So you’ve done it. You’ve bit the bullet and decided to implement some changes to your employee benefits policy, or you’ve gotten a new policy altogether. Congratulations!
But now, the technical work remains. When do you have to notify your employees that their plans will be changing?
According to the Employee Retirement Income Security Act (ERISA), which requires companies that offer benefits plans to meet certain standards of conduct, employers are allowed to modify group health plans as long as they inform participants of the changes through a summary of material modification (SMM) or a revised summary plan description (SPD).
If the changes reduce employee benefits, employers must inform employees within 60 days after the changes are made. If the changes don’t reduce employee benefits, employers have until 210 days after the plan year ends to inform employees.
A Summary of Documents
A summary plan description (SPD) is the document that informs participants in ERISA-covered plans about what exactly their plan covers. If no changes are made to existing plans, employees must receive a copy of the SPD every ten years. If changes are made, employees should receive an updated SPD as well as a summary of material modification (SMM) within 60 or 210 days of the change.
An SMM describes the changes being made to the benefits plan that will ultimately be included in the updated SPD.
Reduction of Employee Benefits
ERISA has specific guidelines about what a reduction in benefits means. It includes when a company:
- Eliminates or reduces benefits payable under the plan
- Increases premiums, deductibles, coinsurance and copayments
- Reduces the services covered by a health maintenance organization
- Establishes new conditions/requirements for obtaining benefits under the plan
How Should You Inform Your Employees?
According to ERISA, you must notify employees of the changes by giving the requisite documents into the person’s hands, sending by first class mail or sending via email, if certain requirements are met.
Going Above and Beyond the Law
While ERISA does not require employers to notify employees of changes to their benefits plans before the changes occur, it can be considered “good form,” or simply, courteous, to inform employees in advance. This is especially true if reductions are being made, so employees can make informed decisions about their health insurance.
Not only is informing your employees prior to the changes a courteous thing to do, it creates a company culture of openness, communication and respect. That may mean that even if your company needs to reduce benefits, employees will still want to stay in that positive environment, as opposed to seeking better benefits in a worse environment somewhere else.