EBSA Proposed Rule
Proposed Amendments to Summary Plan Description Regulations [09/09/1998]
[PDF Version]
Volume 63, Number 174, Page 48376-48387
[[Page 48376]]
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Part 2520
RIN 1210-AA69
Proposed Amendments to Summary Plan Description Regulations
AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed amendments to 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 are being proposed to 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,'' by clarifying benefit, medical provider and other
information required to be disclosed in, or as part of, the SPD of a
group health plan and for other reasons as well. This document also
contains a proposed amendment to repeal the limited exemption with
respect to SPDs of welfare plans providing benefits through qualified
health maintenance organizations (HMOs). In addition, the Department is
proposing a number of amendments to the SPD content regulation that are
intended to update and clarify the application of provisions affecting
both pension and welfare benefit plans. The amendments contained in
this document will affect employee pension and welfare benefit plans,
including group health plans, as well as administrators, fiduciaries,
participants and beneficiaries of such plans.
DATES: Comments: Written comments concerning the proposed amendments
must be received by November 9, 1998.
ADDRESSES: Interested persons are invited to submit written comments
(preferably three copies) concerning the proposals herein to: Office of
Regulations and Interpretations, Room N-5669, Pension and Welfare
Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210, Attention: Proposed SPD Content
Regulations. All written comments should clearly reference the relevant
proposed amendment(s). All submissions will be open to public
inspection in the Public Disclosure Room, Pension and Welfare Benefits
Administration, Room N-5638, 200 Constitution Avenue, N.W. Washington,
D.C.
FOR FURTHER INFORMATION CONTACT: June Solonsky, Office of Regulations
and Interpretations, Pension and Welfare Benefits Administration, (202)
219-8521. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
A. Background
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. Section 102(b) and the
Department's regulation issued thereunder, 29 CFR 2520.102-3, describe
the information required to be included in the SPD. The SPD is the
primary vehicle under ERISA for communicating information to
participants and beneficiaries about their rights, benefits, and
obligations under their employee benefit plans.<SUP>1</SUP>
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\1\ Publication of this regulation is not intended to address
any disclosure issues arising under Part 4 of Subtitle B of Title I.
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The Regulation governing the content of the SPD was first adopted
in 1977.<SUP>2</SUP> While this regulation was later amended to
implement changes to ERISA's disclosure provisions enacted as part of
the Health Insurance Portability and Accountability Act of 1996 and the
Newborns' and Mothers' Health Protection Act of 1996,<SUP>3</SUP> most
of the SPD content provisions have not been modified, updated or
otherwise changed since adoption of the 1977 regulation. Since that
time there have been a number of legislative and other changes
affecting plans and plan practices that, in turn, affect the
information necessary for participants and beneficiaries to understand
and exercise their rights under their plans and under ERISA. Taking
into account the continuation coverage provisions enacted under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and
subsequent amendments, the portability, access and renewability
requirements enacted as part of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), the mental health parity provisions
enacted as part of the Mental Health Parity Act of 1996, the
requirements of the Newborns' and Mothers' Health Protection Act of
1996, and the growth of managed care programs and practices, some of
the most significant changes have taken place with respect to group
health plans.
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\2\ 42 FR 37178, July 19, 1977.
\3\ 62 FR 16979, April 8, 1997.
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In addition, the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry (the Commission), in
its November 20, 1997 report entitled ``Consumer Bill of Rights and
Responsibilities,'' made a number of recommendations intended to
enhance disclosure of health care plan and other information. In
response to the Commission's report, the Department of Labor identified
various regulatory actions that could be taken to implement the
Commission's recommendation in the area of information disclosure.
Following the Department's response, the President issued a memorandum
to the Department, directing it to ``propose regulations that require
ERISA health plans to ensure the information they provide to plan
participants is consistent with the Patient Bill of Rights.''
<SUP>4</SUP>
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\4\ The President further directed the Department to ``propose
regulations to strengthen the internal appeals process for all
Employee Retirement Income Security Act (ERISA) health plans to
ensure that decisions regarding urgent care are resolved within not
more than 72 hours and generally resolved within 15 days for non-
urgent care.'' The Department is publishing today in the Federal
Register a proposal that would revise the Department's regulation at
29 CFR 2560.503-1 to accomplish this goal.
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As discussed below, this document contains a number of proposed
amendments to the regulations governing the content of summary plan
descriptions, specifically, 29 CFR 2520.102-3 and 2520.102-5, that,
consistent with the Department's commitment are intended to implement
the Commission's recommendations for improved information disclosure by
group health plans, as well as generally update the SPD disclosure
requirements for both welfare and pension plans.
B. Amendments Relating to the ``Consumer Bill of Rights and
Responsibilities''
One of the eight principles set forth in the ``Consumer Bill of
Rights and Responsibilities'' is the right of individuals to receive
accurate, easily understood information about their health plans,
professionals and facilities. While the Department does not have the
authority under ERISA to mandate disclosure of all of the information
identified by the Commission in their report, the Department does have
the authority to establish standards governing the style, format and
content of the SPD, which is the primary vehicle through which plan
[[Page 48377]]
benefit and other information is communicated to participants and
beneficiaries. Consistent with the Commission's recommendation that
health care information be communicated in an easily understood manner,
both ERISA and the Department's regulations currently require that SPD
information be communicated in a manner calculated to be understood by
the average plan participant and sufficiently accurate and
comprehensive to reasonably apprise such participants and beneficiaries
of their rights and obligations under the plan.<SUP>5</SUP> The
Department believes these standards serve to further the Commission's
recommendations without modification or amendment at this time. The
Department, however, has concluded that the SPD regulations should be
amended to clarify the required disclosure by group health plans in
their SPDs of various categories of information identified by the
Commission and to ensure that all participants and beneficiaries,
without regard to whether they are covered by a Federally qualified
HMO, are provided health plan information consistent with the SPD
requirements.
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\5\ See ERISA Sec. 102(a)(1), 29 U.S.C. 1022(a)(1), and 29 CFR
2520.102-2.
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In responding to the Commission's recommendations, the Department
indicated that it could propose amendments to the SPD regulations to
ensure that all participants and beneficiaries in group health plans
are provided, consistent with the Commission's recommendations, clear
and understandable information concerning: benefits and limits on
coverage; the extent to which preventive services are covered; whether,
and under what circumstances, coverage is provided for existing and new
drugs; whether, and under what circumstances, coverage is provided for
tests, devices, and procedures; provider network composition; coverage
of out-of-network services; conditions, if any, for access to
speciality medical care; conditions, if any, applicable to urgent care;
and preauthorization and utilization review procedures. The Department
also indicated that it could amend the special rules, at Sec. 2520.102-
5, governing the disclosure of plan information by certain health
maintenance organizations (HMOs) to improve the information furnished
participants and beneficiaries.
