70226 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

1Rules governing the use of electronic media for

distribution of SPD and similar documents will be

published separately. In this regard, the Department

intends to address the interim rule in 29 CFR

2520.104b–1(c) regarding the use of electronic

media for furnishing SPDs, SMMs and updated

SPDs to participants in group health plans in

conjunction with the promulgation of a final rule

on the use of electronic communications and

recordkeeping technologies by employee benefit

plans generally (See 64 FR 4506, January 28, 1999).

2See ‘‘CASH BALANCE PLANS—Implications

for Retirement Income’’ (GAO/HEHS–00–207, dated

September 29, 2000) and ‘‘PRIVATE PENSIONS—

Implications of Conversions to Cash Balance Plans’’

(GAO/HEHS–00–185, dated September 29, 2000).

Both GAO reports are available for viewing at

www.gao.gov. The GAO’s recommendations were

for the Department to amend the disclosure

regulations under ERISA to require that SPDs/

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

29 CFR Part 2520

RIN 1210–AA69; RIN 1210–AA55

Amendments to Summary Plan

Description Regulations

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Final rule.

SUMMARY: This document contains a

final rule amending the regulations

governing the content of the Summary

Plan Description (SPD) required to be

furnished to employee benefit plan

participants and beneficiaries under the

Employee Retirement Income Security

Act of 1974, as amended (ERISA). These

amendments implement information

disclosure recommendations of the

President’s Advisory Commission on

Consumer Protection and Quality in the

Health Care Industry, as set forth in

their November 20, 1997, report,

‘‘Consumer Bill of Rights and

Responsibilities.’’ Specifically, the

amendments clarify benefit, medical

provider, and other information

required to be disclosed in, or as part of,

the SPD of a group health plan and

repeal the limited exemption with

respect to SPDs of welfare plans

providing benefits through qualified

health maintenance organizations

(HMOs). In addition, this document

contains several amendments updating

and clarifying provisions relating to the

content of SPDs that affect both pension

and welfare benefit plans. This

document also adopts in final form

certain regulations that were effective

on an interim basis implementing

amendments to ERISA enacted as part of

the Health Insurance Portability and

Accountability Act of 1996 (HIPAA).

This final rule will affect employee

pension and welfare benefit plans,

including group health plans, as well as

administrators, fiduciaries, participants

and beneficiaries of such plans.

DATES: The amendments contained

herein will be effective January 20,

2001. Except as otherwise provided, the

amendments contained herein will be

applicable as of the first day of the

second plan year beginning on or after

January 22, 2001.

FOR FURTHER INFORMATION CONTACT:

Nalini Close, Office of Regulations and

Interpretations, Pension and Welfare

Benefits Administration, U.S.

Department of Labor, Washington, DC

(202) 219–8521. This is not a toll-free

number.

SUPPLEMENTARY INFORMATION:

A. Background

On September 9, 1998, the

Department published in the Federal

Register (63 FR 48376) proposed

amendments to 29 CFR 2520.102–3 and

2520.102–5, governing the content of

the Summary Plan Description (SPD). A

number of these amendments were

proposed to implement

recommendations of the President’s

Advisory Commission on Consumer

Protection and Quality in the Health

Care Industry for improved disclosure

by group health plans. The

Commission’s recommendations were

set forth in its November 20, 1997

report, entitled ‘‘Consumer Bill of Rights

and Responsibilities.’’ The Department

also proposed several additional

amendments to the SPD requirements

intended to generally update and clarify

the information required to be disclosed

by welfare and pension plans.

Other amendments affecting the SPD

requirements were published in the

Federal Register on April 8, 1997 (62 FR

16979). These amendments, published

as interim rules, served to implement

amendments to ERISA’s disclosure rules

enacted as part the Health Insurance

Portability and Accountability Act of

1996 (HIPAA). The interim rules

addressed certain content requirements

for SPDs of group health plans and the

furnishing of summaries of material

reductions in covered services or

benefits.

After consideration of the public

comments received on both the

proposed and the interim rules

referenced above, the Department is

adopting final rules affecting the content

of SPDs (§ 2520.102–3), the limited

exception for SPDs of welfare plans

providing benefits through a qualified

HMO (§ 2520.102–5), and the furnishing

of summaries of material reductions in

covered services or benefits by group

health plans (§ 2520.104b–3).1 A

discussion of the specific amendments

and the public comments follow.

B. Amendments Relating to the Content

of SPD

1. Section 2520.102–3 (d)—Type of Plan

Section 2520.102–3(d) currently

requires plan administrators to specify

in the summary plan description the

type of welfare or pension plan they

administer. In an effort to update that

requirement, the Department proposed

adding ‘‘ERISA section 404(c) plans’’ to

the list of examples of types of pension

plans and ‘‘group health plans’’ to the

list of examples of types of welfare

plans. One commenter expressed the

view that the specific disclosures

required under the regulation section

governing section 404(c) plans (29 CFR

2550.404c–1(b)) should be adequate to

inform participants and beneficiaries as

to the nature of the plan and that, in

some instances, the relief provided by

section 404(c) may not extend to the

entire plan. Other commenters

suggested adding categories of plans to

the list of examples, such as defined

contribution plans, 401(k) plans, ‘‘cash

balance’’ plans, etc. Upon consideration

of these comments, the Department has,

for purposes of the final regulation,

decided to retain ‘‘ERISA section 404(c)

plan’’ as an example in the list of types

of pension plan, and to further add

‘‘defined contribution plan,’’ ‘‘401(k)

plan,’’ and ‘‘cash balance plan’’ to that

list. The list of examples is not intended

to be exhaustive. Rather, section

2520.102–3(d) requires plan

administrators to clearly communicate

in the SPD information to participants

and beneficiaries about the type of plan

in which they participate and the

features of such plan. In this regard, the

Department notes that where section

404(c) is intended to apply to only

certain aspects of a plan or where

participants have the right to direct only

certain investments in their account,

such information should be

communicated in the SPD in a clear,

understandable manner. There were no

comments raising concerns regarding

the addition of ‘‘group health plan’’ as

an example of welfare plan.

Accordingly, that change is being

adopted as proposed.

With regard to cash balance plans, the

Department notes that two recent

reports issued by the General

Accounting Office (GAO) recommend

changes to the SPD requirements that

the GAO believes will serve to better

inform participants and beneficiaries

covered by such plans, or involved in a

conversion to such a plan, of their rights

and benefits under the plan.2 The

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70227

SMMs include: (i) a clear statement regarding the

difference between the hypothetical account

balance and the accrued benefit payable at normal

retirement age under the cash balance plan; (ii)

specific information about the impact timing of

interest crediting has on deferred pension benefits

for terminating workers; (iii) standardized language

providing plan participants with their rights to

contact PWBA and/or IRS if they are unable to

understand the information provided and the

relevant addresses and telephone numbers

necessary for such contacts; (iv) a clear statement

regarding the hypothetical nature of cash balance

accounts, including that employees do not own the

accounts and how such accounts differ from any

defined contribution accounts an employer may

also provide; and (v) a clear statement identifying

the potential of the conversion to reduce future

pensions accruals and early retirement benefits and

under what circumstances such reductions are

likely to occur.

3See: 29 CFR 2520.102–3(j), (l), and (n),

respectively.

4See: 29 CFR 252.102–2(a).

5The term ‘‘group health plan’’ is defined in

ERISA section 733(a).

Department notes that the requirements

governing the content of SPDs currently

require the disclosure of information

regarding a pension plan’s requirements

concerning eligibility for participation

and benefits; a statement of conditions

that must be met for eligibility to receive

benefits; a summary of the benefits;

circumstances that may result in

ineligibility, loss of denial of benefits

that a participant might otherwise

reasonably expect the plan to provide

on the basis of the description of

benefits; and a description of the service

required to accrue full benefits.3 The

Department further notes that the

required information must be

sufficiently comprehensive to

reasonably apprise the plan’s

participants and beneficiaries of their

rights and obligations under the plan

and must be written in a manner

calculated to be understood by the

average plan participant.4 The

Department believes that the foregoing

SPD provisions require a reasonably

comprehensive and clear description of

the provisions of a cash balance plan

and how a prior conversion may have

affected benefits that classes of

participants may have reasonably

expected the plan to provide. In this

regard, the Department encourages

sponsors of cash balance plans to review

their SPDs to ensure compliance with

current disclosure requirements. The

Department, however, also shares the

concerns raised by the GAO and agrees

that more needs to be done to ensure

that participants fully understand plan

changes and the impact of such changes

on their benefits under the plan. In this

regard, the Department invites the views

of interested persons on whether, and to

what extent, changes to the SPD

requirements would help ensure better

communications with participants and

beneficiaries about a cash balance plan

and cash balance plan conversions. The

Department also invites views on

whether standardized language should

be develop for the disclosure of such

information to participants and

beneficiaries. Suggestions for such

language also are invited.

2. Section 2520.102–3(j)—Eligibility for

Participation and Benefits

a. Procedures Governing QDRO and

QMCSO Determinations

The Department proposed to amend

§ 2520.102–3(j)(1) to require that the

SPD of a pension plan include either a

description of the plan’s procedures

governing qualified domestic relations

order (QDRO) determinations or a

statement indicating that participants

and beneficiaries can obtain, without

charge, a copy of such procedures from

the plan administrator. Similarly, the

Department proposed amending

paragraph (j)(2) to require that the SPD

of group health plans include either a

description of the plan’s procedures

governing qualified medical child

support order (QMCSO) determinations

or a statement indicating that

participants and beneficiaries can

obtain, without charge, a copy of such

procedures from the plan. The

Department did not receive any

comments requesting modification of

these provisions; accordingly, these

amendments are being adopted as

proposed.

b. Pension Plan Disclosures

A number of commenters suggested

that paragraph (j)(2) of § 2520.102–3 be

changed to expressly require plan

administrators to explain in pension

plan SPDs the difference between the

plan’s requirements for eligibility to

participate in a plan and the

requirements for eligibility to receive

benefits. These commenters stated that

many participants in pension plans do

not understand that satisfying eligibility

requirements to participate in a plan

does not necessarily mean that the

participants are necessarily vested in

the benefits provided by the plan. The

current regulation requires that pension

plan SPDs describe ‘‘the plan’s

provisions relating to eligibility to

participate in the plan, such as age or

years of service requirements,’’ and

include ‘‘a statement describing any

other conditions which must be met

before a participant will be eligible to

receive benefits.’’ Accordingly, it is the

Department’s view that the current

regulation already requires that SPDs

include a description, written in a

manner calculated to be understood by

the average plan participant, both of the

requirements for eligibility to

participate in a plan and of any

additional conditions for eligibility to

receive benefits. The Department,

therefore, has determined that the

requested clarification is not necessary.

c. Group Health Plan Disclosures

In responding to recommendations of

the Health Care Commission, the

Department proposed amending

paragraph (j) of § 2520.102–3 to add a

new subparagraph (3) clarifying the

information that must be included in

the SPD of a group health plan.5

Specifically, subparagraph (3), as

proposed, would require that the SPD of

a group health plan describe: any costsharing provisions, including

premiums, deductibles, coinsurance,

and copayment amounts for which the

participant or beneficiary will be

responsible; any annual or lifetime caps

or other limits on benefits under the

plan; the extent to which preventive

services are covered under the plan;

whether, and under what

circumstances, existing and new drugs

are covered under the plan; whether,

and under what circumstances, coverage

is provided for medical tests, devices

and procedures; provisions governing

the use of network providers, the

composition of the provider network

and whether, and under what

circumstances, coverage is provided for

out-of-network services; any conditions

or limits on the selection of primary

care providers or providers or specialty

medical care; any conditions or limits

applicable to obtaining emergency

medical care; and any provisions

requiring preauthorizations or

utilization review as a condition to

obtaining a benefit or service under the

plan. Subparagraph (3) also provided

that, in the case of plans with provider

networks, the listing of providers may

be furnished to participants and

beneficiaries as a separate document,

provided that the SPD contains a

general description of the provider

network and indicates that provider lists

are furnished, without charge, in a

separate document. In discussing the

new subparagraph (3) in the preamble to

the proposal, the Department expressed

its view that the information more

specifically delineated in the new

subparagraph is already required to be

disclosed pursuant to paragraph (j)(2) of

§ 2520.102–3, and that the amendment

is merely intended to remove any

ambiguity as to the disclosure

70228 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

requirements applicable to group health

plans.

The Department received a number of

comments relating to the requirements

of proposed paragraph (j)(3). While

many commenters agreed that much of

the information delineated in the

proposal is currently provided to

participants and beneficiaries, a number

of the commenters indicated that the

information is not provided as part of an

SPD. In this regard, commenters

expressed concern that requiring

specific detailed information relating to

covered drugs, preventive services, costsharing provisions, and provider

networks to be included in the SPD

itself will be burdensome and costly to

plans and not helpful for participants

and beneficiaries. Some commenters

indicated that having to amend SPDs to

reflect frequent changes in specific

benefits, such as the addition of new

drugs, medical tests or devices, would

also increase burdens and costs for

plans. Other commenters expressed

concern about having to provide all plan

participants and beneficiaries with an

SPD containing all the required

disclosures when the plan provides

different insurance or HMO options or

different premium or cost-sharing

provisions applicable to different

categories of participants.

