs participants and beneficiaries to where
additional information can be found. The Department has also indicated
that it did not intend the provisions of the proposal to be construed
to require an SPD to list every drug, test, device or procedure, nor
necessarily the dollar amount of premium or employee contributions
required for coverage, so long as a summary or description is included
that is adequate to communicate participants' rights under the plan,
and the manner in which they will become responsible for expenses
incurred under the plan. The Department also notes that plan
administrators may under existing regulations prepare separate SPDs for
different classes of participants, and may make use of an SMM to inform
participants of material changes in the information required to be
included in the SPD. Each of these options may have a moderating effect
on the cost of preparing and distributing disclosure materials in
accordance with these final rules.
Because the Department viewed the revised disclosure requirements
as proposed as requiring a more limited level of detail than apparently
understood by these commenters, on the basis of these clarifications,
the Department believes that SPDs amended pursuant to the requirements
of the final rules will provide participants and beneficiaries with an
appropriate level of detail and not result in unwarranted ongoing
expense. As a consequence, the analysis of the impact of these
amendments has not been changed, except as to the assumptions
specifically identified below.
With respect to the proposed elimination of the exemption from SPD
requirements for federally qualified HMOs, commenters stated that
causing a single SPD to be prepared to include information currently
provided by HMOs to enrollees but consistent with the style, format and
content requirements of the regulation would
[[Page 70239]]
result in significant costs and duplication of effort. Commenters also
indicated that causing all HMO options and other benefit options to be
described in a single SPD would result in unnecessary costs and
unusably large and complex documents. More than one commenter expressed
the view that the increased costs arising from this requirement would
ultimately result in elimination of HMO options currently available to
participants and beneficiaries.
The Department has responded to concerns that the inclusion of all
options in a single document would result in unwarranted costs,
impractical disclosure vehicles, and more limited benefit options by
noting that plan administrators may use different SPDs for different
classes of participants, including those classes identified by their
elected benefit coverages. Furthermore, in the Department's view, the
information required to be incorporated in the SPD is important to
participants and beneficiaries electing coverage through a federally
qualified HMO, even though an expense may be associated with bringing
the HMO disclosure material into compliance. Accordingly, the
Department has not modified its cost estimates in response to these
comments concerning the federally qualified HMO disclosure
requirements.
As a result, the basic framework and assumptions used in the
analysis are generally unchanged. However, certain specific assumptions
have been revised in response to comments received, or based on the
availability of more recent or more complete data. The modification of
the applicability date should allow many plans a somewhat longer period
of time to come into compliance, and lessen their overall cost to
comply by providing flexibility in their use of resources. The
Department has increased its assumption concerning the amount of
professional time required to effect compliance with the Consumer Bill
of Rights disclosure provisions, and has altered its original
assumption as to the proportion of plans that currently comply based on
a number of comments indicating current compliance in substance.
Professional and clerical wage rates have been adjusted upward, and an
estimate of previously omitted printing costs has been included.
Details of the analysis of costs follow.
The Department's estimates of both the pension and health universes
have been updated based on current data, the overall effect of which is
the use of slightly larger numbers of pension plans, and substantially
higher numbers of health plans than used for estimates of the impact of
the proposal (specifically, 2.8 million plans compared with the 2.5
million plans at the time of the proposal). The Department estimated
the number of plans, SPDs and the number of participants based on 1995
Form 5500 Series data, the March 1999 Current Population Survey (CPS),
the 1996 Medical Expenditure Panel Survey (MEPS), and 1995 Census
Bureau data on firms and establishments. Each pension plan is estimated
to maintain one SPD, and Form 5500 data demonstrates the number of
pension plans and participants. The number of welfare plans is more
difficult to determine because the majority of welfare plans are exempt
from the requirement to file Form 5500 due to their having fewer than
100 participants and being unfunded or fully insured. The 1996 data
from MEPS on health plans offered by establishments was converted from
establishments to firms using 1995 Census Bureau data, and then
converting the estimate of firms to plans using Form 5500 pension data
estimates on the number of multiemployer plans. The number of
participants was generated using March 1999 CPS data inflated to 2002
using BLS employment projections. Form 5500 data for 1995 was used to
distribute the CPS aggregate between large and small plans.
With respect to group health plans, the number of SPDs is estimated
to be smaller than the number of plans because small plans typically
buy standard products from vendors. In addition, individual plan
sponsors often sponsor more than one plan and/or offer more than one
kind of benefit (such as retirement and disability) under a single
plan, but describe two or more of their plans or benefit types in a
single SPD. The Department assumes that pension plans and health plans
(or products) maintain separate SPDs, but that non-health welfare
benefits are either offered together with health benefits as part of
unified welfare plans or are maintained as separate plans but described
along with accompanying health plans in a single combined SPD.
