I have a client who has not been distributing SPDs up to this point. The client understands that they will need to distribute them in the future and we have informed them of the potential civil liability to the participants if a lawsuit brings it up. We are currently drafting SPDs for their future use. However, in all my research I can't find two answers. Is there a penalty that either the IRS or DOL can impose if the failure to distribute comes to light (any citation for this would be appreciated)? And is it possible to apply for amnesty under one of the compliance programs? The Rev. Proc. 2001-17 on employee plan compliance resolution does not address failure to distribute SPDs. Thank you in advance for any infomration you may share.

Kristen Brown
Raleigh, North Carolina

I'm not sure about the second question, but the employer can be fined up to $110 per day under ERISA for not distributing an SPD to its employees. Additionally, if there is a problem with a claim and the employee did not receive a booklet, the court tends to favor the employee over the employer when making a decision.

Just to clarify, when I read about the $110 ERISA fine, I thought that that was only if the employee requests the SPD and does not receive it. Is this not the case?

That part is true, but there's more to the equation. An employer must provide all employees with a summary plan description within 90 days of the coverage being effective. If there have been substantial amendments to the plan, a new SPD needs to be distributed at least every 5 years and if there hasn't been any substanital changes, a new SPD needs to be distributed at least every 10 years.

The chances of anyone suing the employer if SPDs were never distributed are extremely low. Most of us either throw the things in the bottom of our cabinet or garbage without even looking at them. The times it may come up is if an employee had a problem with a claim, especially LTD or medical.