Under ERISA, 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. It is the

view of the Department, therefore, that

the SPD is the appropriate vehicle for

providing participants and beneficiaries

the information described in proposed

paragraph (j)(3). It is important to note,

however, that the Department did not

intend paragraph (j)(3) to be construed

as requiring the SPD to list each and

every drug, test, device, or procedure

covered by a group health plan. Rather,

paragraph (j)(3) is intended to ensure

that SPDs adequately inform

participants and beneficiaries whether

and under what circumstances the

benefits referenced in paragraph (j)(3)

will or will not be covered by the plan,

and to direct participants and

beneficiaries as to where additional

information may be obtained, free-ofcharge, about plan coverage of a specific

benefit, i.e., a particular drug, treatment,

test, etc. It is the view of the Department

that paragraph (j)(2) of § 2520.102–3

continues to govern the required

disclosure of detailed schedules of

benefits, including schedules and

listings of specific preventive services,

drugs, tests, devices, procedures, and

other benefits described in (j)(3), by

group health plans. In this regard,

§ 2520.102–3(j)(2) provides, among

other things, that ‘‘[i]n the case of a

welfare plan providing extensive

schedules of benefits (a group health

plan, for example) only a general

description of such benefits is required

if reference is made to detailed

schedules of benefits which are

available, without cost to any

participant or beneficiary who so

requests.’’

The Department also believes that its

current law and regulations provide

group health plans with sufficient

flexibility so that they will not have

increased burdens and costs resulting

from having to amend SPDs to reflect

frequent changes in specific benefits,

such as the addition of new drugs,

medical tests or devices. Rather, to the

extent that there is a material

modification in the terms of the plan or

a change in the information required to

be included in the SPD, ERISA section

104(b)(1) and the Department’s

regulations allow the administrator to

furnish participants covered under the

plan and beneficiaries receiving benefits

with a summary of material

modification, or SMM.

A few commenters requested that

Department define specific itemized

terms, such as ‘‘preventive services’’

and ‘‘provider network.’’ Because the

meaning of such terms or concepts may

vary from plan to plan, the Department

believes that, in the context of

describing covered benefits, such terms

are best defined by reference to

applicable plan provisions, rather than

by regulation. Accordingly, the

Department has not adopted these

suggestions.

With regard to descriptions of group

health plan provisions requiring

preauthorization or utilization review as

a condition to obtaining a benefit or

service under the plan, the Department

notes that, while only a summary of

these provisions is required, the

summary must be sufficient to apprise

participants and beneficiaries of their

rights and obligations under such

provisions. With regard to the

disclosure of cost sharing information,

the Department notes that, while

specific premium amounts would not

have to be disclosed in the SPD, the SPD

must clearly communicate the

circumstances and extent to which

participants and beneficiaries will be

liable under the plan for premiums,

deductibles, copayments, etc.

Deductibles, copayments, benefit caps

or limits on the benefits payable under

the plan should be set forth in sufficient

detail to reasonably enable participants

and beneficiaries to assess their

responsibility for medical care, hospital

and other costs under the plan.

For the above reasons, the Department

does not believe that requiring inclusion

of the benefit information described in

paragraph (j)(3) will either impose

undue burdens on plans or undermine

the usefulness of the SPD for plan

participants and beneficiaries. To the

contrary, the Department believes that

inclusion of such information in the

SPD is necessary to ensure that

participants and beneficiaries are

provided basic information concerning

their plan’s coverage of preventive

medical services, drugs, tests , devices,

etc., even if more detailed information

concerning specific benefits is available

on request.

The Department continues to believe,

however, that, unlike schedules and

listings of specific benefits that may be

furnished upon request, complete

listings of network providers should be

furnished automatically to each

participant and beneficiary. The

Department believes that, where the

availability of specific medical services

or benefits under a plan may depend in

whole or in part on knowing the specific

service provider from whom services

may be obtained, the selection of a

service provider becomes a particularly

significant benefit decision. The

Department believes that, under such

circumstances, participants and

beneficiaries will be in the best position

to evaluate and assess their medical

provider options when they can review

a complete listing of the providers

available to them under the terms of the

plan, rather than having to inquire on a

service-by-service or provider-byprovider basis. For this reason, the

Department is retaining the requirement

that detailed provider lists be furnished

automatically, without charge, to

participants. The Department

recognizes, however, that requiring all

providers to be listed in an SPD may

undermine the usefulness of SPDs as a

disclosure document. The Department,

therefore, is also retaining the proposed

provision in paragraph (j)(3) permitting

the network provider listings to be

furnished in a separate document,

provided that the SPD contains a

general description of the provider

network and, as noted, that provider

lists are furnished automatically,

without charge.

In response to commenter concerns

about having to provide participants

and beneficiaries with an SPD

containing detailed benefit, premium,

network provider, and other information

that may not be equally relevant to all

participants and beneficiaries, the

Department notes that plan

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70229

administrators may utilize different

SPDs for different classes of participants

and beneficiaries, as described at 29

CFR 2520.102–4. In general, the

regulation provides that where an

employee benefit plan provides

different benefits for various classes of

participants and beneficiaries, the plan

administrator may fulfill the

requirement to furnish an SPD by

furnishing each class of participant and

beneficiary a copy of the SPD

appropriate to that class. The regulation

further provides that, while the SPD

may omit information not applicable to

the class of participants and

beneficiaries to which it is furnished,

the SPD must clearly identify on the

first page of text the class of participants

and beneficiaries for which the SPD was

prepared and the plan’s coverage of

other classes. It is the view of the

Department that where a plan has

varying premium structures or benefits

for different classes of participants and

beneficiaries, different SPDs can be

prepared and furnished in accordance

with § 2520.102–4. For example, for

purposes of § 2520.102–4, participants

and beneficiaries may be classified by

the benefit coverages they select under

the plan (e.g., fee-for-service option or

HMO option), thereby permitting

separate SPDs to be prepared for each

coverage option available under the

plan.

3. Section 2520.102–3(1)—Disclosure of

Plan Termination Information

The Department proposed to amend

paragraph (1) of § 2520.102–3 to

incorporate principles set forth in

Technical Release 84–1 and to clarify

the application of those principles to

plan amendments. Specifically, the

proposal would require that SPDs

include the following information: (1) A

summary of any plan provisions

governing the authority of the plan

sponsor or others to terminate the plan

or to eliminate, in whole or in part,

benefits under the plan, and the

circumstances, if any, under which the

plan may be terminated and benefits

amended or eliminated; (2) a summary

of any plan provisions governing the

benefits, rights and obligations of

participants and beneficiaries under the

plan on termination of the plan or

amendment or elimination of benefits

under the plan, including, in the case of

an employee pension benefit plan, a

summary of any provisions relating to

the accrual and the vesting of pension

benefits under the plan upon

termination of the plan; and (3) a

summary of any plan provisions

governing the allocation and disposition

of assets of the plan upon termination

of the plan.

Several commenters argued against

adopting this provision on the basis that

it would be difficult for plan

administrators to anticipate and

describe in an SPD all the possible

circumstances under which plans may

be terminated or benefits eliminated.

The Department does not view the

proposed amendment of paragraph (1)

as requiring an exhaustive listing or

description of every circumstance that

might result in the elimination of

benefits or termination of the plan.

Rather, SPDs should include a clear,

understandable summary of the

sponsor’s authority under the plan, as

well as limitations thereon, to eliminate

benefits or terminate the plan. The level

of detail provided in the SPD, however,

may vary depending on the nature of the

plan and the plan provisions involved.

The Department continues to believe, as

it has since the issuance of Technical

Release 84–1, that the disclosure of the

information relating to the

circumstances under which benefits

might be eliminated or the plan

terminated, and the effects of such

actions on benefits, is of significant

importance to participants and

beneficiaries. For this reason, the

Department is adopting, without

change, the proposed amendment to

paragraph (1) of § 2520.102–3.

A few commenters suggested that the

regulations should prohibit conflicts

between provisions of the SPD and the

plan document by requiring the use of

clear terminology and definitions,

prohibiting the use of disclaimers in

SPDs, and providing that ambiguous

SPD provisions will be interpreted

against the drafter. To the extent these

comments concern the

understandability of SPDs to plan

participants and beneficiaries, the

Department believes that its current

general standards on style and format of

SPDs in 29 CFR 2520.102–2 are

appropriate and further regulatory

guidance is not necessary. Some of these

comments, such as the request to

prohibit ‘‘disclaimers’’ in SPDs and

establishing a rule calling for

interpreting ambiguous provisions in

SPDs against the drafter, raise issues

that are beyond the scope of these SPD

regulations.

Several commenters suggested that

the Department clarify the requirement

regarding disclosure of subrogation

provisions in a plan’s SPD. It is the

Department’s view that subrogation,

reimbursement, and other provisions of

a plan that may serve to eliminate,

reduce, offset or otherwise adversely

affect the amount of benefits to which

a participant or beneficiary is entitled

must be disclosed in the SPD pursuant

to § 2520.102–3(l). Similarly, it is the

view of the Department that, for

purposes of satisfying § 2520.102–3(l),

the SPD must include a description of

any fees or charges that may be imposed

on a participant or beneficiary, or their

individual account, as a condition to

receiving a benefit, inasmuch as any

such fee or charge may, directly or

indirectly, serve to reduce the benefits

the participant or beneficiary might

otherwise reasonably expect to receive.

Paragraph (l) has been clarified in this

regard.

4. Section 2520.102–3(m)—PBGC

Coverage

Section 2520.102–3(m) requires

pension plan SPDs to include a

statement indicating whether benefits of

the plan are insured under Title IV of

ERISA and, if insured, a description of

the pension benefit guaranty provisions

of Title IV and a statement indicating

that further information can be obtained

from the plan administrator or the

Pension Benefit Guaranty Corporation

(PBGC). The regulation provides that a

SPD is deemed to meet the requirements

of paragraph (m)(2) if it includes a

model statement included in the

regulation. The Department proposed to

amend the model statement in

accordance with changes provided by

the PBGC to more accurately reflect the

benefits guaranteed under Title IV, as

well as update the information relating

to the PBGC.

A commenter stated that the model

statement was not appropriate for use in

SPDs of multiemployer plans because a

broader range of circumstances can give

rise to a plan termination and the level

of guaranteed benefits may be

substantially below the level of benefits

promised under the plan. In response to

this comment, the PBGC prepared

separate model statements for singleemployer plans and multiemployer

plans, and the Department modified the

proposal to include the model statement

for single-employer plans in paragraph

(m)(3) and the model statement for

multiemployer plans in paragraph

(m)(4).

5. Section 2520.102–3(o)—COBRA

Rights

Under the proposal, paragraph (o) of

§ 2520.102–3 would be amended to

address the requirement that

participants and beneficiaries in group

health plans subject to the COBRA

continuation coverage provisions of Part

6 of Title I of ERISA be provided

information concerning their rights and

obligation under those provisions.

70230 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

6The Department is currently considering the

issuance of additional guidance, in form of

regulations, that would serve to clarify the

information disclosure and notification

requirements under the continuation coverage

provisions of Part 6 of Title I, including the

requirements of section 606(a)(1) of ERISA.

Two commenters expressed concern

about having to provide detailed

COBRA information in the SPD. One of

the commenters suggested permitting

the information to be furnished in a

separate document, like the disclosures

permitted with respect to QDRO and

QMCSO determination procedures. The

COBRA provisions confer important

substantive rights upon participants and

beneficiaries concerning the

continuation of their health plan

coverage. For this reason, the

Department continues to believe that

participants and beneficiaries should be

informed about these rights, and their

obligations with respect to the exercise

of these rights, in the summary plan

description. The Department, therefore,

is adopting the proposed amendment of

paragraph (o) of § 2520.102–3 without

change.

One commenter requested a

clarification as to whether the section

606(a)(1) COBRA notice provided

through the SPD should be provided at

the time the participant first becomes

covered under the plan or when the

participant becomes eligible for COBRA

continuation coverage. Pursuant to

ERISA section 104(b)(1), and the

Department’s regulations issued

thereunder, an administrator must

distribute an SPD within 90 days of an

individual’s becoming a participant or

beneficiary under the plan. ERISA

section 606(a)(1), however, requires

group health plans to provide covered

employees and spouses, if any, with

notification of their COBRA rights at the

time of commencement of coverage

under the plan, i.e., when the individual

becomes a participant or beneficiary. As

noted in the preamble to the proposed

regulation, the Department has taken the

position that the disclosure obligation

under section 606(a)(1) will be satisfied

by furnishing to the covered employee

and spouse, at the time coverage

commences under the plan, an SPD that

includes the COBRA continuation

coverage information required by

section 606(a)(1).6

Two commenters raised issues

concerning spousal notification. One

commenter inquired whether hand

delivery of an SPD with COBRA

information to a participant at a

worksite location with written

instructions to share the SPD with the

spouse would satisfy the section

606(a)(l) disclosure requirement. The

other commenter expressed concern that

including COBRA information in the

SPD may lead some to conclude that

spousal notification is not required. The

mere fact that COBRA information is

required to be set forth in the SPD does

not relieve group health plan

administrators from their obligation to

provide notice to an employee’s covered

spouse under 606(a)(1). The

Department, however, has taken the

position that where a spouse’s last

known address is the same as the

covered employee’s, a single mailing of

the required COBRA disclosure (which

could be in the form of an SPD),

addressed to both the employee and the

spouse, will constitute good faith

compliance with the COBRA notice

requirements of section 606(a)(1) (See

Technical Release No. 86–2). It is the

view of the Department that, in the

absence of specific contrary regulations,

in-hand delivery to an employee at his

or her worksite location of an SPD

containing COBRA information would

not constitute adequate notice to the

spouse of that employee for purposes of

section 606(a)(1).

