Summary of Material Modifications: What is it, and how does it apply?
When a plan is amended or when other information is required to appear in the plan's Summary Plan Description (SPD) changes, ERISA requires that notice of the amendment or change be provided through a Summary of Material Modification (SMM).
When a plan is amended or when other information is required to appear in the plan's Summary Plan Description (SPD) changes, ERISA requires that notice of the amendment or change be provided through a Summary of Material Modification (SMM). Changes that constitute a material reduction in covered services or benefits, within 60 days of adoption of the change. The guidance does not specify what changes are considered material, but a few examples include plans to reduce or remove benefits, carrier changes, TPA changes, changes in policy numbers, changes in participating employers or changes in eligibility criteria. Further, since carrier certificates of coverage are part of the SPD, an SMM needs to be provided while waiting for the carrier to furnish new certificates. The SMM must be provided within 210 days after the end of the plan year in which a change is made. There are a few exceptions to this rule, which are highlighted below.
The Department of Labor recognizes a reduction in benefits as a modification that requires an SMM to be disclosed no later than 60 days after the date of the adoption of the change.
Examples of a reduction in benefits include:
Additionally, if material changes affect the summary of benefits and coverage (SBC), an SMM must be provided at least 60 days prior to the change going into effect.
It’s important to note that waiting to communicate any changes to the SMM until the 210-day deadline or accelerated 60-day deadline for plan reductions can result in issues stemming from the employees’ lack of understanding about what is being communicated to them and why the changes are taking place. It’s better to distribute the SMM as early as possible to avoid any confusion. Also, strict adherence to these timelines may not render a plan sponsor from being exempt from general claims of breach of fiduciary duty, avoiding reimbursement of “vested” benefits, or other problems from participants relying on outdated information. Employers who communicate plan changes for the coming year in open enrollment materials should consider adding language to notify participants that these same materials constitute an SMM.
If you are planning to communicate a material modification to your plan, follow these general guidelines and use the corresponding templates to assist in the process:
- Use the templates on the following pages that provide a special header that you can fill in with the name of the Plan and the date the change(s) to the Plan become(s) effective.
- If your Plan has changed carriers, include the name of the new carrier, contract number, address, and claims administration phone number. Be sure all the required benefit plan component information that explains the new carrier information has been distributed to Plan participants.
- If a specific eligibility rule has changed, be sure to include the amended rule if a specific class of employees is impacted, and the date on which the rule becomes effective. It may also be helpful to create a small chart that shows the class of participants, the current eligibility rule, the new eligibility rule, and the date the new rule becomes effective.
- If participant contributions have changed, include the details of the specific contributions and whether enrollment materials or benefit summaries will include this information.
- If the modification is to take effect at the beginning of the plan year, the SMM may be incorporated into the open enrollment materials.
SMM templates are provided in this document for the following types of changes:
- Changes to the Types of Benefits Provided
- Carrier Changes
- TPA Changes
- Insurance Contract Number Changes
- Participating Employer Changes
- Changes to Eligibility Rules