Pursuant to these assumptions, the Department estimates that the
universe includes a total of 693,000 unique pension plan SPDs. The
estimate of 84,900 unique health plan SPDs is assumed to encompass all
other welfare plan SPDs. The estimated number of unique health plan
SPDs has been increased for the purposes of analysis of this final rule
based on updated and more detailed information on the numbers of plans,
rates of self-funding, and numbers of group health plan issuers of
insurance policies.
With respect to the frequency of updating and distributing SPDs,
plans filing the Form 5500 indicate whether they amended and
distributed their SPDs in the preceding year. About 30 percent of plans
so report. This figure is interpreted to represent a baseline level of
SPD modification and distribution activity. The amendments implemented
by this final rule are not expected to change the baseline rate of SPD
modification for pension plans, but are expected to cause some health
plans to make changes to SPDs sooner than they would otherwise have
made them.
The Department generally assumes that preparing a revised SPD
requires four hours of combined professional and clerical time, priced
at $56 and $21 per hour, respectively. Previous assumptions were $50
and $11. The Department assumes that distributing an SPD consumes two
minutes of clerical labor at $21 per hour, plus $2.25 for printing,
materials, and mailing (or electronic dissemination) for pension plans
and $3.50 for printing, materials, and mailing (or electronic
dissemination) for welfare plans. This amounts to $2.95 per pension SPD
and $4.20 per welfare plan SPD distributed. As noted earlier, printing
costs were not previously estimated, and have been included here in
response to comments.
The Department estimates the baseline cost to prepare and
distribute SPDs under the current regulation at $218 million in 2001,
$224 million in 2002, and approximately $230 million in 2003 based on
projected enrollment growth. Total cost in a typical baseline year such
as 2001 includes $46 million to prepare 208,000 unique SPDs, and $172
million to distribute copies to 51 million participants.
The Department separately estimated the cost of revisions to SPDs
that plan administrators may undertake to update their SPDs following
adoption of final amendments of the SPD content requirements. This cost
is separate from the baseline cost attributable to normal SPD
revisions, such as those made pursuant to plan amendments. Plans
preparing SPDs solely to comply with the final rule would incur only
the costs attributable to those revisions deemed necessary to comply
with the provisions of the final rule, while plans simultaneously
revising their SPDs for other reasons would incur this additional cost
plus the baseline unit cost.
With respect to pension plans, the Department assumes that
preparing an SPD to comply with the final rule requires 30 minutes of
professional time
[[Page 70240]]
at a rate of $56 per hour. The time and expense associated with
distributing each SPD are assumed to be unchanged from the baseline.
To estimate the per-unit cost to prepare revised health plan SPDs,
the Department originally drew on two studies of the cost to health
plans to comply with the Consumer Bill of Rights, one cited earlier by
The Lewin Group for the President's Commission, and one by Coopers and
Lybrand for the Kaiser Family Foundation.\13\ Excerpting and adjusting
these studies' estimates to reflect the regulation's provisions, the
Department essentially adopted the midpoint of these two studies'
findings. With the addition of the small burden attributable to other
provisions, the cost to prepare a health plan SPD to bring it into
conformity with the regulation was originally estimated to require an
average of approximately 18 hours at $50 per hour (17 hours for the
Consumer Bill of Rights disclosures). Based on the comments received on
this estimate, the Department has adjusted its assumptions concerning
the time required to implement Consumer Bill of Rights disclosures
where not previously implemented from an average of 17 hours to 25
hours, and the total time required to come into compliance with all
health plan provisions of the final rule from an average of 18 hours to
an average of about 27 hours. This adjustment is responsive to
comments, and has the effect of giving the Lewin cost estimates greater
weight in the analysis of the impact of this final rule. The resulting
estimate takes into account a range of current compliance, based on
comments received indicating that many plans already provide the
required information, although not necessarily in the format the
commenters construed the proposal to require, and the fact that some
plans more nearly in compliance may choose to comply with an SMM,
presumably lessening the cost of compliance. The average cost of
preparation of group health plan disclosures is estimated at about
$1,400 per unique SPD.
---------------------------------------------------------------------------
\13\ ``Estimated Costs of Selected Consumer Protection
Proposals--A Cost Analysis of the President's Advisory Commission's
Consumer Bill of Rights and Responsibilities and the Patient Access
to Responsible Care Act,'' Coopers & Lybrand, LLP for the Kaiser
Family Foundation, April, 1998.