6. Section 2520.102–3(q)—Funding

Medium Information for Group Health

Plans

On April 8, 1997, the Department

published in the Federal Register (62

FR 16970) an amendment to paragraph

(q) of § 2520.102–3 implementing

statutory changes to the SPD disclosure

requirements enacted as part of the

Health Insurance Portability and

Accountability Act of 1996. The

amendment was intended to ensure that

SPDs clearly inform participants and

beneficiaries about the role of health

insurance issuers in their group health

plan, particularly in those cases where

the plan is self-funded and an insurer is

serving as a contract administrator or

claims payor, rather than as an insurer.

In the preamble to the September 9,

1998, proposed SPD amendments (63

FR 48386), the Department noted that it

intended to adopt paragraph (q) as a

final regulation in conjunction with the

adoption of other amendments to the

SPD requirements.

One commenter suggested that

paragraph (q) should require that SPDs

include an explanation of the

importance of whether health benefits

provided by a plan are guaranteed by an

insurer, including a disclosure that

participants and beneficiaries in selfinsured group health plans do not have

access to the consumer protections

afforded to participants and

beneficiaries of plans utilizing statelicensed insurers and HMOs (for

example, solvency requirements and

governmental administrative assistance

in the event of disputes over coverage).

The Department does not believe that

the SPD is the appropriate vehicle for

comparing various types of funding

arrangements, without regard to

whether such arrangements are actually

utilized by the plan. The Department,

therefore, is adopting paragraph (q) of

§ 2520.102–3, without change and as it

was adopted in interim form, as a final

rule.

7. Section 2520.102–3(s)—Claims

Procedure Information

The Department proposed to amend

paragraph (s) of § 2520.102–3 to make

clear that the claims procedure in the

SPD of a group health plan must include

any plan procedures for

preauthorization, approval, or

utilization review. The proposed

amendment also made clear that a plan

is not precluded from furnishing the

plan’s claims procedures as a separate

document that accompanies the plan’s

SPD, provided that the separate

document satisfies the style and format

requirements of § 2520.102–2, and,

provided further that the SPD contains

a statement that the plan’s claims

procedures are furnished automatically,

without charge, as a separate document.

While commenters generally supported

the provision allowing the plan’s claims

procedures to be provided in a separate

document, a few commenters argued

that, given the importance of the claims

procedures to participants and

beneficiaries, the full claims procedures

should be required to be in the SPD.

The Department agrees that the

procedures governing a plan’s benefit

claims and appeal processes are of

critical importance to participants and

beneficiaries. The Department also

recognizes that requiring incorporation

of detailed claims procedures in the

SPD, which contains a wide variety of

benefit-related information, may in

some instances minimize the

importance of the procedures or

overwhelm some participants. It is the

view of the Department that the

proposed conditions for utilizing a

separate document for purposes of

disclosing a plan’s benefit claims and

appeals procedures will ensure that

participants and beneficiaries receive

clear and complete information about

their plan’s benefit claims procedures,

while providing plan administrators the

flexibility to choose which method of

communication, integration in an SPD

or furnishing a separate document with

the SPD, will best serve their plan’s

participants and beneficiaries. The

Department, therefore, is adopting the

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70231

7See 62 FR 40696 (July 29, 1997).

proposed amendment to paragraph (s) of

§ 2520.102–3 without change.

8. Section 2520.102–3(t)—Statement of

ERISA Rights

The proposal would amend paragraph

(t)(2) of § 2520.102–3 to improve and

update the model statement of ERISA

rights that plans may use to satisfy the

requirement to furnish participants and

beneficiaries with the statement of

ERISA rights described in section 104(c)

of the Act. Specifically, the Department

proposed to amend the model statement

to incorporate references to participant

rights under the COBRA continuation

provisions of Part 6 of ERISA and the

portability provisions of Part 7 of

ERISA. The proposal also would extend

to all employee benefit plans the model

statement changes applicable to group

health plans on an interim basis as a

result of amendments to ERISA enacted

as part of the Health Insurance

Portability and Accountability Act of

1996. It does so with the addition of a

sentence to the model statement

directing participants and beneficiaries

who have questions about their ERISA

rights to the nearest office of the

Pension and Welfare Benefits

Administration or the Division of

Technical Assistance and Inquiries in

Washington, D.C. Other changes to the

statement include: modifying the

reference of ‘‘up to $100 a day’’ to ‘‘up

to $110 a day,’’ to reflect the fact the

civil monetary amount under ERISA

section 502(c)(1) has been increased to

take inflation into account, as required

by the Debt Collection Improvement Act

of 1996; 7 clarifications to the language

discussing the types of documents

participants and beneficiaries have the

right to examine and receive copies of

upon request; the addition of a sentence

indicating that issues involving the

qualified status of domestic relations

orders and medical child support orders

may be resolved in Federal court; and

clarifying the rights of participants and

beneficiaries under the plan’s claims

procedures.

A number of commenters suggested

that the style and readability of the

model statement could be improved by,

for example, varying font sizes and

using headings and indented text. Other

commenters suggested that the

Department include information

concerning the availability of

Departmental assistance in obtaining

SPDs and copies of plan documents,

while others requested that the

Department include a statement urging

participants and beneficiaries to contact

their plans before filing complaints with

the Department or suing regarding

problems with claim denials or issues

on benefit entitlements.

In response to these comments, the

Department has added headings to the

model statement that are intended to

make the statement easier to read.

Administrators are encouraged to

explore other steps that might be taken

to enhance readability, without

compromising or undermining the

substantive information provided in the

model statement. The Department also

has modified the proposed model

statement to include provisions

informing participants and beneficiaries

that they may obtain copies of annual

reports (Form 5500s) filed for their plan

from the Public Disclosure Room of the

Pension and Welfare Benefits

Administration (PWBA) and a notice

that assistance is available from PWBA’s

regional offices in obtaining from plan

administrators documents under which

the plan is established or operated.

With respect to the suggestion that

participants be encouraged to contact

their plans about claims and benefit

issues prior to contacting the

Department of Labor, the Department

believes that language of the proposed

statement—directing plan questions to

the plan administrator—provides

direction to plan participants without

inhibiting their pursuing issues with the

Department. Accordingly, no changes to

the model statement are being made in

this regard.

9. Section 2520.102–3(u)—Newborns’

and Mothers’ Health Protection Act

Disclosure

On September 9, 1998, the

Department published in the Federal

Register (63 FR 48372) a revised interim

rule setting forth the information

required to be disclosed in the SPD

concerning the provisions of the

Newborns’ and Mothers’ Health

Protection Act (Newborns’ Act),

codified at section 711 of ERISA. A

concern was expressed to the

Department that the interim rule in

§ 2520.102–3(u) required all Title I

group health plans to include

information in their SPDs about federal

law requirements under the Newborns’

Act while section 711(f) provides an

exception from those requirements for

health insurance coverage in certain

states. Specifically, section 711(f)

provides that the requirements of

section 711 shall not apply with respect

to health insurance coverage if a state

law regulating the coverage: (1) requires

such coverage to provide for at least a

48-hour hospital length of stay

following a vaginal delivery and at least

a 96-hour hospital length of stay

following a cesarean section; (2)

requires such coverage to provide for

maternity and pediatric care in

accordance with guidelines established

by the American College of

Obstetricians and Gynecologists, the

American Academy of Pediatrics, or

other established professional medical

associations; or (3) requires, in

connection with such coverage for

maternity care, that the hospital length

of stay for such care is left to the

decision of (or required to by made by)

the attending provider in consultation

with the mother. The commenter

expressed concern that participants and

beneficiaries could be confused by an

SPD disclosure describing federal law

requirements in situations where only

state law applies.

The Department agrees that plans that

are exempt from the federal law

requirements of section 711 because

state law requirements apply should be

able to focus their SPD disclosure on the

applicable state law requirements for

hospital length of stay following

newborn deliveries. The final rule

therefore modifies the requirement in

§ 2520.102–3(u) to provide that, for a

group health plan, as defined in section

733(a)(1) of the Act, that provides

maternity or newborn infant coverage,

the SPD must contain a statement

describing the federal or state law

requirements applicable to the plan or

any health insurance coverage offered

under the plan, relating to hospital

length of stay in connection with

childbirth for the mother or newborn

child. The final rule makes it clear that

if federal law applies in some areas in

which the plan operates and state laws

apply in others, the SPD must describe

the federal and state law requirements

that apply in each area covered by the

plan. The final rule also sets forth a

model statement that group health plans

subject to section 711 of the Act may

use to comply with paragraph (u) of this

section relating to the required

description of federal law requirements.

C. Repeal of Limited Exemption for

SPDs of Plans Providing Benefits

Through a Federally Qualified HMO

The proposal would repeal the

limited exemption, at 29 CFR 2520.102–

5, for SPDs of welfare benefit plans

providing benefits through a qualified

HMO, as defined in section 1310(d) of

the Public Health Act, 42 U.S.C. 300e–

9(d). Such SPDs are not required to

include the information described in

§§ 2520.102–3(j)(2), (l), (q) and (s),

provided certain conditions are met.

Several commenters objected to the

repeal of § 2520.102–5, expressing

concern that this change would result in

70232 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

8See 46 FR 5884, January 21, 1981.

voluminous and unhelpful SPDs.

Specifically, they stated that HMOs

already provide much of the

information described in §§ 2520.102–

3(j)(2), (l), (q), and (s) directly to

participants and beneficiaries, that a

typical group health plan could provide

a choice among benefits under a large

number of different HMOs, and, in such

a case, the plan’s SPD would have to

include extensive and, for some

participants and beneficiaries,

potentially irrelevant information on

each of the HMOs. Commenters also

argued that HMO information changes

frequently, which would require

frequent amendment to SPDs. The

elimination of § 2520.102–5 would,

according to those commenters, result in

increased plan expenses. Other

commenters complained that it would

be unfair to require plan administrators

to be responsible for providing

information on HMOs to participants

and beneficiaries because typical HMO

contracts preclude the employer from

having access to such information.

The Department continues to believe

that, given the legislative and other

changes affecting the operation of group

health plans since the adoption of

§ 2520.102–5 in 1981,8 the information

required to be disclosed through the

SPD and summaries of changes thereto

are as important to participants and

beneficiaries electing coverage through a

federally qualified HMO as any other

group health plan participant or

beneficiary. The Department is not

convinced that the disclosure

obligations otherwise applicable to

federally qualified HMO are adequate to

ensure that participants and

beneficiaries receive both timely and

useful information.

Moreover, as noted earlier, plan

administrators may, pursuant to

§ 2520.102–4, utilize different SPDs for

different classes of participants within a

single plan. Where a group health plan

offers multiple benefit options, it is the

view of the Department that participants

and beneficiaries may be classified by

the benefit coverages they elect under

the plan (e.g., fee-for-service option or

HMO option), thereby permitting

separate SPDs to be prepared pursuant

to § 2520.102–4 for each coverage option

available under the plan. The

Department believes that this flexibility

permits plan administrators to avoid the

problems raised by commenters, while

ensuring that participants and

beneficiaries receive relevant

information about their coverage. With

respect to the comments expressing

concern about administrators being

responsible for the information

provided about federally qualified

HMOs, the Department notes that

administrators currently are responsible

for the information provided to

participants and beneficiaries under

non-federally qualified HMO coverage

and benefit options offered by group

health plans. For the reasons discussed

above, the Department continues to

believe that extending that same

responsibility to the information

provided about federally qualified

HMOs is appropriate.

Finally, certain commenters argued

that the proposal exceeded the

Department’s authority because it is the

option to join the HMO that is the plan

benefit and not the medical coverage

provided by the HMO. Therefore, the

commenters contended, the only HMO

information that the Department can

require to be included in the SPD is

information regarding eligibility to join

the HMO. The Department disagrees

with this view. As the Department

stated in the preamble to its 1981 rule

providing limited relief to welfare

benefit plans that include membership

in a qualified HMO as an option, ERISA

applies to a plan that offers benefits

listed under section 3(1) of ERISA,

regardless of whether the benefits are

offered through a qualified HMO or

otherwise. See 46 FR 5882 (January 21,

1981).

As a result, the Department is

adopting the proposal without change.

D. Amendments Relating to Furnishing

Summaries of Material Reductions in

Covered Services or Benefits

Section 104(b)(1) of ERISA requires,

among other things, that the

administrator furnish to each

participant, and each beneficiary

receiving benefits under the plan, copies

of modifications in the terms of their

plans and changes in the information

required to be included in the SPD not

later than 210 days after the end of the

plan year in which the change is

adopted. Section 101(c)(1) of HIPAA

amended ERISA section 104(b)(1) to

provide that, in the case of any

modification or change that is a

‘‘material reduction in covered services

or benefits provided under a group

health plan,’’ participants and

beneficiaries must be furnished the

summary of such modification or

change not later than 60 days after the

adoption of the modification or change,

unless the plan sponsor provides

summaries of modifications or changes

at regular intervals of not more than 90

days.

