Failing to Provide Summary Plan Descriptions to Participants Can be Costly

Employers will want to take note that they are meeting their ERISA fiduciary duties.

A recent case out of the Northern District of Iowa, Snitselaar v. Unum Life Insurance Company of America, et al., involving a claim for dependent life insurance benefits, emphasizes the importance of communicating the terms of employee benefits plans by providing plan documentation to plan participants.

The plaintiff was an employee of Mount Mercy University and participated in Mount Mercy’s group life insurance plan. The plaintiff was provided dependent life insurance benefits for her spouse, totaling $60,000. Per the terms of the plan, dependent coverage ends on “the date of divorce or annulment,” at which time, the dependent has the opportunity to convert coverage to an individual life policy. The policy required the application for conversion within 31 days after loss of eligibility. Plaintiff and her husband subsequently divorced, and shortly thereafter, he passed away. The plaintiff submitted a claim for dependent life insurance benefits, and Unum, the carrier, denied the claim asserting that he was not covered.

The plaintiff brought claims against Unum and her employer, Mount Mercy. Notable was the plaintiff’s claim against her employer. The plaintiff asserted a breach of fiduciary claim, under ERISA, against Mount Mercy.

She asserted that she was not aware of the termination and conversion language of the policy because her employer failed to provide her with a summary plan description (SPD) and/or certificate of insurance. Neither she nor her husband were even informed either in writing or verbally of their rights to convert the policy.

Mount Mercy did not dispute its failure in providing plan documentation prior to the ex-husband’s death. Additionally, the life insurance premiums continued to be deducted from the plaintiff’s paychecks after the divorce and even after her ex-spouse’s death. The court agreed with the plaintiff and found that Mount Mercy did breach its fiduciary duty by failing to provide the SPD and/or certificate of insurance as required by ERISA. Mount Mercy’s failure to provide the plaintiff with an SPD caused her harm because she had no notice that her husband would not be covered if they divorced and she had no notice regarding his conversion rights. The court ultimately awarded the plaintiff the $60,000 she would have received under the policy, and possibly, attorney’s fees and costs upon proper motion.

ERISA requires nearly every employee benefit plan to have an SPD and to provide copies to each individual entitled to receive such. According to the Department of Labor, “the SPD is the primary vehicle for informing participants and beneficiaries about their rights and benefits under the employee benefit plans in which they participate.”

Notably, the SPD is required to contain information about the plan’s eligibility for participants and benefits, including the circumstances which may result in ineligibility or denial of benefits. The SPD needs to be provided to plan participants automatically within 90 days of the participant becoming eligible for the plan.

If you have questions regarding your ERISA compliance, please contact your OneDigital consultant.