1. Changes to the SPD Content Requirements
In order to implement the Department's response to the Commission's
recommendations, the Department is proposing to amend 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, as
defined in section 733(a).<SUP>6</SUP> Paragraph (j) generally provides
that the SPD of an employee benefit plan must describe ``[t]he plan's
requirements respecting eligibility for participation and for
benefits.'' Subparagraph (2) of paragraph (j) provides, in the case of
welfare benefit plans, the SPD must also include a ``statement of the
conditions pertaining to eligibility to receive benefits, and a
description or summary of the benefits.'' That subparagraph also
provides that where a plan provides an extensive schedule of benefits,
only a general description is required if reference is made to detailed
schedules of benefits which are available without costs to any
participant or beneficiary who so requests.
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\6\ ERISA Sec. 733(a)(1), defines the term ``group health plan''
to mean ``an employee welfare benefit plan to the extent that the
plan provides medical care (as defined in paragraph (2) and
including items and services paid for as medical care) to employees
or their dependents (as defined under the terms of the plan)
directly or through insurance reimbursement, or otherwise.''
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It is the view of the Department that the information described in
the new paragraph (j)(3) is currently required to be disclosed through
the SPD under paragraph (j)(2), and that most group health plans in
fact disclose such information to participants and beneficiaries in, or
as part of, the plan's SPD. Nonetheless, the Department believes that,
in view of the Commission's report and recommendations, the amendment
proposed herein adding a new paragraph (j)(3) is necessary to remove
any ambiguity as to the required disclosure of such information.
Specifically, paragraph (j)(3) provides that the SPD of a group health
plan shall 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 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.
Paragraph (j)(3) further provides 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.
With regard to the disclosure of preauthorization and utilization
review procedures, the Department is proposing to amend paragraph (s)
of Sec. 2520.102-3, that currently requires a description of the plan's
claims procedures, to clarify that the required description of
procedures governing claims for benefits includes, in the case of a
group health plan, any procedures for preauthorizations, approvals, or
utilization review. It is the view of the Department that a plan is not
precluded from furnishing a description of the plan's claims procedures
as a separate document that accompanies the plan's SPD, provided that
the description otherwise satisfies the style and format requirements
of Sec. 2520.102-2.
2. Repealing the Limited Exception for SPDs of Plans Providing
Benefits Through a Federally Qualified HMO
The Department is proposing to repeal Sec. 2520.102-5, which
provides that SPDs of welfare benefit plans which provide benefits
through a qualified HMO, as defined in section 1310(d) of the Public
Health Act, 42 U.S.C. 300e-9(d), are not required to include the
information described in Secs. 2520.102-3(j)(2), (l), (q) and (s)
provided certain conditions are met. The Department believes that, in
view of the legislative and other changes affecting the operation of
group health plans since the adoption of Sec. 2520.102-5 in
1981,<SUP>7</SUP> 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 qualified HMO, as defined
in Sec. 1310(d) of the Public Health Act, 42 U.S.C. 300e-9(d), as any
other employee benefit plan participant or beneficiary.
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\7\ See 46 FR 5884, January 21, 1981.
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[[Page 48378]]
C. Other Amendments Relating to the SPD Content Requirements
The following amendments are intended to update the SPD content
regulations, Sec. 2520.102-3, to reflect legislative and other changes
that have taken place since adoption of the regulations. The amendments
are discussed below paragraph-by-paragraph in the order in which they
appear in the regulation.
1. Sec. 2520.102-3(d)--Type of Pension and Welfare Plan
Paragraph (d) of Sec. 2520.102-3 requires plan administrators to
specify in the summary plan description the type of welfare or pension
plan they administer. The regulation provides examples of types of
pension and welfare plans. Due to the fact that participant and
beneficiary rights and obligations may be substantially affected, in
the case of pension plans, by whether their defined contribution
pension plan is intended to comply with ERISA section 404(c) and, in
the case of welfare plans, by whether the plan is a group health plan
subject to HIPAA, in an effort to update the regulation, the proposal
would amend paragraph (d) to include references to ERISA section 404(c)
plans and group health plans as defined in ERISA section 733(a). While
the Department's regulation at Sec. 2550.404c-1(b)(2)(i)(B)(1)(i)
already requires participants and beneficiaries to be provided with an
explanation that the plan is intended to constitute a plan described in
ERISA section 404(c), the Department intends to emphasize plan
administrators' notification responsibilities by including the
reference to ERISA section 404(c) plans in paragraph (d) of
Sec. 2520.102-3.
2. Sec. 2520.102-3(j)--Eligibility for Participation and Benefits
In addition to the above discussed amendment of paragraph (j) of
Sec. 2520.102-3 relating to group health plans, the Department is
proposing to amend paragraph (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 is proposing to amend 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.<SUP>8</SUP> If an SPD contains a
description of the procedures governing QDRO determinations, in the
case of a pension plan, or QMCSO determinations, in the case of a group
health plan, the description should include information sufficient to
enable prospective alternate payees and alternate recipients to
exercise their rights. The Department believes that participants and
beneficiaries should be aware that procedures exist for making such
determinations and that the most appropriate vehicle for communicating
information about the procedures is through the SPD.
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\8\ The Department notes that the procedures governing qualified
domestic relations order determinations under ERISA Sec. 206(d)(3)
and the procedures governing qualified medical child support order
determinations under ERISA Sec. 609 would constitute an instrument
under which a plan is operated for purposes of ERISA Sec. 104(b)(4),
and, thereby, would be required to be furnished to participants and
beneficiaries upon request. A failure or refusal to furnish a copy
of such instrument in response to a request from a participant or
beneficiary (including prospective alternate payees and alternate
recipients), therefore, may subject the administrator to a penalty
of up to $110 a day from the date of such failure or refusal (See
ERISA Sec. 502(c)(1)).
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3. Sec. 2520.102-3(l)--Plan Terminations and Authority To Eliminate
Benefits
Paragraph (l) of Sec. 2520.102-3 requires pension and welfare
benefit plan administrators to include in their SPDs a statement
clearly identifying circumstances which may result in disqualification,
ineligibility, or denial, loss, forfeiture or suspension 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 the SPD regulations. In 1984, the Department issued ERISA
Technical Release 84-1 setting forth the Department's view that a plan
termination is a circumstance which may result in the denial or loss of
benefits that a participant or beneficiary might otherwise reasonably
expect to receive under a plan such that plan administrators, pursuant
to Sec. 2520.102-2 and Sec. 2520.102-3(l), must include in their SPD
information concerning the provisions of the plan which relate to the
termination of the plan.