On April 8, 1997, the Department

published an interim rule (62 FR 16985)

amending 29 CFR 2520.104b–3 by

adding a new paragraph (d) to

implement the statutory change to

section 104(b)(1). Specifically, section

2520.104b–3(d)(1) provides that

summaries of any modification to the

plan or change in the information

required to be included in the SPD that

is a material reduction in covered

services or benefits must be furnished

by administrators of group health plans

to each participant covered under the

plan, and each beneficiary receiving

benefits under the plan, not later than

60 days after the date of adoption of the

modification or change. Section

2520.104b–3(d)(2) provides that the 60-

day period for providing such

summaries does not apply to any

participant or beneficiary who would

reasonably be expected to be furnished

such summary in connection with a

system of communication maintained

by the plan sponsor or administrator,

with respect to which plan participants

and beneficiaries are provided

information concerning their plan,

including modifications and changes

thereto, at regular intervals of not more

than 90 days. Section 2520.104b–

3(d)(3)(i) defines a ‘‘material reduction

in covered services or benefits’’ to mean

any modification to the plan or change

in the information required to be

included in the SPD that, independently

or in conjunction with other

contemporaneous modifications or

changes, would be considered by the

average plan participant to be an

important reduction in covered services

or benefits. To facilitate compliance,

paragraph (d)(3)(ii) set forth a listing of

modifications or changes that generally

would constitute a ‘‘reduction in

covered services or benefits.’’

One commenter expressed confusion

over the requirement to provide these

disclosures to ‘‘beneficiaries receiving

benefits under the plan’’ given the fact

that pursuant to 29 CFR 2520.104b–2

only beneficiaries receiving benefits

under a pension plan are required to be

furnished a summary plan description.

While the included language regarding

beneficiaries tracks the language of

§ 2520.104b–3(a), the Department agrees

with the commenter that the reference

to ‘‘beneficiaries receiving benefits

under the plan’’ appears to conflict with

other regulatory provisions that indicate

that beneficiaries receiving benefits

under a welfare plan are excepted from

the disclosure requirement. In addition

to the provisions in § 2520.104b–2 noted

by the commenter, the Department notes

that 29 CFR 2520.104b–1(a), governing

the furnishing of documents required to

be furnished by direct operation of law

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70233

(such as SPDs and SMMs), specifically

excepts from that disclosure obligation

‘‘beneficiaries under a welfare plan.’’

Accordingly, the Department is

eliminating the reference to ‘‘each

beneficiary receiving benefits under the

plan’’ from paragraph (d) of

§ 2520.104b–3. The Department,

nonetheless, would be interested in

receiving comments from interested

persons on whether, and under what

circumstance, the current regulations

should be amended to require

disclosure of SPD and related

information to beneficiaries receiving

benefits under a welfare plan.

With respect to the provision in the

interim rule defining ‘‘material

reduction in covered services or

benefits,’’ one commenter suggested that

the ‘‘average plan participant’’ standard

contained in the definition is too strict

for chronically ill patients. Another

commenter recommended that the

Department adopt a standard that is

more objective and easier to ascertain.

The ‘‘average plan participant’’ standard

has been the standard that plan

administrators have used for more than

twenty years in determining whether an

SPD satisfies the requirements of

§ 2520.102–2(a). That general standard

is warranted because of the variety of

plan participants and the impossibility

of adopting a standard that accounts for

all of the circumstances of individual

plan participants. Therefore, it is the

Department’s view that the ‘‘average

plan participant’’ standard should be

used in determining whether a

modification or a change is a material

reduction in covered services or

benefits.

E. Applicability Dates

The Department expressed its view in

the proposal that the information

delineated in paragraph (j)(3),

applicable to group health plans,

paragraph (j)(1) and paragraph (l) of

§ 2520.102–3 is currently required to be

disclosed under the disclosure

framework of ERISA. Accordingly, the

Department considered the proposed

addition of the new paragraph (j)(3) and

the amendment of paragraphs (j)(1) and

(l) as clarifications of existing law,

rather than new disclosure

requirements. With regard to the other

proposed amendments, the Department

proposed to require plans to comply

with the new requirements no later than

the earlier of: (1) The date on which the

first summary of material modification

(or updated SPD) is required to be

furnished participants and beneficiaries

following the effective date of the

amendments or (2) the first day of the

second plan year beginning after the

effective date of the final rule.

Several commenters disagreed with

the Department’s view of paragraphs

(j)(3), (j)(1) and (l) of § 2520.102–3, and

requested additional time to comply

with these paragraphs of the regulation.

Commenters also asked the Department

to coordinate the applicability date of

these regulations with that of the

Department’s final regulations

governing plans’ benefit claims

procedures to make it possible for plans

to coordinate the revision of their claims

procedures with the revision of their

SPDs. Additionally, one commenter

suggested coordinating the applicability

date of this regulation with the date that

qualified plans subject to ERISA must

be restated under the Small Business

Jobs Protection Act (SBJPA) and the

Taxpayer Relief Act of 1997 (TRA ’97).

The commenter expressed concern that

if the applicability date is not

coordinated, many plans may have to

revise their SPDs twice in a very short

period of time leading to confusion and

needless expenditure of plan assets.

The Department continues to adhere

to its view that the information

delineated in paragraphs (j)(3), (j)(1) and

(l) of § 2520.102–3 is currently required

to be disclosed under the existing

disclosure framework of ERISA. In

response to the other comments,

however, the Department has

determined to modify the proposal and

to adopt a single applicability date for

the new SPD disclosures in the

proposal. Specifically, plans will be

required to comply with the new SPD

content requirements being adopted in

this regulation no later than the first day

of the second plan year beginning after

the effective date of the final rule.

Finally, the interim rules that are

being finalized in this notice are already

effective, and accordingly, a special

applicability date is not required.

Rather, the special applicability dates

for the interim rules codified in

paragraph (v) of § 2520.102–3 are

obsolete and, accordingly, are being

removed as part of this final rule.

Economic Analysis Under Executive

Order 12866

Under Executive Order 12866, the

Department must determine whether the

regulatory action is ‘‘significant’’ and

therefore subject to the requirements of

the Executive Order and subject to

review by the Office of Management and

Budget (OMB). Under section 3(f), the

order defines a ‘‘significant regulatory

action’’ as an action that is likely to

result in a rule: (1) Having an annual

effect on the economy of $100 million

or more, or adversely and materially

affecting a sector of the economy,

productivity, competition, jobs, the

environment, public health or safety, or

State, local or tribal governments or

communities (also referred to as

‘‘economically significant’’); (2) creating

serious inconsistency or otherwise

interfering with an action taken or

planned by another agency; (3)

materially altering the budgetary

impacts of entitlement grants, user fees,

or loan programs or the rights and

obligations of recipients thereof; or (4)

raising novel legal or policy issues

arising out of legal mandates, the

President’s priorities, or the principles

set forth in the Executive Order.

Pursuant to the terms of Executive

Order 12866, it has been determined

that this action is consistent with the

President’s priorities with respect to

ensuring that all participants in group

health plans receive understandable

information about their plans, as

described in the report of the President’s

Advisory Commission on Consumer

Protection and Quality in the Health

Care Industry entitled, ‘‘Consumer Bill

of Rights and Responsibilities.’’ The

added cost estimated to be associated

with the amendments to existing

regulations implemented in this final

rule total $208 million in 2002, the year

in which these amendments are

expected to be applicable for the

majority of plans. Therefore, this notice

is ‘‘significant’’ and subject to OMB

review under Sections 3(f)(1) and 3(f)(4)

of the Executive Order.

Accordingly, the Department has

undertaken to assess the costs and

benefits of this regulatory action. The

Department’s assessment, and the

analysis underlying that assessment, is

detailed following the statements

concerning the Regulatory Flexibility

Act and the Paperwork Reduction Act.

The Consumer Bill of Rights and

Responsibilities states that, ‘‘Consumers

have the right to receive accurate, easily

understood information about their

health plans, facilities and professionals

to assist them in making informed

health care decisions.’’ The purpose of

this final rule is to implement this

principle within the framework of

existing disclosure requirements under

ERISA, based on the September 9, 1998

proposal and comments received in

response, as well as to generally update

the disclosure requirements for both

welfare and pension plans.

Currently available information

supports the conclusion that many

group health plans already provide the

majority of information identified in

these amendments, including benefits

and limitations, whether drug

formularies are used and how drugs and

70234 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

9See ‘‘Consumer Bill of Rights and

Responsibilities Costs and Benefits: Information

Disclosure and Internal Appeals,’’ The Lewin

Group, November 15, 1997; and ‘‘CONSUMER

HEALTH CARE INFORMATION—Many Quality

Commission Disclosure Recommendations Are Not

Current Practice’’ (GAO/HEHS–98–137, April

1998). The GAO report indicates that only about

half of the information recommended by the

Commission to be provided to consumers is

currently provided by large purchasers. However, it

is information on health plan features such as

covered benefits, cost-sharing, access to emergency

services and specialists, and appeal processes

which is currently routinely provided, while

information about health care facilities and the

business relationships and financial arrangements

among health professionals, and quality and

performance measures is not typically provided.

Although the Commission’s recommendations go

beyond current practice, the provisions of this final

rule are considered to be reasonably consistent with

the current practices of the large purchasers

surveyed by GAO.

10March 1999 Current Population Survey

11Average employee and employer monthly

contribution figures as reported in, ‘‘Health Benefits

in 1998,’’ KPMG.

12 ‘‘National Survey of Employer-sponsored

Health Plans,’’ Foster Higgins, 1998.

procedures are deemed experimental,

information on cost sharing, and appeal

procedures.9 Comments received in

response to the proposal support this

conclusion as well, although they point

out, and the respondents to the GAO

survey included in its report on the

Commission’s disclosure

recommendations agree, that some

group health plans rely on a

combination of documents to make

disclosures. However, it is understood

that while many plans may conform

with or exceed a minimum standard of

information disclosure, some portion of

the very large number of group health

plans do not currently meet this

standard. To the extent that plans do not

currently provide the required

information, they will be caused by

these amendments to revise their

disclosure documents and distribute

additional or modified information to

participants.

Although the amendments pertinent

to pension plans are substantially more

limited, many are expected to require

certain additions or revisions to their

disclosure documents as a result of this

final rule. It is anticipated that these

revisions will be readily made either in

connection with routine updating of

these documents, or through

distribution of an SMM.

Based on the applicability date of the

final rule, and an assumption as to

current compliance, it is estimated that

approximately 30 percent of pension

plans and 50 percent of group health

plans will be required to modify and

distribute revised disclosure materials

by the end of calendar year 2002. The

expenses expected to be associated with

the preparation and distribution of these

additions and revisions are relatively

easily quantified, and constitute the

estimated cost of the regulation.

The Department estimates the cost of

these amendments to be $47 million in

2001, rising to $208 million in 2002,

falling to $24 million in 2003 and in

each year thereafter. The peak cost in

2002 reflects $32 million for the

preparation of 155,000 different SPDs

describing 1.2 million pension and

welfare plans and $176 million for the

distribution of those SPDs to 36 million

participants. The variation in cost over

this period reflects the interaction of the

final rule’s effective date with the

distribution of the recordkeeping years

used by pension and health plans years

across the months of the year. Because

more than half of plans use a calendar

plan year, the final rule will be effective

for a majority of plans in 2002. It is also

assumed that plans that would be

making changes to their disclosure

materials prior to 2002, even absent the

final rule, will elect to make both those

changes and revisions necessary as a

result of this final rule at the same time.

The benefits of the regulation are

more qualitative in nature, but are

nevertheless significant for participants

and beneficiaries, plan sponsors, and

the performance of the health care

system in general. The regulation will

ensure that participants have better

access to more complete information

about their benefit plans. Such

information is important to participants’

ability to understand and secure their

rights under their plans at critical

decision points, such as when illness

arises, when they must decide whether

to participate in a plan, or when they

must determine which benefit package

option might be most suitable to

individual or family needs. Participants

generally desire health care benefits

which support their health and limit

their exposure to financial risk. In 1998,

131 million participants and

dependents had private employmentbased health care coverage 10, for which

they contributed an average of $123 per

month for family coverage, and $29 per

month for single coverage. 11 Adherence

to disclosure standards will enable

participants to make effective choices

concerning this substantial investment,

taking into consideration their

knowledge of their own health and

financial circumstances, and accurate

information about their plans.

These amendments will also assist

plan administrators to meet their

statutory disclosure obligations with

greater certainty, which is expected to

be helpful given the many changes that

have occurred since guidance on the

required content of SPDs was originally

issued in 1977. In addition to their

compliance with statutory and

regulatory disclosure obligations, plan

sponsors are also concerned about the

pricing and availability of appropriate

coverage options. Private employers

play a significant role in the acquisition

of health care coverage. Over 64 percent

of the total population had private

employment-based health care coverage

in 1998, for which employers

contributed an average of $318 per

active employee. 12 Better information

will also enhance the ability of plan

sponsors to purchase products that are

appropriate to both their needs and the

health and financial needs of their

employees.

