QUESTION: Our company will begin offering a health FSA next year. Will we need to prepare and distribute a summary plan description (SPD) for this new benefit? If so, what information must be included?
ANSWER: An SPD will be required for your company’s new health FSA because it is an ERISA plan. This is the case regardless of your company’s size, as the SPD requirements do not include an exception for small welfare plans.
As a general matter, the SPD must inform participants of their rights and obligations under the plan and must reflect the plan’s terms and conditions, including specific items that must be incorporated because a health FSA is a group health plan. ERISA’s style and format rules require that the SPD be understandable, that it not mislead, and that limits, exceptions, and restrictions be apparent. There are also detailed content requirements. While we can’t list all of the items that must (or should) be addressed in your SPD, specifically required items include plan-identifying and eligibility information, a description of plan benefits and circumstances causing loss or denial of plan benefits, the source of contributions and funding for the plan (e.g., employer or employee contributions), information regarding claims procedures, and a statement of ERISA rights. A group health plan SPD must also provide COBRA information (if the plan is subject to COBRA, as most health FSAs are) and certain information about other applicable federal mandates, such as coverage required by qualified medical child support orders (QMCSOs).
In addition, a health FSA SPD should explain issues that could affect an employee’s decision to participate in the plan, such as annual minimum and maximum contribution amounts, restrictions on midyear election changes, and the use-or-lose rule. Other matters to address include the types of expenses that do and do not qualify for reimbursement under the plan, the persons whose expenses will qualify for reimbursement, and any debit card program offered under the plan.
To ensure compliance with ERISA’s requirements, many employers have an attorney prepare or review the SPD. Often, employers use a single document that serves as an SPD for the health FSA and also describes the employer’s cafeteria plan and DCAP (if offered), even though the cafeteria plan and DCAP are not ERISA plans and therefore are not subject to ERISA’s SPD rules. ERISA also establishes requirements regarding when and how to distribute and update SPDs.
For more information, see EBIA’s ERISA Compliance manual at Section XXIV (“Summary Plan Descriptions & Summaries of Material Modifications”) and EBIA’s Cafeteria Plans manual at Section XXXV.C.2.a (“Health FSA Disclosure Requirements: SPDs and SMMs”).
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