It is the Department's view that paragraph (l) currently requires
the disclosure of information concerning the circumstances under which
the plan can be amended to reduce or eliminate benefits. To eliminate
uncertainty, however, the Department is proposing to amend paragraph
(l) in order to incorporate the principles of Technical Release 84-1 in
the SPD content regulation, as well as clarify the application of those
principles to the plan amendments. These changes serve to codify the
principles of Technical Release 84-1, thereby, providing more effective
notice to plan administrators, participants and beneficiaries, and
others regarding the information required to be included in the
SPD.<SUP>9</SUP>
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\9\ At least one federal court has interpreted the Department's
regulations as not requiring administrators of ERISA plans to
disclose in their SPDs that the plans are subject to amendment or
termination. See Sprague v. General Motors Corp., 133 F.3d 388 (6th
Cir. 1997), cert. denied, 66 U.S.L.W. 3779 (1998).
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Specifically, the Department proposes to add to the end of
paragraph (l) the requirement that plan administrators include the
following: (1) A summary of any plan provisions governing the authority
of the plan sponsor or others to terminate the plan or eliminate, in
whole or in part, benefits under the plan and the circumstances, if
any, under which the plan may be terminated and under which benefits
under the plan may be 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.
The Department notes that, in accordance with the general SPD
format requirements of Sec. 2520.102-2(b), any description of an
exception, limitations, reductions or other restrictions--which, in the
Department's view includes plan amendment and termination provisions--
must not be minimized, rendered obscure, or otherwise made to appear
unimportant.
4. Sec. 2520.102-3(m)--PBGC Coverage
Under Sec. 2520.102-3(m)(2), plans with benefits insured under
Title IV are required to indicate that fact in their SPD along with a
summary of the pension benefit guaranty provisions of Title IV and a
statement indicating that further information on the provisions can be
obtained from the plan administrator or the Pension Benefit Guaranty
Corporation (PBGC). An SPD is deemed to meet the requirements of
paragraph (m)(2) if it includes the model
[[Page 48379]]
statement set forth in paragraph (m)(3). The Department is proposing to
amend the model statement contained in paragraph (m)(3), 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.
5. Sec. 2520.102-3(o)--``Cutback'' Provisions/COBRA
Paragraph (o) of Sec. 2520.102-3 requires that certain pension
plans electing use of the ``cutback'' rule of Internal Revenue Code
Revenue Ruling 76-378 include information concerning the application of
such election in the SPD. The Department understands that the
referenced ``cutback'' rule has little, if any, current application.
Accordingly, the Department is proposing to amend paragraph (o) to
eliminate the discussion of the ``cutback'' rule.
The Department is further proposing to address in a new paragraph
(o) the requirement that participants and beneficiaries in group health
plans subject to the continuation coverage provisions of COBRA be
provided information concerning their rights and obligations under
those provisions. It is the view of the Department that the SPD of
group health plans, within the meaning of section 607(1), subject to
the continuation coverage provisions of COBRA, must describe the rights
and responsibilities of participants and other ``qualified
beneficiaries'' (as defined in ERISA section 607(3)) under such
provisions. ERISA section 606(a)(1) also requires that group health
plans, within the meaning of section 607(1) of ERISA, provide, at the
time of commencement of coverage under the plan, a notice to each
covered employee and his or her spouse informing them of their rights
under the COBRA continuation coverage provisions. It is the view of the
Department that the disclosure obligation under section 606(a)(1) will
be satisfied by furnishing to the covered employee and spouse, at the
time of commencement of coverage, an SPD that includes the required
COBRA continuation coverage description.<SUP>10</SUP>
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\10\ The Department 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 addressed to both
the employee and spouse will constitute good faith compliance with
the general COBRA disclosure requirement. See ERISA Technical
Release No. 86-2.
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Specifically, paragraph (o), as amended, would require group health
plans subject to the COBRA continuation coverage provisions to describe
the rights and obligations of participants and beneficiaries with
respect to continuation coverage, providing, among other things,
information concerning qualifying events, premiums, notice and election
requirements and procedures, and duration of coverage.
6. Sec. 2520.102-3(q)--Identity of Funding Medium/Interim Amendment
On April 8, 1997, the Department published an amendment to
paragraph (q) of Sec. 2520.102-3 , implementing statutory changes to
SPD disclosure requirements enacted as part of the Health Insurance
Portability and Accountability Act of 1996.<SUP>11</SUP> This amendment
is intended to ensure that SPDs clearly inform participants and
beneficiaries about the role of insurance issuers with respect to their
group health plan, particularly in those cases where the plan is self-
funded and an insurer is serving as a contract administrator or claim
payer, rather than an insurer. Although this notice of proposed
rulemaking does not propose any change to paragraph (q), the Department
intends to publish one consolidated final rule covering the proposals
published in this document and the portions of the April 1997 interim
rule that address SPD content requirements.
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\11\ 62 FR 16979, April 8, 1997.
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7. Sec. 2520.102-3(t)--Statement of ERISA Rights
Under paragraph (t) of Sec. 2520.102-3(t), the requirement to
furnish participants and beneficiaries with the statement of ERISA
rights described in section 104(c) of the Act is satisfied by providing
the model statement set forth in paragraph (t)(2) or a statement
prepared by the plan containing the information in the model statement.
The Department is proposing to amend paragraph (t)(2) to improve and
update the model statement. Specifically, the Department is proposing
to amend the model statement to incorporate references to participant
rights under the COBRA continuation coverage and the portability
provisions of Parts 6 and 7, respectively, of ERISA, added to ERISA
since the publication of the statement of ERISA rights in 1977. The
Department also is proposing to extend to all employee benefit plans
the model statement changes applicable to group health plans as a
result of amendments enacted as part of the Health Insurance
Portability and Accountability Act of 1996. In general, these changes
to the statement of ERISA rights resulted in the addition of a sentence
directing participants and beneficiaries who have questions about the
statement of rights or their rights under ERISA to the nearest office
of the Pension and Welfare Benefits Administration, U.S. Department of
Labor, or the Division of Technical Assistance and Inquiries, Pension
and Welfare Benefits Administration, in Washington, D.C. <SUP>12</SUP>
The Department believes the information included in the revised
statement will benefit participants and beneficiaries of both pension
and welfare plans generally, as well as group health plans. Other
changes to the statement include: modifying the reference of ``up to
$100 a day'' to ``up to $110 a day'', reflecting 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, <SUP>13</SUP> clarifications to the language
discussing the types of documents participants and beneficiaries have
the right to examine and receive copies upon request, and the addition
of a sentence indicating that issues involving the qualified status of
domestic relations orders and medical child support orders may be
pursued in Federal court.