Information will promote the

efficiency of the competitive market

through which this array of needs is

met. There is wide-spread agreement

that the efficiency of the health care

market can be improved if purchasers,

consumers, and patients are provided

with better information. Improved

information is expected to promote

efficiency by fostering competition

based on considerations beyond pricing

alone, and by encouraging providers to

enhance quality and reduce costs for

value-conscious consumers. Complete

disclosure will limit competitive

disadvantages that arise when, for

example, incomplete or inaccurate

information on different benefit option

packages is used for decision making

purposes. Information disclosure also

promotes accountability by ensuring

adherence to standards.

Equally importantly, information

disclosure under the SPD regulation, if

combined with additional disclosures

pertaining to plan and provider

performance, and with other health

system reforms that promote efficient,

competitive choices in the health care

market, could yield even greater

benefits. The Lewin report points out

that such reformed systems, as

exemplified by CalPERS and other

examples of privately sponsored

‘‘managed competition,’’ have

successfully reduced health care

inflation, producing savings that dwarf

the cost of these amendments and other

pro-competitive reforms. Better

information, clarified guidance to plan

administrators, and improved market

efficiency thus constitute the benefits of

the regulation.

The Department believes, therefore,

that the benefits of this regulation will

substantially outweigh its costs. The

disclosures it describes are a component

of evolving legislative, regulatory, and

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70235

voluntary private reforms that together

are already improving health care

market efficiency.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5

U.S.C. 601 et seq.) (RFA) imposes

certain requirements with respect to

Federal rules that are subject to the

notice and comment requirements of

section 553(b) of the Administrative

Procedure Act (5 U.S.C. 551 et seq.) and

which are likely to have a significant

economic impact on a substantial

number of small entities. Unless an

agency certifies that a final rule will not

have a significant economic impact on

a substantial number of small entities,

section 604 of the RFA requires the

agency to present a final regulatory

flexibility analysis describing the

impact of the rule on small entities at

the time of publication of the notice of

final rulemaking. Small entities include

small businesses, organizations, and

governmental jurisdictions.

For purposes of analysis under the

RFA, PWBA continues to consider a

small entity to be an employee benefit

plan with fewer than 100 participants.

The basis of this definition is found in

section 104(a)(2) of ERISA, which

permits the Secretary of Labor to

prescribe simplified annual reports for

pension plans which cover fewer than

100 participants. Under section

104(a)(3), the Secretary may also

provide for simplified annual reporting

and disclosure if the statutory

requirements of part 1 of Title I of

ERISA would otherwise be

inappropriate for welfare benefit plans.

PWBA believes that assessing the

impact of this rule on small plans is an

appropriate substitute for evaluating the

effect on small entities. Because this

definition differs from the definition of

small business which is based on size

standards promulgated by the Small

Business Administration (SBA) (13 CFR

121.201) pursuant to the Small Business

Act (5 U.S.C. 631 et seq.), PWBA

solicited comments on the use of this

standard for evaluating the effects of the

proposal on small entities. One

commenter was concerned that prior to

adopting the proposed size standard, the

Department first consult with the Office

of Advocacy of the Small Business

Administration (SBA) and provide an

opportunity for public comment. The

Department consulted with the SBA

regarding its proposed size standard

prior to publication of the proposed

amendments to the SPD regulation and

its proposed regulation relating to

employee benefit plan claims

procedures under ERISA, which was

also published on September 9, 1998 (63

FR 48390). The SBA has agreed with

PWBA’s use of the proposed alternate

size standard, indicating in the claims

regulation and other contexts that the

Department has provided a reasonable

justification for its definition. We are

using the same justification in

connection with this final rule. No other

comments were received with respect to

this size standard. A summary of the

final regulatory flexibility analysis

based on the 100 participant size

standard is presented below.

This regulation applies to all small

employee benefit plans covered by

ERISA. Employee benefit plans with

fewer than 100 participants include

693,000 pension plans, 2.8 million

health plans, and 3.4 million non-health

welfare plans (mainly life and disability

insurance plans).

The final rule amends the

Department’s existing SPD regulation,

which implements ERISA’s statutory

SPD requirements. Both ERISA and the

existing regulation require plans to

provide SPDs that include certain

information and adhere to certain

formats to participants according to

statutory schedules. The compliance

requirements assumed for purposes of

this regulation consist of revising SPDs

and preparing SMMs consistent with

the regulation’s requirements, and

distributing them to participants

consistent with the regulation’s

applicability date. An extensive list of

authorities may be found in the

Statutory Authority section, below.

The objective of this revised

regulation is to ensure that employee

benefit plan participants and

beneficiaries have complete and up-todate information about their plans.

Certain provisions pertaining to group

health plans are being implemented in

accordance with recommendations of

the President’s Advisory Commission

on Consumer Protection and Quality in

the Health Care Industry in its

November 20, 1997 report entitled

‘‘Consumer Bill of Rights and

Responsibilities.’’

The Department believes that revising

an SPD or describing changes in an

SMM requires a combination of

professional and clerical skills.

Professional skills pertaining to

employee benefits law and plan design

and administration are needed to draft

language for inclusion in an SPD, and

therefore an average rate which takes

into account wage rates and overhead

for attorneys and financial managers

($56 per hour) is used to estimate the

costs of needed professional services.

Clerical skills are needed to type,

assemble and format SPD materials, and

to reproduce the materials and either

mail or transmit materials electronically

to participants. A wage and overhead

rate of $21 per hour is used to estimate

the cost of these functions.

The Department has estimated that

about 30 percent of pension plans and

50 percent of group health plans will be

required to revise and distribute SPDs or

SMMs in response to this final rule,

regardless of plan size. The cost for

small plans is moderated by the fact that

small welfare plans, the number of

which is approximately 2.75 million,

are known to make use of a relatively

small number of providers of service to

design plans and provide disclosure

materials, which tends to increase

administrative efficiency and lower

costs for small plans.

The cost of these amendments for

small plans may be borne in a variety

of ways, depending upon a plan’s

governing rules, cost sharing provisions

of the plan, administrative practices, the

terms of contracts in place with

administrators and insurers, and the

magnitude of the actual compliance

cost. Insurers and administrators may

choose to absorb some costs to maintain

competitive products, or may pass on

administrative or premium charges to

policyholders. Sponsors may elect to

finance such cost increases, or may pass

them along to participants. The ultimate

allocation of these costs cannot be

accurately predicted.

The Department’s assessment of the

regulation’s costs and benefits, and the

extent to which the Department has

minimized the impact on small entities,

is detailed below, following the

discussion of the Paperwork Reduction

Act. The Department estimates that the

added cost to small plans of complying

with the regulation will amount to $17

million in 2001, $38 million in 2002,

and $4 million in 2003 and subsequent

years. The peak year cost of $38 million

in 2002 consists of $3 million to prepare

124,000 unique SPDs describing 1.1

million plans, and $35 million to

distribute these SPDs to 8 million

participants. These costs amount to $34

per affected small plan and $5.08 per

affected small plan participant. By

contrast, the added cost to large plans in

2002 is estimated at $170 million, or

$5,549 per affected large plan and $5.93

per affected large plan participant. The

principal reason for the substantially

greater per-plan cost for large plans is

the cost of distribution to greater

numbers of plan participants.

The cost estimates for small plans are

modest in large part because the features

of the majority of small health and other

welfare plans are chosen from a finite

menu of products offered by insurers

and HMOs. The insurers and HMOs

70236 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

prepare the majority of SPD material,

describing their small plan products,

and provide that material to their small

plan customers. Thus, the cost of

preparing a relatively small number of

unique SPDs is spread over a far larger

number of small plans.

Finally, in promulgating this final

rule, the Department has minimized the

economic impact on small entities by

adopting a delayed applicability date

that lets plan administrators avoid the

largest component of the cost of a

regulatory change in the SPD content

requirements (i.e., distribution

expenses) by allowing them to

incorporate the required revisions into

the periodic SPD updates that they

would otherwise be distributing as part

of their usual and customary business

practices.

The Department is not aware of any

rules or requirements which overlap or

duplicate the requirements of this final

rule. State insurance statutes typically

require that certain disclosures be made

to policyholders, but these disclosures

either do not overlap with the

requirements described in this

regulation, or a single disclosure

package can be used to satisfy both state

and federal requirements.

Paperwork Reduction Act

On September 9, 1998, the Pension

and Welfare Benefits Administration

published a Notice of Proposed

Rulemaking (September 9 proposal)

concerning Amendments to Summary

Plan Description Regulations (63 FR

48376), which included a request for

comments on its information collection

provisions. That proposal, if adopted as

proposed, would have revised the

information collection request (ICR)

included in existing regulations relating

to the content of Summary Plan

Descriptions under ERISA. Also on

September 9, 1998, the Department

submitted the revised ICR to OMB for

review and clearance under the

Paperwork Reduction Act of 1995 (PRA

95), and solicited public comments

concerning the revision of the

information collection request (ICR)

included in the proposal.

Further, the Department submitted a

revised ICR to OMB for emergency

clearance in connection with its Interim

Rule Amending Summary Plan

Description for the Newborns’ and

Mothers’ Health Protection Act (63 FR

48372, September 9, 1998). OMB

subsequently approved the request for

emergency clearance; OMB’s

consideration of the revisions proposed

in connection with the September 9

proposal was deferred to the publication

of the final rule and submission to OMB

of the ICR included in the final rule.

The Department had also previously

submitted and received OMB’s approval

of the Summary Plan Description ICR as

amended in connection with the Interim

Rules Amending ERISA Disclosure

Requirements for Group Health Plans

(62 FR 16979, April 8, 1997). This final

rule implements the information

collection provisions of the September

9, 1998 proposal, as modified in the

final rule, along with those of the April

8, 1997 Interim Final Rules as they

pertain to SPDs under ERISA.

An additional revision to the

Summary Plan Description ICR was

subsequently made in connection with

PWBA’s Proposed Rule on the Use of

Electronic Communication and

Recordkeeping Technologies by

Employee Pension and Welfare Benefit

Plans (64 FR 4506, January 28, 1999).

This proposal included guidance on the

use of electronic technologies to satisfy

notice and disclosure requirements of

ERISA. OMB approved the submission

of this revised ICR which addressed

electronic communication of SPDs on

June 1, 1999.

OMB has approved the ICR included

in this Notice of Final Rule relating to

Amendments to Summary Plan

Description Regulations. A copy of the

ICR, with applicable supporting

documentation, may be obtained by

contacting the Department of Labor,

Departmental Clearance Officer, Ira

Mills, at (202) 693–4122. (This is not a

toll-free number.)

Statute and Existing Regulations

Pursuant to ERISA section 101(a)(1),

the administrator of an employee benefit

plan is required to furnish a Summary

Plan Description (SPD) to each

participant covered under the plan and

each beneficiary who is receiving

benefits under the plan. The SPD is

required to be written in a manner

calculated to be understood by the

average plan participant, and must be

sufficiently comprehensive to apprise

the plan’s participants and beneficiaries

of their rights and obligations under the

plan. To the extent that there is a

material modification in the terms of the

plan or a change in the information

required to be included in the SPD,

ERISA requires that the administrator

furnish participants covered under the

plan and beneficiaries receiving benefits

with a summary of such changes

(Summary of Material Modification, or

SMM).

ERISA section 102(b) describes the

types of information specifically

required to be included in the SPD. The

Department has previously issued

guidance concerning the required

contents of summary plan descriptions

in regulations at 29 CFR 2520.102–3.

Proposed Revisions and Final Rule

As described in the September 9, 1998

publication, revisions proposed for

§§ 2520.102–3 and 2520.102–5 would

have modified the required contents of

summary plan descriptions in a number

of ways that would be expected to affect

the nature and burden of the

information collection under PRA 95.

The proposal included amendments to

§§ 2520.102–3(j) and (s) and § 2520.102–

5 that were designed to implement

certain recommendations of the

President’s Advisory Commission on

Consumer Protection and Quality in the

Health Care Industry as incorporated in

the Consumer Bill of Rights with respect

to ERISA covered group health plans.

Specifically, the proposal provided that

group health plans would not be

deemed to have satisfied content

requirements unless they had provided

understandable information in their

SPDs concerning any cost-sharing

provisions, including premiums,

deductibles, coinsurance, and

copayment amounts for which the

participant or beneficiary would be

responsible; any annual or lifetime caps

or other limits on benefits under the

plan; the extent to which preventive

services would be covered under the

plan; whether, and under what

circumstances, existing and new drugs

would be covered under the plan;

whether, and under what

circumstances, coverage would be

provided for medical tests, devices and

procedures; provisions governing the

use of network providers, the

composition of the provider network

and whether, and under what

circumstances, coverage would be

provided for out-of-network services;

any conditions or limits on the selection

of primary care providers or providers

of speciality medical care; any

conditions or limits applicable to

obtaining emergency medical care; and

any provisions requiring

preauthorizations or utilization review

as a condition to obtaining a benefit or

service under the plan.

The April 8, 1997 Interim Final Rules

implemented changes finalized here

with respect to the content and timing

of disclosures by group health plans,

specifically, the timing of providing

participants with summaries of material

reductions in coverage, disclosure of the

role of health insurance issuers, and

disclosure of the availability of

assistance from the Department.