---------------------------------------------------------------------------
Numerous comments indicating that plans already comply with the
proposed revisions, although not precisely in the manner commenters
construed the proposal to require (as to level of detail, including
numerous benefit options in a single SPD), support the Department's
original view that some portion of plans will be unaffected because
they already comply. At the time of the proposal, however, and in the
absence of specific evidence of the rate of current compliance in the
record, the Department used the conservative estimate that 100% of
plans would be required to revise SPDs or issue substantial SMMs. The
Department has now revised this assumption to reflect the estimate that
in the aggregate 30 percent of pension plans and 50 percent of group
health plans will be required to revise SPDs or issue substantial SMMs
as a result of changes implemented by this final rule.
The Department assumed that the cost to distribute a group health
plan SPD with the additional disclosures will rise in connection with
the regulation, consuming an additional one minute of clerical time at
$21 per hour and an additional $1.00 for materials and mailing or
electronic distribution, for a total for $1.35 per SPD distributed.
The Department estimates the added cost attributable to this
regulation to be $47 million in 2001 and $208 million in 2002. The peak
incremental cost in 2002 includes $32 million to prepare 155,000
different SPDs describing 1.2 million pension and welfare plans, and
$176 million to distribute those SPDs to 36 million participants.
Combining this added cost with the baseline cost attributable to
the existing regulation, the total cost to prepare and distribute SPDs
under the regulation amounts to $265 million in 2001, and $432 million
in 2002. The peak cost in 2002 includes $78 million to prepare 321,000
SPDs describing 1.8 million plans, and $354 million to distribute those
SPDs to 89 million participants.
The baseline, additional, and total costs associated with the final
SPD regulation are summarized in the table below:
[In millions of dollars]
------------------------------------------------------------------------
Year Baseline Additional Total
------------------------------------------------------------------------
2001 $218,360,00 $47,129,000 $265,489,00
0 0
2002 223,949,000 208,070,000 432,019,000
------------------------------------------------------------------------
Plans that are assumed for purposes of this analysis to prepare and
distribute SPDs for the sole purpose of complying with the regulation
have the option of complying by preparing and distributing SMMs
instead, the choice likely depending on the extent of the changes
required for the plan involved. Plans are expected to make use of an
SMM to come into compliance when a moderate to small number of
revisions are required, resulting in a relatively low cost to comply
relative to an extensive revision of an SPD. As a result of its use of
an assumption representing a midpoint between an SMM cost and an SPD
cost, the Department's estimates of the costs to revise and distribute
compliant disclosure materials in response to this regulation can be
interpreted to account for the likelihood that some plans will elect to
prepare and distribute SMMs.
Executive Order 13132 Statement
This final rule does not have federalism implications because it
has no substantial direct effect on the States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government.
Section 514 of ERISA provides, with certain exceptions specifically
enumerated, that the provisions of Titles I and IV of ERISA supercede
any and all laws of the States as they relate to any employee benefit
plan covered under ERISA. This final rule, therefore, does not affect
the States or change the relationship or distribution of power between
the national government and the States. Further, this final rule
implements certain revisions to annual reporting and disclosure
regulations which have been in effect in similar form for many years.
The amendments incorporated in this final rule do not alter the
fundamental requirements of the statute with respect to the reporting
and disclosure requirements for employee benefit plans, and as such
have no implications for the States or the relationship or distribution
of power between the national government and the States.
[[Page 70241]]
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this rule does not include
any Federal mandate that may result in expenditures by State, local, or
tribal governments, but does include mandates which may impose
expenditures of $100 million or more on the private sector. The basis
for this statement is described in the analysis of costs for purposes
of Executive Order 12866. Identification of the authorizing statute,
and the assessment of the anticipated costs and benefits, and economic
effect of this regulation are also presented elsewhere in this
preamble.
In promulgating this final rule, the Department has adopted the
least burdensome method of achieving the rule's objective of improving
the information that participants and beneficiaries receive about their
ERISA covered pension and welfare plans. The majority of the costs
associated with the SPD arise from the distribution costs that must be
incurred to comply with ERISA's requirement that plan administrators
disclose certain information to participants and beneficiaries within
specified time frames. Because plan administrators must communicate
changes in the terms of the plan or other changes that affect the
information required to be included in the SPD even absent any change
in regulatory requirements, they periodically update and distribute SPD
information to participants and beneficiaries as part of their usual
and customary business practices. To ensure that the regulatory
amendments being adopted as part of this final rule may be implemented
by administrators in the least burdensome manner, the Department
adopted a delayed applicability date that lets plan administrators
avoid the largest component of the cost of a regulatory change in the
SPD content requirements (i.e., distribution expenses) by allowing them
to incorporate the required revisions into the periodic SPD updates
that they would otherwise be distributing as part of their usual and
customary business practices.