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\12\ 62 FR 16979, April 8, 1997.
\13\ See 62 FR 40696.
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8. Sec. 2520.102-3(u)--Newborns' and Mothers' Health Protection Act
Disclosure
On April 8, 1997, the Department published, in the Federal Register
(62 FR 16979) an interim rule setting forth information required to be
disclosed in the SPD concerning the provisions of the Newborns' and
Mothers' Health Protection Act of 1996 (NMHPA). The Department, in
response to concerns about the adequacy of the information currently
required to be disclosed pursuant to paragraph (u) of Sec. 2520.102-3,
is publishing in the ``rules and regulations'' section of today's
Federal Register an interim rule expanding the information required to
be disclosed in the SPD concerning the NMHPA provisions.
D. Effective Dates
The Department is proposing to make the amendments contained herein
effective 60 days after publication of the final rule in the Federal
Register. In general, the Department believes that the information
delineated in paragraphs (j)(3), applicable to group health plans, and
(l) of Sec. 2520.102-3 is currently required to be disclosed under the
current disclosure framework of ERISA. Accordingly, the Department
views the proposed addition of the new
[[Page 48380]]
paragraph (j)(3) and the amendment of paragraph (l) as clarifications
of existing law, rather than new disclosure requirements. Other
amendments proposed herein may result in new disclosure obligations.
With regard to these amendments, the Department is proposing 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.
E. Request for Comments
The Department invites interested persons to submit written
comments on the amendments contained herein. Comments (preferably three
copies) should be submitted to: the Office of Regulations and
Interpretations, Room N-5669, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue,
N.W., Washington D.C. 20210, Attention: Proposed SPD Content
Regulations. Comments must be submitted no later than November 9, 1998.
All submissions will be open to public inspection in the Public
Disclosure Room, Pension and Welfare Benefits Administration, Room N-
5638, 200 Constitution Avenue, N.W., Washington, D.C.
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 the Executive Order, 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 Commission's Consumer Bill of Rights and
Responsibilities. To avoid underestimating of the burdens attributable
to this regulation, and as more fully explained below, the Department
used assumptions designed to result in cost estimates that represent
the maximum potential impact of the proposal. This regulatory action,
as a result, is being treated as having an economic effect exceeding
$100 million in the year 2000. Therefore, this notice is
``significant'' and subject to OMB review under Sections 3(f)(1) and
3(f)(4) of the Executive Order.
Therefore, consistent with the Executive Order, 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 discussions of the Regulatory
Flexibility Act and the Paperwork Reduction Act.
Although the requirements of the proposal are generally
clarifications of rather than additions to the requirements of the
existing regulation, it is believed that the variety of clarifications
in the proposal will cause many plan administrators to reevaluate and
revise existing SPDs. For purposes of this analysis, it has been
assumed that all plans will add to or otherwise modify the content of
their SPDs and distribute them to participants by the end of calendar
year 2000 as a result of this proposal. Expenses associated with the
preparation and distribution of these additions and revisions
substantially constitute the estimated cost of the proposal.
The Department estimates the cost of the revisions implemented by
this proposal to be $37 million in 1999, $176 million in 2000, falling
to $15 million in 2001, and thereafter increasing or decreasing only in
proportion to participation. The peak costs in 2000 reflect the
preparation of 535,000 different SPDs describing 2.4 million pension
and welfare plans and the distribution of those SPDs to 107 million
participants. As noted above, the Department believes that these
estimates are conservatively high.<SUP>14</SUP>
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\14\ In fact, many plans already provide much of this
information to participants and beneficiaries in SPDs and other
materials. For example, many managed care organizations routinely
disclose information to enrollees either as a condition of private
accreditation or in response to plan sponsors, government program
requirements, and other competitive pressures. Also, approximately
27% of plans are already known to amend and reissue their SPDs each
year to account for routine changes in plan terms.
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The proposed regulation will assist plan administrators to meet
their statutory disclosure obligations. The proposed regulation will
also assure that participants have better access to more complete
information on their benefit plans. Such information is important to
participants' ability to understand and secure their rights under their
plans. Better information will also enable participants to derive more
value from their benefit plans, and will lead both participants and
plan sponsors to make more economically efficient decisions regarding
benefit plans. This enhanced value and efficiency from better
information, along with the clarified guidance to plan administrators,
constitute the benefits of the regulation.
There is wide-spread agreement that the market for health care can
be improved if purchasers, consumers, and patients are provided with
better information. In an analysis of the Consumer Bill of Rights
conducted for the Commission, The Lewin Group <SUP>15</SUP> notes that
there is currently considerable information being collected which is
not routinely passed on to consumers. For instance, information
reported through a private-accreditation survey or collected by a large
purchaser may not be available to individuals to help them make
decisions. The proposed SPD regulations would clarify the requirement
that certain types of information, such as provider network composition
and utilization review procedures, be provided in the SPD.
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\15\ Consumer Bill of Rights and Responsibilities Cost and
Benefits: Information Disclosure and External Appeals, The Lewin
Group, November 15, 1997.
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According to Lewin, the collection and dissemination of this type
of information will foster value-based purchasing. The information
disclosure requirements contained in the revised SPD regulations will
also assist employees in choosing health plan options that best meet
their needs. According to Lewin, such empowerment ``may lead to
increased satisfaction'' and may ``improve consumer confidence in the
health care system.''
Lewin and others assert that information disclosure will aid in the
development of an efficient, competitive market. While some have argued
that the lack of ``perfect'' information will hamper the usefulness of
information to consumers, there is strong evidence
[[Page 48381]]
from other markets (e.g., the securities and investment industry) that
indicates basic information disclosure requirements such as the one
contained in the revised SPD regulation will help to improve the
quality of information available to consumers over time.
Equally important, information disclosure under the proposed 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 redoubled benefits. Lewin 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 this proposed SPD
regulation and other pro-competitive reforms.
The Department believes, therefore, that the benefits of this
proposed regulation will substantially outweigh its costs. The
disclosures it describes are a component of evolving legislative,
regulatory, and 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. If an agency determines that a proposed rule is likely
to have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires that the agency present an
initial regulatory flexibility analysis at the time of the publication
of the notice of proposed rulemaking describing the impact of the rule
on small entities, and seeking public comment on such impact. Small
entities include small businesses, organizations, and governmental
jurisdictions.
For purposes of analysis under the RFA, PWBA proposes to continue
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. Pursuant to the authority of
section 104(a)(3), the Department has previously issued at
Secs. 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-
10 certain simplified reporting provisions and limited exemptions from
reporting and disclosure requirements for small plans, including
unfunded or insured welfare plans covering fewer than 100 participants
and which satisfy certain other requirements.