As explained earlier in this preamble,

after consideration of comments

received in response to the proposal, the

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70237

Department has determined that it is

appropriate to adopt the proposed and

interim final regulations essentially as

published, with certain clarifications,

and modification of the proposed

applicability date. Although the

underlying requirements are on the

whole unchanged from the proposal, the

burden hour and cost estimates have

been significantly modified in response

to public comment.

Specifically, changes in burden

estimates have resulted from

adjustments to certain of the

Department’s underlying assumptions.

For example, commenters indicated that

the 17 hours estimated for a plan which

must incorporate the changes

recommended in the Consumer Bill of

Rights was understated. Although

comments indicate that many plans in

fact presently provide the recommended

Consumer Bill of Rights disclosures, the

Department finds these comments

persuasive with respect to those plans

that have not yet undertaken to provide

the recommended disclosures, and has

adjusted this assumption to an average

of 25 hours.

In response to specific comments, the

Department has also added previously

omitted estimated printing costs (an

average of $2.25 per SMM or SPD for

pension plans, and $3.50 for group

health plans) to the cost of distributing

SMMs and SPDs, although this change

does not affect the incremental cost of

this final rule except to the extent that

more printing is likely to be required as

a result of these amendments. Health

plan materials are assumed to require an

additional $1.00 in printing costs in

those circumstances in which SPDs

have not yet been revised to include the

Consumer Bill of Rights disclosures.

The assumed printing costs are lower

than the $7 to $12 unit printing costs

reported by the commenters because it

is assumed that some plans will be able

to comply by providing SMMs, which

would be substantially less costly to

print. The use of lower estimates is also

intended to account for the fact that

some portion of the total printing cost

would be likely to be incurred as a usual

business practice in the absence of the

statutory or regulatory requirements as

to SPD content. This assumption change

has a very significant impact on the total

operating and maintenance costs for this

ICR, more than doubling the aggregate

cost of the regulation.

Assumptions with respect to the rate

of hourly wages have been adjusted in

response to comments upward from the

$50 blended professional rate and $11

clerical rate previously used in the

estimates for the proposal to $56 and

$21, respectively. Adjustments were

also made based on updated data for

enrollment in health plans, numbers of

pension plans, and rates of growth in

wage and salary employment.

Numerous comments indicating that

plans already comply with the proposed

revisions, although not necessarily in

exactly the manner commenters

construed the proposal to require (as to

matters such as the level of detail, or

including numerous benefit options in a

single SPD) support the Department’s

original view that some portion of plans

will be unaffected by these amendments

because they already comply. At the

time of the proposal, however, and in

the absence of specific evidence on the

rate of current compliance in the record,

the Department used the conservative

estimate that 100% of plans would be

required to revise SPDs or issue

substantial SMMs. The Department has

now revised this assumption to reflect

the estimate that in the aggregate only

about 30 percent of pension plans and

50 percent of group health plans will be

required to revise SPDs or issue

substantial SMMs as a result of changes

implemented by this final rule.

In addition to commenters’ questions

about the appropriateness of the

assumptions used in the Department’s

analysis of the proposal, a number of

commenters also expressed concern that

certain revisions proposed would

generate additional and unnecessary

expense, and would limit the usefulness

of the SPD. Commenters indicated, for

example, that the SPD was not an

appropriate vehicle for communicating

time-sensitive or frequently changing

information because other

communication vehicles already

provide the needed information

promptly and efficiently. Others stated

that requiring a significant amount of

detail in an SPD on such matters as

provider networks, premium and cost

sharing rates, coverage of experimental

or investigational treatments and drugs,

would be costly and unnecessary, and

would result in more frequent change to

maintain current information in such

detail.

The Department has discussed its

responses to these comments in detail

earlier in this preamble. In general, the

Department has clarified that certain

required disclosures, such as claims

procedures, provider listings or

extensive benefit schedules, may be

provided separately provided that the

SPD directs participants and

beneficiaries to where additional

information can be found. The

Department has also indicated that it

did not intend the provisions of the

proposal to be construed to require an

SPD to list every drug, test, device or

procedure, nor necessarily the dollar

amount of premium or employee

contributions required for coverage, so

long as a summary or description is

included that is adequate to

communicate participants’ rights under

the plan, and the manner in which they

will become responsible for expenses

incurred under the plan. The

Department also notes that plan

administrators may under existing

regulations prepare separate SPDs for

different classes of participants, and

may make use of an SMM to inform

participants of material changes in the

information required to be included in

the SPD. Each of these options may have

a moderating effect on the cost of

preparing and distributing disclosure

materials in accordance with these final

rules.

Because the Department viewed the

revised disclosure requirements as

proposed as requiring a more limited

level of detail than apparently

understood by these commenters, on the

basis of these clarifications, the

Department believes that SPDs amended

pursuant to the requirements of the final

rules will provide participants and

beneficiaries with an appropriate level

of detail and not result in unwarranted

ongoing expense. As a consequence, the

analysis of the impact of these

amendments has not been changed,

except as to the assumptions

specifically identified above.

With respect to the proposed

elimination of the exemption from SPD

requirements for federally qualified

HMOs, commenters stated that causing

a single SPD to be prepared to include

information currently provided by

HMOs to enrollees but consistent with

the style, format and content

requirements of the regulation would

result in significant costs and

duplication of effort. Commenters also

indicated that causing all HMO options

and other benefit options to be

described in a single SPD would result

in unnecessary costs and unusably large

and complex documents. More than one

commenter expressed the view that the

increased costs arising from this

requirement would ultimately result in

elimination of HMO options currently

available to participants and

beneficiaries.

The Department has responded to

concerns that the inclusion of all

options in a single document would

result in unwarranted costs, impractical

disclosure vehicles, and more limited

benefit options by noting that plan

administrators may use different SPDs

for different classes of participants,

including those classes identified by

their elected benefit coverages.

70238 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

Furthermore, in the Department’s view,

the information required to be

incorporated in the SPD is important to

participants and beneficiaries electing

coverage through a federally qualified

HMO, even though an expense may be

associated with bringing the HMO

disclosure material into compliance.

Accordingly, the Department has not

modified its cost estimates in response

to these comments.

The resulting burden estimates are

summarized below. A more detailed

description of the assumptions and

methodology underlying these estimates

will be found below in the Analysis of

Costs.

Agency: Pension and Welfare Benefits

Administration.

Title: Regulations Regarding Required

Contents of Summary Plan Descriptions

for Employee Benefit Plans (Final

Amendments to Summary Plan

Description Regulations).

OMB Number: 1210–0039.

Affected Public: Individuals or

households; Business or other for-profit;

Not-for-profit institutions.

Frequency of Response: On occasion.

Total Respondents: 943,779 (2001);

1,790,161 (2002).

Total Responses: 52,771,000 (2001);

88,911,000 (2002).

Estimated Burden Hours: 710,134

(2001); 1,117,801 (2002).

Estimated Annual Costs (Operating

and Maintenance): $243,226,000 (2001);

$400,056,000 (2002).

Persons are not required to respond to

the revised information collection

unless it displays a currently valid OMB

control number.

Analysis of Cost

The Department performed a

comprehensive, unified analysis to

estimate the costs of the regulation for

purposes of compliance with Executive

Order 12866, the Regulatory Flexibility

Act, and the Paperwork Reduction Act.

The methods and results of that analysis

are summarized below, along with a

discussion of comments received on the

analysis included in the original

proposal.

To estimate the costs, it was necessary

to estimate the number of SPDs in the

ERISA-covered employee benefit plan

universe, the frequency with which

those SPDs are updated and distributed,

and the number of participants to whom

they must be distributed. It was also

necessary to make certain assumptions

about the cost of preparing and

distributing SPDs, in particular the cost

of bringing SPDs into compliance with

the regulation’s provisions. The

Department separately estimated the

baseline cost of its existing SPD

regulation and the incremental cost of

this final rule.

In response to its proposed

rulemaking, the Department received a

number of comments bearing on the

estimates of the economic impact of the

regulation. Several commenters stated

the general view that the SPD was not

an appropriate vehicle for

communicating time-sensitive or

frequently changing information

because other communication vehicles

already in use provide the needed

information promptly and efficiently.

Others indicated that requiring a

significant amount of detail in an SPD

on such matters as provider networks,

premium and cost sharing rates,

coverage of experimental or

investigational treatments and drugs,

would be costly and unnecessary, and

would result in more frequent change in

the future. Commenters also indicated

that the speed with which they would

be required to make the very substantial

revisions to SPDs would increase the

cost to comply.

With respect to the elimination of the

exemption from SPD requirements for

federally qualified HMOs, commenters

stated that causing a single SPD to be

prepared to include the information

currently provided by HMOs to

enrollees but consistent with the style,

format and content requirements of the

regulation would result in significant

costs and duplication of effort.

Commenters also indicated that causing

all HMOs and other benefit options to

be described in a single SPD would

result in unnecessary costs and

unusably large and complex documents.

More than one commenter expressed the

view that the increased costs arising

from this requirement would ultimately

result in elimination of HMO options

currently available to participants and

beneficiaries.

Other comments indicated that in

light of the very significant new

requirements, the Department’s cost

estimates were substantially

understated, despite the commenters’

assertions that much of the information

is already provided. Concerns were

expressed about the time required and

timing of the required revisions, the

hourly wage rates, and the omission of

printing costs from the Department’s

estimates. The Department has

considered these comments in view of

commenters’ apparent interpretations of

the requirements of the proposed rules,

and has adjusted a number of its

assumptions as specifically detailed

below to address comments on required

resources, wage rates, and printing

costs. A revision was also made to the

final rule’s effective date to address

issues of flexibility and efficiency in

plan administrators’ implementation of

required revisions.

In response to concerns raised about

the potential for the proposed revisions

to generate additional and unnecessary

expense, and to result in SPDs of

limited usefulness, the Department has

earlier in this preamble expressed its

views concerning the level of detail

required to be included in an SPD. In

general, the Department has clarified

that certain required disclosures, such

as claims procedures, provider listings

or extensive benefit schedules, may be

provided separately, provided that the

SPD directs participants and

beneficiaries to where additional

information can be found. The

Department has also indicated that it

did not intend the provisions of the

proposal to be construed to require an

SPD to list every drug, test, device or

procedure, nor necessarily the dollar

amount of premium or employee

contributions required for coverage, so

long as a summary or description is

included that is adequate to

communicate participants’ rights under

the plan, and the manner in which they

will become responsible for expenses

incurred under the plan. The

Department also notes that plan

administrators may under existing

regulations prepare separate SPDs for

different classes of participants, and

may make use of an SMM to inform

participants of material changes in the

information required to be included in

the SPD. Each of these options may have

a moderating effect on the cost of

preparing and distributing disclosure

materials in accordance with these final

rules.

Because the Department viewed the

revised disclosure requirements as

proposed as requiring a more limited

level of detail than apparently

understood by these commenters, on the

basis of these clarifications, the

Department believes that SPDs amended

pursuant to the requirements of the final

rules will provide participants and

beneficiaries with an appropriate level

of detail and not result in unwarranted

ongoing expense. As a consequence, the

analysis of the impact of these

amendments has not been changed,

except as to the assumptions

specifically identified below.

With respect to the proposed

elimination of the exemption from SPD

requirements for federally qualified

HMOs, commenters stated that causing

a single SPD to be prepared to include

information currently provided by

HMOs to enrollees but consistent with

the style, format and content

requirements of the regulation would

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70239

result in significant costs and

duplication of effort. Commenters also

indicated that causing all HMO options

and other benefit options to be

described in a single SPD would result

in unnecessary costs and unusably large

and complex documents. More than one

commenter expressed the view that the

increased costs arising from this

requirement would ultimately result in

elimination of HMO options currently

available to participants and

beneficiaries.

The Department has responded to

concerns that the inclusion of all

options in a single document would

result in unwarranted costs, impractical

disclosure vehicles, and more limited

benefit options by noting that plan

administrators may use different SPDs

for different classes of participants,

including those classes identified by

their elected benefit coverages.

Furthermore, in the Department’s view,

the information required to be

incorporated in the SPD is important to

participants and beneficiaries electing

coverage through a federally qualified

HMO, even though an expense may be

associated with bringing the HMO

disclosure material into compliance.

Accordingly, the Department has not

modified its cost estimates in response

to these comments concerning the

federally qualified HMO disclosure

requirements.

As a result, the basic framework and

assumptions used in the analysis are

generally unchanged. However, certain

specific assumptions have been revised

in response to comments received, or

based on the availability of more recent

or more complete data. The

modification of the applicability date

should allow many plans a somewhat

longer period of time to come into

compliance, and lessen their overall

cost to comply by providing flexibility

in their use of resources. The

Department has increased its

assumption concerning the amount of

professional time required to effect

compliance with the Consumer Bill of

Rights disclosure provisions, and has

altered its original assumption as to the

proportion of plans that currently

comply based on a number of comments

indicating current compliance in

substance. Professional and clerical

wage rates have been adjusted upward,

and an estimate of previously omitted

printing costs has been included. Details

of the analysis of costs follow.