Small Business Regulatory Enforcement Fairness Act
This final rule is subject to the provisions of the Small Business
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.)
(SBREFA), and is a major rule under SBREFA. Accordingly, this final
rule has been transmitted to Congress and the Comptroller General for
review.
Statutory Authority
This regulation is adopted pursuant to the authority in sections
101, 103, 104, 109, 110, 111, 504 and 505 of ERISA and under Secretary
of Labor's Order No. 1-87, 52 FR 13139, April 21, 1987.
List of Subjects in 29 CFR Part 2520
Employee benefit plans, Employee Retirement Income Security Act,
Group health plans, Pension plans, Welfare benefit plans.
For the reasons set forth above, Part 2520 of Title 29 of the Code
of Federal Regulations is amended as follows:
1. The authority for Part 2520 continues to read as follows:
Authority: Secs. 101, 102, 103, 104, 105, 109, 110, 111(b)(2),
111(c), and 505, Pub. L. 93-406, 88 Stat. 840-52 and 894 (29 U.S.C.
1021-1025, 1029-31, and 1135); Secretary of Labor's Order No. 27-74,
13-76, 1-87, and Labor Management Services Administration Order 2-6.
2. Section 2520.102-3 is amended by removing paragraph (v),
revising paragraphs (d), (j), (l), (m)(3), (o), (s), (t)(2), and (u),
revising the last sentence of paragraph (q), and adding paragraph
(m)(4) to read as follows:
Sec. 2520.102-3 Contents of summary plan description.
* * * * *
(d) The type of pension or welfare plan, i.e., for pension plans--
defined benefit, defined contribution, 401(k), cash balance, money
purchase, profit sharing, ERISA section 404(c) plan, etc., and for
welfare plans--group health plans, disability, pre-paid legal services,
etc.
* * * * *
(j) The plan's requirements respecting eligibility for
participation and for benefits. The summary plan description shall
describe the plan's provisions relating to eligibility to participate
in the plan and the information identified in paragraphs (j)(1), (2)
and (3) of this section, as appropriate.
(1) For employee pension benefit plans, it shall also include a
statement describing the plan's normal retirement age, as that term is
defined in section 3(24) of the Act, and a statement describing any
other conditions which must be met before a participant will be
eligible to receive benefits. Such plan benefits shall be described or
summarized. In addition, the summary plan description shall include a
description of the procedures governing qualified domestic relations
order (QDRO) determinations or a statement indicating that participants
and beneficiaries can obtain, without charge, a copy of such procedures
from the plan administrator.
(2) For employee welfare benefit plans, it shall also include a
statement of the conditions pertaining to eligibility to receive
benefits, and a description or summary of the benefits. In the case of
a welfare plan providing extensive schedules of benefits (a group
health plan, for example), only a general description of such benefits
is required if reference is made to detailed schedules of benefits
which are available without cost to any participant or beneficiary who
so requests. In addition, the summary plan description shall include a
description of the procedures governing qualified medical child support
order (QMCSO) determinations or a statement indicating that
participants and beneficiaries can obtain, without charge, a copy of
such procedures from the plan administrator.
(3) For employee welfare benefit plans that are group health plans,
as defined in section 733(a)(1) of the Act, the summary plan
description shall include a description of any cost-sharing provisions,
including premiums, deductibles, coinsurance, and copayment amounts for
which the participant or beneficiary will be responsible; any annual or
lifetime caps or other limits on benefits under the plan; the extent to
which preventive services are covered under the plan; whether, and
under what circumstances, existing and new drugs are covered under the
plan; whether, and under what circumstances, coverage is provided for
medical tests, devices and procedures; provisions governing the use of
network providers, the composition of the provider network, and
whether, and under what circumstances, coverage is provided for out-of-
network services; any conditions or limits on the selection of primary
care providers or providers of speciality medical care; any conditions
or limits applicable to obtaining emergency medical care; and any
provisions requiring preauthorizations or utilization review as a
condition to obtaining a benefit or service under the plan. In the case
of plans with provider networks, the listing of providers may be
furnished as a separate document that accompanies the plan's SPD,
provided that the summary plan description contains a general
description of the provider network and provided further that the SPD
contains a statement that provider lists are furnished automatically,
without charge, as a separate document.
* * * * *
[[Page 70242]]
(l) For both pension and welfare benefit plans, a statement clearly
identifying circumstances which may result in disqualification,
ineligibility, or denial, loss, forfeiture, suspension, offset,
reduction, or recovery (e.g., by exercise of subrogation or
reimbursement rights) of any benefits that a participant or beneficiary
might otherwise reasonably expect the plan to provide on the basis of
the description of benefits required by paragraphs (j) and (k) |