Further, while some large employers may have small plans, in
general, most small plans are maintained by small employers. Thus, PWBA
believes that assessing the impact of this proposed rule on small plans
is an appropriate substitute for evaluating the effect on small
entities. The definition of small entity considered appropriate for
this purpose differs, however, from a 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 therefore requests comments on the
appropriateness of the size standard used in evaluating the impact of
this proposed rule on small entities.
On this basis, however, PWBA has preliminarily determined that this
rule will not have a significant economic impact on a substantial
number of small entities. In support of this determination, and in an
effort to provide a sound basis for this conclusion, PWBA has
considered the elements of an initial regulatory flexibility analysis
in the discussion which follows.
This regulation applies to all small employee benefit plans covered
by ERISA. Employee benefit plans with fewer than 100 participants
include 629,000 pension plans, 2.6 million health plans, and 3.4
million non-health welfare plans (mainly life and disability insurance
plans).
The proposed regulation 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 proposed regulation consist
of revising SPDs consistent with the proposed regulation's requirements
and distributing them to participants consistent with the proposed
regulation's assumed effective date.
The Department believes that revising an SPD 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, while clerical skills are
needed to type, assemble and format SPD materials. Distributing SPDs
requires clerical skills to reproduce the materials and to mail or
electronically transmit materials to participants.
The Department estimates that the cost to small plans of complying
with the proposed regulation will amount to $16 million in 1999, $42
million in 2000, and $3 million in 2001 and subsequent years, changing
thereafter only in proportion to plan participation.
The peak year cost of $42 million in 2000 consists of $13 million
to prepare 460,000 unique SPDs describing 2.3 million plans, and $29
million to distribute these SPDs to 23 million participants. These
costs amount to $18 per affected small plan and $1.81 per affected
small plan participant. By contrast, the total cost to large plans in
2000 is estimated at $134 million, or $1,803 per affected large plan
and $1.61 per affected large plan participant.
The costs are modest in large part because the features of the
large 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 prepare the large 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 thinly over a far larger number of small plans.
The basis of these estimates is explained below, following the
discussion of the Paperwork Reduction Act.
Paperwork Reduction Act
The Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and
[[Page 48382]]
the impact of collection requirements on respondents can be properly
assessed.
Currently, the Pension and Welfare Benefits Administration is
soliciting comments concerning the proposed revision of the information
collection request (ICR) included in the Proposed Amendments to Summary
Plan Description Regulations. A copy of the existing ICR may be
obtained by contacting the office listed in the addressee section of
this notice. This proposal would modify the existing ICR, which is also
revised pursuant to the Interim Rule Amending Summary Plan Description
Regulation (Interim Rule),<SUP>16</SUP> also published in today's
Federal Register.
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\16\ The Interim Rule modifies the required content to group
health plan SPDs to clarify the applicability under the Newborns'
and Mothers' Health Protection Act of minimum hospital lengths of
stay for mothers and newborn children following childbirth.
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The Department has submitted a copy of the proposed information
collection, as modified by the Interim Rule Amending Summary Plan
Description, to OMB in accordance with 44 U.S.C. 3507(d) for review of
its information collections. The Department has requested emergency
clearance for that portion of the ICR which is changed by the Interim
Rule, specifically, the SPD disclosure provision concerning hospital
lengths of stay in connection with childbirth for a mother or newborn
child. The Department and OMB are particularly interested in comments
that:
<bullet> Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
<bullet> Evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
<bullet> Enhance the quality, utility, and clarity of the
information to be collected; and
<bullet> Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, D.C. 20503; Attention: Desk Officer for
the Pension and Welfare Benefits Administration. Although comments may
be submitted through November 9, 1998, OMB requests that comments be
received within 30 days of publication of the Notice of Proposed
Rulemaking to ensure their consideration.
ADDRESSES (PRA 95): Gerald B. Lindrew, Office of Policy and Research,
U.S. Department of Labor, Pension and Welfare Benefits Administration,
200 Constitution Avenue, NW, Room N-5647, Washington, D.C. 20210.
Telephone: (202) 219-4782; Fax: (202) 219-4745. These are not toll-free
numbers.
I. Background
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.
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.
II. Current Actions
As described in this preamble, the proposed revisions to
Sec. 2520.102-3 would modify the required contents of summary plan
descriptions in a number of ways that may be expected to affect the
nature and burden of the information collection under PRA 95. The
proposal includes amendments to Secs. 2520.102-3(j) and (s) and
Sec. 2520.102-5 that are designed to implement with respect to ERISA
covered group health plans the Commission's recommendations as
incorporated in the Consumer Bill of Rights. Specifically, the proposal
provides that group health plans will not be deemed to have satisfied
content requirements unless they have provided understandable
information in their SPDs concerning 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 Department's view, these proposed changes clarify existing
rules in light of changes in group health plan practices in recent
years. Although the Department believes that most ERISA covered group
health plans currently provide this information, many plan sponsors may
take the opportunity to address ambiguities and update their SPDs
following adoption of final amendments. Because the number of plans
that fully comply with the clarifications set forth in the proposal is
unknown, a conservatively high assumption as to the number of plans
that will consider SPD revisions necessary has been made for purposes
of this analysis.
For purposes of this analysis, it is estimated that the Consumer
Bill of Rights disclosures, including the proposal with respect to
disclosure of procedures governing claims for benefits, will require
approximately 17 additional hours of preparation time for group health
plans with over 100 participants and for the estimated 8,600 small
group products utilized by approximately 2.6 million group health plans
with fewer than 100 participants. It is also estimated that the
additional time necessary to ensure that this material is included in
the mailings that are otherwise necessary will add approximately an
additional minute to the time spent in accumulating and mailing
information to participants, and an additional $0.50 in materials and
mailing costs. These incremental increases have been incorporated in
both the preparation and distribution burden estimates.
[[Page 48383]]
Additional burden has also been computed in connection with the
proposed elimination of the limited exemption with respect to SPDs of
welfare plans providing benefits through a federally qualified HMO.
Under the proposal to eliminate the limited exemption, disclosures of
rules for eligibility and participation, circumstances which may result
in loss of or disqualification from eligibility, plan funding medium,
and claim and appeal procedures, would be required to be included in an
SPD, and all other generally applicable provisions as to SPD style,
content, and format would apply for SPDs provided to participants and
beneficiaries covered by a federally qualified HMO. Based upon
available information as to the number of federally qualified HMOs and
the numbers of ERISA covered plans offering HMOs, it has been estimated
that approximately 153,000 plans will be required to implement SPD
content and format changes that will eliminate the existing 50 percent
savings in preparation time for these plans.