The Department’s estimates of both

the pension and health universes have

been updated based on current data, the

overall effect of which is the use of

slightly larger numbers of pension

plans, and substantially higher numbers

of health plans than used for estimates

of the impact of the proposal

(specifically, 2.8 million plans

compared with the 2.5 million plans at

the time of the proposal). The

Department estimated the number of

plans, SPDs and the number of

participants based on 1995 Form 5500

Series data, the March 1999 Current

Population Survey (CPS), the 1996

Medical Expenditure Panel Survey

(MEPS), and 1995 Census Bureau data

on firms and establishments. Each

pension plan is estimated to maintain

one SPD, and Form 5500 data

demonstrates the number of pension

plans and participants. The number of

welfare plans is more difficult to

determine because the majority of

welfare plans are exempt from the

requirement to file Form 5500 due to

their having fewer than 100 participants

and being unfunded or fully insured.

The 1996 data from MEPS on health

plans offered by establishments was

converted from establishments to firms

using 1995 Census Bureau data, and

then converting the estimate of firms to

plans using Form 5500 pension data

estimates on the number of

multiemployer plans. The number of

participants was generated using March

1999 CPS data inflated to 2002 using

BLS employment projections. Form

5500 data for 1995 was used to

distribute the CPS aggregate between

large and small plans.

With respect to group health plans,

the number of SPDs is estimated to be

smaller than the number of plans

because small plans typically buy

standard products from vendors. In

addition, individual plan sponsors often

sponsor more than one plan and/or offer

more than one kind of benefit (such as

retirement and disability) under a single

plan, but describe two or more of their

plans or benefit types in a single SPD.

The Department assumes that pension

plans and health plans (or products)

maintain separate SPDs, but that nonhealth welfare benefits are either offered

together with health benefits as part of

unified welfare plans or are maintained

as separate plans but described along

with accompanying health plans in a

single combined SPD.

Pursuant to these assumptions, the

Department estimates that the universe

includes a total of 693,000 unique

pension plan SPDs. The estimate of

84,900 unique health plan SPDs is

assumed to encompass all other welfare

plan SPDs. The estimated number of

unique health plan SPDs has been

increased for the purposes of analysis of

this final rule based on updated and

more detailed information on the

numbers of plans, rates of self-funding,

and numbers of group health plan

issuers of insurance policies.

With respect to the frequency of

updating and distributing SPDs, plans

filing the Form 5500 indicate whether

they amended and distributed their

SPDs in the preceding year. About 30

percent of plans so report. This figure is

interpreted to represent a baseline level

of SPD modification and distribution

activity. The amendments implemented

by this final rule are not expected to

change the baseline rate of SPD

modification for pension plans, but are

expected to cause some health plans to

make changes to SPDs sooner than they

would otherwise have made them.

The Department generally assumes

that preparing a revised SPD requires

four hours of combined professional and

clerical time, priced at $56 and $21 per

hour, respectively. Previous

assumptions were $50 and $11. The

Department assumes that distributing an

SPD consumes two minutes of clerical

labor at $21 per hour, plus $2.25 for

printing, materials, and mailing (or

electronic dissemination) for pension

plans and $3.50 for printing, materials,

and mailing (or electronic

dissemination) for welfare plans. This

amounts to $2.95 per pension SPD and

$4.20 per welfare plan SPD distributed.

As noted earlier, printing costs were not

previously estimated, and have been

included here in response to comments.

The Department estimates the

baseline cost to prepare and distribute

SPDs under the current regulation at

$218 million in 2001, $224 million in

2002, and approximately $230 million

in 2003 based on projected enrollment

growth. Total cost in a typical baseline

year such as 2001 includes $46 million

to prepare 208,000 unique SPDs, and

$172 million to distribute copies to 51

million participants.

The Department separately estimated

the cost of revisions to SPDs that plan

administrators may undertake to update

their SPDs following adoption of final

amendments of the SPD content

requirements. This cost is separate from

the baseline cost attributable to normal

SPD revisions, such as those made

pursuant to plan amendments. Plans

preparing SPDs solely to comply with

the final rule would incur only the costs

attributable to those revisions deemed

necessary to comply with the provisions

of the final rule, while plans

simultaneously revising their SPDs for

other reasons would incur this

additional cost plus the baseline unit

cost.

With respect to pension plans, the

Department assumes that preparing an

SPD to comply with the final rule

requires 30 minutes of professional time

70240 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

13 ‘‘Estimated Costs of Selected Consumer

Protection Proposals—A Cost Analysis of the

President’s Advisory Commission’s Consumer Bill

of Rights and Responsibilities and the Patient

Access to Responsible Care Act,’’ Coopers &

Lybrand, LLP for the Kaiser Family Foundation,

April, 1998.

at a rate of $56 per hour. The time and

expense associated with distributing

each SPD are assumed to be unchanged

from the baseline.

To estimate the per-unit cost to

prepare revised health plan SPDs, the

Department originally drew on two

studies of the cost to health plans to

comply with the Consumer Bill of

Rights, one cited earlier by The Lewin

Group for the President’s Commission,

and one by Coopers and Lybrand for the

Kaiser Family Foundation.13 Excerpting

and adjusting these studies’ estimates to

reflect the regulation’s provisions, the

Department essentially adopted the

midpoint of these two studies’ findings.

With the addition of the small burden

attributable to other provisions, the cost

to prepare a health plan SPD to bring it

into conformity with the regulation was

originally estimated to require an

average of approximately 18 hours at

$50 per hour (17 hours for the

Consumer Bill of Rights disclosures).

Based on the comments received on this

estimate, the Department has adjusted

its assumptions concerning the time

required to implement Consumer Bill of

Rights disclosures where not previously

implemented from an average of 17

hours to 25 hours, and the total time

required to come into compliance with

all health plan provisions of the final

rule from an average of 18 hours to an

average of about 27 hours. This

adjustment is responsive to comments,

and has the effect of giving the Lewin

cost estimates greater weight in the

analysis of the impact of this final rule.

The resulting estimate takes into

account a range of current compliance,

based on comments received indicating

that many plans already provide the

required information, although not

necessarily in the format the

commenters construed the proposal to

require, and the fact that some plans

more nearly in compliance may choose

to comply with an SMM, presumably

lessening the cost of compliance. The

average cost of preparation of group

health plan disclosures is estimated at

about $1,400 per unique SPD.

Numerous comments indicating that

plans already comply with the proposed

revisions, although not precisely in the

manner commenters construed the

proposal to require (as to level of detail,

including numerous benefit options in a

single SPD), support the Department’s

original view that some portion of plans

will be unaffected because they already

comply. At the time of the proposal,

however, and in the absence of specific

evidence of the rate of current

compliance in the record, the

Department used the conservative

estimate that 100% of plans would be

required to revise SPDs or issue

substantial SMMs. The Department has

now revised this assumption to reflect

the estimate that in the aggregate 30

percent of pension plans and 50 percent

of group health plans will be required

to revise SPDs or issue substantial

SMMs as a result of changes

implemented by this final rule.

The Department assumed that the cost

to distribute a group health plan SPD

with the additional disclosures will rise

in connection with the regulation,

consuming an additional one minute of

clerical time at $21 per hour and an

additional $1.00 for materials and

mailing or electronic distribution, for a

total for $1.35 per SPD distributed.

The Department estimates the added

cost attributable to this regulation to be

$47 million in 2001 and $208 million in

2002. The peak incremental cost in 2002

includes $32 million to prepare 155,000

different SPDs describing 1.2 million

pension and welfare plans, and $176

million to distribute those SPDs to 36

million participants.

Combining this added cost with the

baseline cost attributable to the existing

regulation, the total cost to prepare and

distribute SPDs under the regulation

amounts to $265 million in 2001, and

$432 million in 2002. The peak cost in

2002 includes $78 million to prepare

321,000 SPDs describing 1.8 million

plans, and $354 million to distribute

those SPDs to 89 million participants.

The baseline, additional, and total

costs associated with the final SPD

regulation are summarized in the table

below:

[In millions of dollars]

Year Baseline Additional Total

2001 $218,360,000 $47,129,000 $265,489,000

2002 223,949,000 208,070,000 432,019,000

Plans that are assumed for purposes of

this analysis to prepare and distribute

SPDs for the sole purpose of complying

with the regulation have the option of

complying by preparing and distributing

SMMs instead, the choice likely

depending on the extent of the changes

required for the plan involved. Plans are

expected to make use of an SMM to

come into compliance when a moderate

to small number of revisions are

required, resulting in a relatively low

cost to comply relative to an extensive

revision of an SPD. As a result of its use

of an assumption representing a

midpoint between an SMM cost and an

SPD cost, the Department’s estimates of

the costs to revise and distribute

compliant disclosure materials in

response to this regulation can be

interpreted to account for the likelihood

that some plans will elect to prepare

and distribute SMMs.

Executive Order 13132 Statement

This final rule does not have

federalism implications because it has

no substantial direct effect on the States,

on the relationship between the national

government and the States, or on the

distribution of power and

responsibilities among the various

levels of government. Section 514 of

ERISA provides, with certain exceptions

specifically enumerated, that the

provisions of Titles I and IV of ERISA

supercede any and all laws of the States

as they relate to any employee benefit

plan covered under ERISA. This final

rule, therefore, does not affect the States

or change the relationship or

distribution of power between the

national government and the States.

Further, this final rule implements

certain revisions to annual reporting

and disclosure regulations which have

been in effect in similar form for many

years. The amendments incorporated in

this final rule do not alter the

fundamental requirements of the statute

with respect to the reporting and

disclosure requirements for employee

benefit plans, and as such have no

implications for the States or the

relationship or distribution of power

between the national government and

the States.

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70241

Unfunded Mandates Reform Act

For purposes of the Unfunded

Mandates Reform Act of 1995 (Pub. L.

104–4), as well as Executive Order

12875, this rule does not include any

Federal mandate that may result in

expenditures by State, local, or tribal

governments, but does include

mandates which may impose

expenditures of $100 million or more on

the private sector. The basis for this

statement is described in the analysis of

costs for purposes of Executive Order

12866. Identification of the authorizing

statute, and the assessment of the

anticipated costs and benefits, and

economic effect of this regulation are

also presented elsewhere in this

preamble.

In promulgating this final rule, the

Department has adopted the least

burdensome method of achieving the

rule’s objective of improving the

information that participants and

beneficiaries receive about their ERISA

covered pension and welfare plans. The

majority of the costs associated with the

SPD arise from the distribution costs

that must be incurred to comply with

ERISA’s requirement that plan

administrators disclose certain

information to participants and

beneficiaries within specified time

frames. Because plan administrators

must communicate changes in the terms

of the plan or other changes that affect

the information required to be included

in the SPD even absent any change in

regulatory requirements, they

periodically update and distribute SPD

information to participants and

beneficiaries as part of their usual and

customary business practices. To ensure

that the regulatory amendments being

adopted as part of this final rule may be

implemented by administrators in the

least burdensome manner, the

Department adopted a delayed

applicability date that lets plan

administrators avoid the largest

component of the cost of a regulatory

change in the SPD content requirements

(i.e., distribution expenses) by allowing

them to incorporate the required

revisions into the periodic SPD updates

that they would otherwise be

distributing as part of their usual and

customary business practices.

Small Business Regulatory Enforcement

Fairness Act

This final rule is subject to the

provisions of the Small Business

Regulatory Enforcement Fairness Act of

1996 (5 U.S.C. 801 et seq.) (SBREFA),

and is a major rule under SBREFA.

Accordingly, this final rule has been

transmitted to Congress and the

Comptroller General for review.

Statutory Authority

This regulation is adopted pursuant to

the authority in sections 101, 103, 104,

109, 110, 111, 504 and 505 of ERISA

and under Secretary of Labor’s Order

No. 1–87, 52 FR 13139, April 21, 1987.

List of Subjects in 29 CFR Part 2520

Employee benefit plans, Employee

Retirement Income Security Act, Group

health plans, Pension plans, Welfare

benefit plans.

For the reasons set forth above, Part

2520 of Title 29 of the Code of Federal

Regulations is amended as follows:

1. The authority for Part 2520

continues to read as follows:

Authority: Secs. 101, 102, 103, 104, 105,

109, 110, 111(b)(2), 111(c), and 505, Pub. L.

93–406, 88 Stat. 840–52 and 894 (29 U.S.C.

1021–1025, 1029–31, and 1135); Secretary of

Labor’s Order No. 27–74, 13–76, 1–87, and

Labor Management Services Administration

Order 2–6.

2. Section 2520.102–3 is amended by

removing paragraph (v), revising

paragraphs (d), (j), (l), (m)(3), (o), (s),

(t)(2), and (u), revising the last sentence

of paragraph (q), and adding paragraph

(m)(4) to read as follows:

§ 2520.102–3 Contents of summary plan

description.

* * * * *

(d) The type of pension or welfare

plan, i.e., for pension plans— defined

benefit, defined contribution, 401(k),

cash balance, money purchase, profit

sharing, ERISA section 404(c) plan, etc.,

and for welfare plans—group health

plans, disability, pre-paid legal services,

etc.

* * * * *

(j) The plan’s requirements respecting

eligibility for participation and for

benefits. The summary plan description

shall describe the plan’s provisions

relating to eligibility to participate in

the plan and the information identified

in paragraphs (j)(1), (2) and (3) of this

section, as appropriate.