Clarifications proposed with respect to procedures governing
qualified domestic relations orders (QDRO) and qualified medical child
support orders (QMCSO), disclosures concerning plan type, updating of
the model statement of ERISA rights, disclosures with respect to the
circumstances under which the plan can be amended to reduce or
eliminate benefits and plan's provisions and participants' rights and
obligations upon termination of the plan, and disclosure of participant
rights under the Consolidated Omnibus Budget Reconciliation Act (COBRA)
have also been taken into account in estimating the total burden
expected to be imposed by the proposed changes to SPD content
requirements. While the clarifications with respect to QDRO, QMCSO,
amendment/termination provision disclosures, and COBRA disclosures are
expected to result in some increase in preparation burden, as a group
these clarifications are estimated to represent only a slight burden
increase.
As to the distribution burden for SPDs that the Department is
assuming for purposes of this analysis will be revised as a result of
the proposed content requirements, ERISA section 104(b)(1) and
regulations published at Secs. 2520.104b-2 and 2520.104b-3, describe
the obligation of an employee benefit plan administrator to furnish the
SPD and the summary of material modifications (SMM) to participants and
the time frames within which this distribution is required to be made.
In general, a plan administrator must furnish an updated SPD every five
years, unless no amendments have been made to the plan within that
five-year period. In that event, the updated SPD must be furnished only
every ten years. A plan administrator is also required to furnish each
participant with a summary description of any material change made to
the plan or SPD content during a period prior to preparation of an
updated SPD, which may be appended to the participant's SPD.
For purposes of this analysis under PRA 95, the Department has
treated the change to the NMHPA disclosure provision included in the
Interim Rule as a change implemented by this proposal. This is because
the distribution burden associated with revision of an SPD represents
the greater portion of total burden, and it is assumed that plans will
prepare and distribute revised disclosure materials in the most cost-
efficient way, which would likely involve incorporating as many changes
as possible in a single distribution.
Because this single ICR is currently the subject of two separate
regulatory actions, the Department believes that a meaningful burden
analysis should contemplate as a whole the nature and timing of all
changes to existing Summary Plan Descriptions that might be made by
plan administrators due to regulatory amendments. As a result, the
burden analysis included in this proposal addresses the impact of the
Interim Rule in addition to the changes that might be made as a result
of this proposal. The methodology and assumptions used in estimating
burden are applicable to both the proposed amendments and the interim
final regulation. Both the total burden of the ICR and the burden
specifically associated with this proposal are displayed in this
notice.
As a consequence of SPD distribution requirements, and the fact
that the majority of plans have either chosen to or have been required
to make material changes to plan provisions in recent years, about 27
percent of plans routinely update and distribute an SPD each year. The
methodology for estimating burden associated with the proposed
clarifications to the SPD content rules must, therefore, integrate the
recurring baseline burden with the projected incremental preparation
and distribution burden in the years in which those increases are
expected to be incurred.
For purposes of the burden estimates for these proposed
clarifications, and based on the expected applicability dates for the
clarifications, it has been assumed that no incremental increases will
be experienced by plans until 1999.<SUP>17</SUP> It is further assumed
that plans that would ordinarily be preparing and distributing SPDs in
1999 will elect to incorporate the revisions in SPD content they
consider necessary as a result of the proposal as part of the updated
SPDs they would otherwise be preparing. Finally, it has been assumed
for this analysis that all plans will have prepared and distributed a
revised SPD by the end of the year 2000, whether or not an SPD would
ordinarily have been prepared during this period. It is anticipated
that these proposed rules will be applicable generally by the end of
2000.
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\17\ It should be noted that while no incremental increase is
incorporated in 1998 estimates for the proposed clarifications of
the SPD content regulations, the 1998 burden hour and cost estimates
do include increments previously computed in connection with
amendments to the disclosure provisions of ERISA enacted as part of
HIPAA, the NMHPA, and the interim disclosure rules issued on April
8, 1997 (62 FR 16979).
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The recurring baseline burden is estimated on the basis of several
assumptions. It is assumed that routine preparation of an updated SPD
requires 4 hours. Routine distribution is estimated to require two
minutes and $0.50 in materials and postage per participant. It is
further assumed that 100 percent of small, fully insured welfare plans
and, on average, 75 percent of other plans hire outside parties to
prepare and distribute the SPD. These preparation services are assumed
to be purchased at a rate of $50 per hour, which is a blend of both
professional and clerical rates. The clerical rate incorporated in
estimates of distribution burden is $11 per hour. The assumptions with
respect to the rates of use of purchased services affect the
distribution of burden between hours and costs for purposes of PRA 95.
Type of Review: Revision of a currently approved collection.
Agency: Pension and Welfare Benefits Administration.
Title: Regulations Regarding Required Contents of Summary Plan
Descriptions for Employee Benefit Plans (Proposed 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: 2,027,293 (1998); 888,393 (1999); 2,641,818
(2000).
Total Responses: 83,332,000 (1998); 52,115,000 (1999); 160,703,000
(2000).
Estimated Burden Hours: 842,586 (1998); 815,850 total, 815,029 for
existing ICR and Proposed Amendments (1999); 2,101,624 total, 2,099,405
for
[[Page 48384]]
existing ICR and Proposed Amendments (2000).
Estimated Annual Costs (Operating and Maintenance): $95,265,366
(1998); $101,465,306 total, $101,255,399 for existing ICR and Proposed
Amendments (1999); $218,395,191 total, $218,118,450 for existing ICR
and Proposed Amendments (2000).
Comments submitted in response to this notice will be summarized
and/or included in the request for OMB approval of the information
collection request; they will also become a matter of public record.
Analysis of Cost
The Department performed a comprehensive, unified analysis to
estimate the costs of the proposed 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.
To estimate the cost of the proposed regulation, 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 proposed regulation's
provisions. The Department separately estimated the baseline cost of
its current SPD regulation and the incremental cost of the proposed
regulation. As noted earlier, the incremental cost is based on a
conservative assumption, which results in an estimate of the maximum
impact the proposal may be expected to have.
The Department estimated the number of SPDs and the number of
participants based on Form 5500 Series data and other sources. Each
pension plan is estimated to maintain one SPD. With respect to welfare
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 then 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 690,000 unique pension plan SPDs and
51,000 unique health plan SPDs, which together encompass all other
welfare plan SPDs.
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 27 percent of plans
so report. This figure is interpreted to represent a baseline level of
SPD modification and distribution activity. In an exception to this
general assumption, the Department estimates that a larger proportion
of health plans have modified or will modify their SPDs in 1998 in
order to comply with the Department's interim final regulation
implementing the disclosure provisions of HIPAA and the NMHPA.
The Department generally assumes that preparing a revised SPD
requires four hours of combined professional and clerical time, priced
at $50 per hour (a blended professional and clerical rate). In
connection with the interim final regulation implementing the
disclosure provisions of HIPAA and the NMHPA, the Department assumed a
burden of one hour at $50. The time required was assumed to be less
than for a typical SPD revision because HIPAA requires only that
certain brief and specific disclosures be added to SPDs or provided in
SMMs. The Department assumes that distributing an SPD consumes two
minutes of clerical labor at $11 per hour, plus $0.50 for materials and
mailing or electronic dissemination. This amounts to $0.87 per SPD
distributed.
The Department estimates the baseline cost to prepare and
distribute SPDs under the current regulation at $113 million in 1998,
falling to $86 million in 1999, and thereafter growing in tandem with
plan participation to reach $89 million in 2001. The higher cost in
1998 reflects HIPAA requirements that health plans revise and
distribute their SPDs or prepare and distribute SMMs by the end of that
year. Focusing on 1999, a more typical baseline year, the $86 million
total cost includes $41 million to prepare 206,000 unique SPDs, and $45
million to distribute copies to 52 million participants.
The Department separately estimated the cost of revisions to SPDs
that plan administrators may undertake to address ambiguities and
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
clarifications of the proposed regulation would incur only the costs
attributable to those revisions deemed necessary to comply with the
clarifications, 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 proposal requires 30 minutes of
combined professional and clerical labor, at a blended rate of $50 per
hour. The time and expense associated with distributing each SPD is
assumed to be unchanged from the baseline.
To estimate the per-unit cost to prepare revised health plan SPDs,
the Department drew on two studies of the cost to health plans to
comply with the Consumer Bill of Rights, one by The Lewin Group for the
President's Commission, and one by Coopers and Lybrand for the Kaiser
Family Foundation.<SUP>18</SUP> Excerpting and adjusting these studies'
estimates to reflect proposed 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
clarifications of the proposed regulation amounts to approximately 18
hours at $50 per hour.
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\18\ 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.
---------------------------------------------------------------------------
The Department assumed that the cost to distribute a health plan
SPD will rise, consuming an additional one minute of clerical time at
$11 per hour and an additional $0.50 for materials and mailing or
electronic distribution, for a total for $1.55 per SPD.
The Department estimates the added cost attributable to this
proposed regulation to be $37 million in 1999 and $176 million in 2000,
falling to $15 million in 2001 and subsequent years, growing only in
proportion to plan participation. The peak costs in 2000 reflect $41
million to prepare 535,000 different SPDs describing 2.4 million
pension and welfare plans, and $135 million to distribute those SPDs to
107 million participants.
[[Page 48385]]
Combining this added cost with the baseline cost attributable to
the current regulation, the total cost to prepare and distribute SPDs
under the proposed regulation amounts to $123 million in 1999, $264
million in 2000, and $104 million in 2001 and beyond. The peak costs in
2000 include $82 million to prepare 597,000 SPDs describing 2.6 million
plans, and $182 million to distribute those SPDs to 161 million
participants.
The baseline, additional, and total costs associated with this
proposed SPD regulation are summarized in the table below.
Cost of the Proposed SPD Regulation
[$ millions]
------------------------------------------------------------------------
Year Baseline Additional Total
------------------------------------------------------------------------
1998*............................ $113 $0 $113
1999............................. 86 37 123
2000............................. 88 176 264
2001............................. 89 15 104
------------------------------------------------------------------------
* Includes the cost of certain SPD revisions necessitated by HIPAA.
Plans that are assumed for purposes of this analysis to prepare and
distribute SPDs in 2000 for the sole purpose of complying with the
proposed regulation would have the option of complying by preparing and
distributing SMMs instead. The content of such SMMs would essentially
duplicate the content that would otherwise be added to or substituted
into SPDs. Plans presumably would elect to prepare and distribute SMMs
only if doing so lessened their overall cost to comply. Therefore, as a
means to comply with the proposed regulation, preparing and
distributing SMMs should be no more costly than revising and
distributing SPDs. The Department's estimates of the costs to revise
and distribute SPDs in response to this proposed regulation can
therefore be interpreted to account for the likelihood that some plans
will elect to prepare and distribute SMMs instead.
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 proposed 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 an annual burden 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 and the Regulatory Flexibility Act.
Small Business Regulatory Enforcement Fairness Act
The rule proposed in this action 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. The
rule, if finalized, will be transmitted to Congress and the Comptroller
General for review.
Statutory Authority
These regulations are proposed pursuant to authority contained in
section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894, 29 U.S.C. 1135) and
sections 104(b) of ERISA, as amended, 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:
PART 2520--[AMENDED]
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 revising paragraphs (d), (j),
(l), (m)(3), (o), (S), and (t)(2) to read as follows:
Sec. 2520.102-3 Contents of summary plan description.
* * * * *
(d) The type of pension or welfare plan, e.g., for pension plans--
defined benefit, money purchase, profit sharing, ERISA section 404(c)
plans, 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), 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 sec. 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
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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, provided that the summary plan
description contains a general description of the provider network and
indicates that provider lists are furnished automatically, without
charge, as a separate document.
* * * * *
(l) For both pension and welfare benefit plans, a statement clearly
identifying circumstances which may result in disqualification,
ineligibility, or denial, loss, forfeiture or suspension 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) of this section. In addition to
other required information, plans must include a summary of any plan
provisions governing the authority of the plan sponsors or others to
terminate the plan or amend or eliminate benefits under the plan and
the circumstances, if any, under which the plan may be terminated or
benefits may be amended or eliminated; 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; and a summary of any plan provisions governing the
allocation and disposition of assets of the plan upon termination. Such
summaries shall be disclosed in accordance with the requirements under
29 CFR 2520.102-2(b).
(m) * * *
(3) A summary plan description will be deemed to comply with
paragraph (m)(2) of this section if it includes the following
statement:
Your pension benefits under this plan are insured by the Pension
Benefit Guaranty Corporation (PBGC), a federal insurance agency. If
the plan terminates (ends) without enough money to pay all benefits,
the PBGC will step in to pay pension benefits. Most people receive
all of the pension benefits they would have received under their
plan, but some people may lose certain benefits.
The PBGC guarantee generally covers: (1) normal and early
retirement benefits; (2) disability benefits if you become disabled
before the plan terminates; and (3) certain benefits for your
survivors.
The PBGC guarantee generally does not cover: (1) Benefits
greater than the maximum guaranteed amount set by law for the year
in which the plan terminates; (2) some or all of benefit increases
and new benefits based on plan provisions that have been in place
for fewer than 5 years at the time the plan terminates; (3) benefits
that are not vested because you have not worked long enough for the
company; (4) benefits for which you have not met all of the
requirements at the time the plan terminates; (5) certain early
retirement payments (such as supplemental benefits that stop when
you become eligible for Social Security) that result in an early
retirement monthly benefit greater than your monthly benefit at the
plan's normal retirement age; and (6) non-pension benefits, such as
health insurance, life insurance, certain death benefits, vacation
pay, and severance pay.
Even if certain of your benefits are not guaranteed, you still
may receive some of those benefits from the PBGC depending on how
much money your plan has and on how much the PBGC collects from
employers.
For more information about the PBGC and the benefits it
guarantees, ask your plan administrator or contact the PBGC's
Technical Assistance Division, 1200 K Street N.W., Suite 930,
Washington, D.C. 20005-4026 or call 202-326-4000 (not a toll-free
number). TTY/TDD users may call the federal relay service toll-free
at 1-800-877-8339 and ask to be connected to 202-326-4000.
Additional information about the PBGC's pension insurance program is
available through the PBGC's website on the Internet at http://
www.pbgc.gov
* * * * *
(o) In the case of a group health plan, within the meaning of
section 607(1), subject to the continuation coverage provisions of Part
6 of Title I of ERISA, a description of the rights and obligations of
participants and beneficiaries with respect to continuation coverage,
including, among other things, information concerning qualifying
events, premiums, notice and election requirements and procedures, and
duration of coverage.
* * * * *
(s) The procedures governing claims for benefits (including
procedures for obtaining preauthorizations, approvals, or utilization
review decisions in the case of group health plan services or benefits,
filing claim forms, notifications of benefit determinations, and review
of denied claims in the case of any plan), applicable time limits, and
remedies available under the plan for the redress of claims which are
denied in whole or in part (including procedures required under section
503 of Title I of the Act). The plan's claims procedures may be
furnished as a separate document that accompanies the plan's SPD
provided that the document satisfies the style and format requirements
of Sec. 2520.102-2, and, provided further, that the summary plan
description contains a statement that the plan's claims procedures are
furnished, without charge, as a separate document.
(t) * * *
(2) A summary plan description will be deemed to comply with the
requirements of paragraph (t)(1) of the section if it includes the
following statement; items of information which are not applicable to a
particular plan should be deleted:
As a participant in (name of plan) you are entitled to certain
rights and protections under the Employee Retirement Income Security
Act of 1974 (ERISA). ERISA provides that all plan participants shall
be entitled to:
Examine, without charge, at the plan administrator's office and
at other specified locations, such as worksites and union halls, all
documents governing the plan, including insurance contracts and
collective bargaining agreements, and a copy of the latest annual
report (Form 5500 Series) filed by the plan with the U.S. Department
of Labor.
Obtain, upon written request to the plan administrator, copies
of documents governing the operation of the plan, including
insurance contracts and collective bargaining agreements, and copies
of the latest annual report (Form 5500 Series) and updated summary
plan description. The administrator may make a reasonable charge for
the copies.
Receive a summary of the plan's annual financial report. The
plan administrator is required by law to furnish each participant
with a copy of this summary annual report.
Obtain a statement telling you whether you have a right to
receive a pension at normal retirement age (age * * *) and if so,
what your benefits would be at normal retirement age if you stop
working under the plan now. If you do not have a right to a pension,
the statement will tell you how many more years you have to work to
get a right to a pension. This statement must be requested in
writing and is not required to be given more than once every twelve
(12) months. The plan must provide the statement free of charge.
Continue health care coverage for yourself, spouse or dependents
if there is a loss of coverage under the plan as a result of a
qualifying event. You or your dependents may have to pay for such
coverage. Review
[[Page 48387]]
this summary plan description and the documents governing the plan
on the rules governing your COBRA continuation coverage rights.
Reduction or elimination of exclusionary periods of coverage for
preexisting conditions under your group health plan, if you have
creditable coverage from another plan. You should be provided a
certificate of creditable coverage, free of charge, from your group
health plan or health insurance issuer when you lose coverage under
the plan, when you become entitled to elect COBRA continuation
coverage, when your COBRA continuation coverage ceases, if you
request it before losing coverage, or if you request it up to 24
months after losing coverage. Without evidence of creditable
coverage, you may be subject to a preexisting condition exclusion
for 12 months (18 months for late enrollees) after your enrollment
date in your coverage.
In addition to creating rights for plan participants ERISA
imposes duties upon the people who are responsible for the operation
of the employee benefit plan. The people who operate your plan,
called ``fiduciaries'' of the plan, have a duty to do so prudently
and in the interest of you and other plan participants and
beneficiaries. No one, including your employer, your union, or any
other person, may fire you or otherwise discriminate against you in
any way to prevent you from obtaining a (pension, welfare) benefit
or exercising your rights under ERISA. If your claim for a (pension,
welfare) benefit is denied in whole or in part you must receive a
written explanation of the reason for the denial. You have the right
to have the plan review and reconsider your claim. Under ERISA,
there are steps you can take to enforce the above rights. For
instance, if you request materials from the plan and do not receive
them within 30 days, you may file suit in a Federal court. In such a
case, the court may require the plan administrator to provide the
materials and pay you up to $110 a day until you receive the
materials, unless the materials were not sent because of reasons
beyond the control of the administrator. If you have a claim for
benefits which is denied or ignored, in whole or in part, you may
file suit in a state or Federal court. In addition, if you disagree
with the plan's decision or lack thereof concerning the qualified
status of a domestic relations order or a medical child support
order, you may file suit in Federal court. If it should happen that
plan fiduciaries misuse the plan's money, or if you are
discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file suit
in a Federal court. The court will decide who should pay court costs
and legal fees. If you are successful the court may order the person
you have sued to pay these costs and fees. If you lose, the court
may order you to pay these costs and fees, for example, if it finds
your claim is frivolous.
If you have any questions about your plan, you should contact
the plan administrator. If you have any questions about this
statement or about your rights under ERISA, you should contact the
nearest office of the Pension and Welfare Benefits Administration,
U.S. Department of Labor, listed in your telephone directory or the
Division of Technical Assistance and Inquiries, Pension and Welfare
Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210.
* * * * *
Sec. 2520.102-5 [Removed]
3. Section 2520.102-5 is removed.
Signed at Washington, DC, this 28th day of August, 1998.
Meredith Miller,
Deputy Assistant Secretary for Policy, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 98-24067 Filed 9-4-98; 8:45 am]
BILLING CODE 4510-29-P