(1) For employee pension benefit

plans, it shall also include a statement

describing the plan’s normal retirement

age, as that term is defined in section

3(24) of the Act, and a statement

describing any other conditions which

must be met before a participant will be

eligible to receive benefits. Such plan

benefits shall be described or

summarized. In addition, the summary

plan description shall include a

description of the procedures governing

qualified domestic relations order

(QDRO) determinations or a statement

indicating that participants and

beneficiaries can obtain, without charge,

a copy of such procedures from the plan

administrator.

(2) For employee welfare benefit

plans, it shall also include a statement

of the conditions pertaining to eligibility

to receive benefits, and a description or

summary of the benefits. In the case of

a welfare plan providing extensive

schedules of benefits (a group health

plan, for example), only a general

description of such benefits is required

if reference is made to detailed

schedules of benefits which are

available without cost to any participant

or beneficiary who so requests. In

addition, the summary plan description

shall include a description of the

procedures governing qualified medical

child support order (QMCSO)

determinations or a statement indicating

that participants and beneficiaries can

obtain, without charge, a copy of such

procedures from the plan administrator.

(3) For employee welfare benefit plans

that are group health plans, as defined

in section 733(a)(1) of the Act, the

summary plan description shall include

a description of any cost-sharing

provisions, including premiums,

deductibles, coinsurance, and

copayment amounts for which the

participant or beneficiary will be

responsible; any annual or lifetime caps

or other limits on benefits under the

plan; the extent to which preventive

services are covered under the plan;

whether, and under what

circumstances, existing and new drugs

are covered under the plan; whether,

and under what circumstances, coverage

is provided for medical tests, devices

and procedures; provisions governing

the use of network providers, the

composition of the provider network,

and whether, and under what

circumstances, coverage is provided for

out-of-network services; any conditions

or limits on the selection of primary

care providers or providers of speciality

medical care; any conditions or limits

applicable to obtaining emergency

medical care; and any provisions

requiring preauthorizations or

utilization review as a condition to

obtaining a benefit or service under the

plan. In the case of plans with provider

networks, the listing of providers may

be furnished as a separate document

that accompanies the plan’s SPD,

provided that the summary plan

description contains a general

description of the provider network and

provided further that the SPD contains

a statement that provider lists are

furnished automatically, without

charge, as a separate document.

* * * * *

70242 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

(l) For both pension and welfare

benefit plans, a statement clearly

identifying circumstances which may

result in disqualification, ineligibility,

or denial, loss, forfeiture, suspension,

offset, reduction, or recovery (e.g., by

exercise of subrogation or

reimbursement rights) of any benefits

that a participant or beneficiary might

otherwise reasonably expect the plan to

provide on the basis of the description

of benefits required by paragraphs (j)

and (k) of this section. In addition to

other required information, plans must

include a summary of any plan

provisions governing the authority of

the plan sponsors or others to terminate

the plan or amend or eliminate benefits

under the plan and the circumstances,

if any, under which the plan may be

terminated or benefits may be amended

or eliminated; a summary of any plan

provisions governing the benefits, rights

and obligations of participants and

beneficiaries under the plan on

termination of the plan or amendment

or elimination of benefits under the

plan, including, in the case of an

employee pension benefit plan, a

summary of any provisions relating to

the accrual and the vesting of pension

benefits under the plan upon

termination; and a summary of any plan

provisions governing the allocation and

disposition of assets of the plan upon

termination. Plans also shall include a

summary of any provisions that may

result in the imposition of a fee or

charge on a participant or beneficiary, or

on an individual account thereof, the

payment of which is a condition to the

receipt of benefits under the plan. The

foregoing summaries shall be disclosed

in accordance with the requirements

under 29 CFR 2520.102–2(b).

(m) * * *

(3) A summary plan description for a

single-employer plan will be deemed to

comply with paragraph (m)(2) of this

section if it includes the following

statement:

Your pension benefits under this plan are

insured by the Pension Benefit Guaranty

Corporation (PBGC), a federal insurance

agency. If the plan terminates (ends) without

enough money to pay all benefits, the PBGC

will step in to pay pension benefits. Most

people receive all of the pension benefits

they would have received under their plan,

but some people may lose certain benefits.

The PBGC guarantee generally covers: (1)

Normal and early retirement benefits; (2)

disability benefits if you become disabled

before the plan terminates; and (3) certain

benefits for your survivors.

The PBGC guarantee generally does not

cover: (1) Benefits greater than the maximum

guaranteed amount set by law for the year in

which the plan terminates; (2) some or all of

benefit increases and new benefits based on

plan provisions that have been in place for

fewer than 5 years at the time the plan

terminates; (3) benefits that are not vested

because you have not worked long enough

for the company; (4) benefits for which you

have not met all of the requirements at the

time the plan terminates; (5) certain early

retirement payments (such as supplemental

benefits that stop when you become eligible

for Social Security) that result in an early

retirement monthly benefit greater than your

monthly benefit at the plan’s normal

retirement age; and (6) non-pension benefits,

such as health insurance, life insurance,

certain death benefits, vacation pay, and

severance pay.

Even if certain of your benefits are not

guaranteed, you still may receive some of

those benefits from the PBGC depending on

how much money your plan has and on how

much the PBGC collects from employers.

For more information about the PBGC and

the benefits it guarantees, ask your plan

administrator or contact the PBGC’s

Technical Assistance Division, 1200 K Street

N.W., Suite 930, Washington, D.C. 20005–

4026 or call 202–326–4000 (not a toll-free

number). TTY/TDD users may call the federal

relay service toll-free at 1–800–877–8339 and

ask to be connected to 202–326–4000.

Additional information about the PBGC’s

pension insurance program is available

through the PBGC’s website on the Internet

at http://www.pbgc.gov.

(4) A summary plan description for a

multiemployer plan will be deemed to

comply with paragraph (m)(2) of this

section if it includes the following

statement:

Your pension benefits under this

multiemployer plan are insured by the

Pension Benefit Guaranty Corporation

(PBGC), a federal insurance agency. A

multiemployer plan is a collectively

bargained pension arrangement involving

two or more unrelated employers, usually in

a common industry.

Under the multiemployer plan program,

the PBGC provides financial assistance

through loans to plans that are insolvent. A

multiemployer plan is considered insolvent

if the plan is unable to pay benefits (at least

equal to the PBGC’s guaranteed benefit limit)

when due.

The maximum benefit that the PBGC

guarantees is set by law. Under the

multiemployer program, the PBGC guarantee

equals a participant’s years of service

multiplied by (1) 100% of the first $5 of the

monthly benefit accrual rate and (2) 75% of

the next $15. The PBGC’s maximum

guarantee limit is $16.25 per month times a

participant’s years of service. For example,

the maximum annual guarantee for a retiree

with 30 years of service would be $5,850.

The PBGC guarantee generally covers: (1)

Normal and early retirement benefits; (2)

disability benefits if you become disabled

before the plan becomes insolvent; and (3)

certain benefits for your survivors.

The PBGC guarantee generally does not

cover: (1) Benefits greater than the maximum

guaranteed amount set by law; (2) benefit

increases and new benefits based on plan

provisions that have been in place for fewer

than 5 years at the earlier of: (i) The date the

plan terminates or (ii) the time the plan

becomes insolvent; (3) benefits that are not

vested because you have not worked long

enough; (4) benefits for which you have not

met all of the requirements at the time the

plan becomes insolvent; and (5) non-pension

benefits, such as health insurance, life

insurance, certain death benefits, vacation

pay, and severance pay.

For more information about the PBGC and

the benefits it guarantees, ask your plan

administrator or contact the PBGC’s

Technical Assistance Division, 1200 K Street,

N.W., Suite 930, Washington, D.C. 20005–

4026 or call 202–326–4000 (not a toll-free

number). TTY/TDD users may call the federal

relay service toll-free at 1–800–877–8339 and

ask to be connected to 202–326–4000.

Additional information about the PBGC’s

pension insurance program is available

through the PBGC’s website on the Internet

at http://www.pbgc.gov.

* * * * *

(o) In the case of a group health plan,

within the meaning of section 607(1) of

the Act, subject to the continuation

coverage provisions of Part 6 of Title I

of ERISA, a description of the rights and

obligations of participants and

beneficiaries with respect to

continuation coverage, including,

among other things, information

concerning qualifying events and

qualified beneficiaries, premiums,

notice and election requirements and

procedures, and duration of coverage.

* * * * *

(q) * * * If a health insurance issuer,

within the meaning of section 733(b)(2)

of the Act, is responsible, in whole or

in part, for the financing or

administration of a group health plan,

the summary plan description shall

indicate the name and address of the

issuer, whether and to what extent

benefits under the plan are guaranteed

under a contract or policy of insurance

issued by the issuer, and the nature of

any administrative services (e.g.,

payment of claims) provided by the

issuer.

* * * * *

(s) The procedures governing claims

for benefits (including procedures for

obtaining preauthorizations, approvals,

or utilization review decisions in the

case of group health plan services or

benefits, and procedures for filing claim

forms, providing notifications of benefit

determinations, and reviewing denied

claims in the case of any plan),

applicable time limits, and remedies

available under the plan for the redress

of claims which are denied in whole or

in part (including procedures required

under section 503 of Title I of the Act).

The plan’s claims procedures may be

furnished as a separate document that

accompanies the plan’s SPD, provided

Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations 70243

that the document satisfies the style and

format requirements of 29 CFR

2520.102–2 and, provided further that

the SPD contains a statement that the

plan’s claims procedures are furnished

automatically, without charge, as a

separate document.

(t) * * *

(2) A summary plan description will

be deemed to comply with the

requirements of paragraph (t)(1) of this

section if it includes the following

statement; items of information which

are not applicable to a particular plan

should be deleted:

As a participant in (name of plan) you are

entitled to certain rights and protections

under the Employee Retirement Income

Security Act of 1974 (ERISA). ERISA

provides that all plan participants shall be

entitled to:

Receive Information About Your Plan and

Benefits

Examine, without charge, at the plan

administrator’s office and at other specified

locations, such as worksites and union halls,

all documents governing the plan, including

insurance contracts and collective bargaining

agreements, and a copy of the latest annual

report (Form 5500 Series) filed by the plan

with the U.S. Department of Labor and

available at the Public Disclosure Room of

the Pension and Welfare Benefit

Administration.

Obtain, upon written request to the plan

administrator, copies of documents

governing the operation of the plan,

including insurance contracts and collective

bargaining agreements, and copies of the

latest annual report (Form 5500 Series) and

updated summary plan description. The

administrator may make a reasonable charge

for the copies.

Receive a summary of the plan’s annual

financial report. The plan administrator is

required by law to furnish each participant

with a copy of this summary annual report.

Obtain a statement telling you whether you

have a right to receive a pension at normal

retirement age (age * * *) and if so, what

your benefits would be at normal retirement

age if you stop working under the plan now.

If you do not have a right to a pension, the

statement will tell you how many more years

you have to work to get a right to a pension.

This statement must be requested in writing

and is not required to be given more than

once every twelve (12) months. The plan

must provide the statement free of charge.

Continue Group Health Plan Coverage

Continue health care coverage for yourself,

spouse or dependents if there is a loss of

coverage under the plan as a result of a

qualifying event. You or your dependents

may have to pay for such coverage. Review

this summary plan description and the

documents governing the plan on the rules

governing your COBRA continuation

coverage rights.

Reduction or elimination of exclusionary

periods of coverage for preexisting conditions

under your group health plan, if you have

creditable coverage from another plan. You

should be provided a certificate of creditable

coverage, free of charge, from your group

health plan or health insurance issuer when

you lose coverage under the plan, when you

become entitled to elect COBRA continuation

coverage, when your COBRA continuation

coverage ceases, if you request it before

losing coverage, or if you request it up to 24

months after losing coverage. Without

evidence of creditable coverage, you may be

subject to a preexisting condition exclusion

for 12 months (18 months for late enrollees)

after your enrollment date in your coverage.

Prudent Actions by Plan Fiduciaries

In addition to creating rights for plan

participants ERISA imposes duties upon the

people who are responsible for the operation

of the employee benefit plan. The people

who operate your plan, called ‘‘fiduciaries’’

of the plan, have a duty to do so prudently

and in the interest of you and other plan

participants and beneficiaries. No one,

including your employer, your union, or any

other person, may fire you or otherwise

discriminate against you in any way to

prevent you from obtaining a (pension,

welfare) benefit or exercising your rights

under ERISA.

Enforce Your Rights

If your claim for a (pension, welfare)

benefit is denied or ignored, in whole or in

part, you have a right to know why this was

done, to obtain copies of documents relating

to the decision without charge, and to appeal

any denial, all within certain time schedules.

Under ERISA, there are steps you can take

to enforce the above rights. For instance, if

you request a copy of plan documents or the

latest annual report from the plan and do not

receive them within 30 days, you may file

suit in a Federal court. In such a case, the

court may require the plan administrator to

provide the materials and pay you up to $110

a day until you receive the materials, unless

the materials were not sent because of

reasons beyond the control of the

administrator. If you have a claim for benefits

which is denied or ignored, in whole or in

part, you may file suit in a state or Federal

court. In addition, if you disagree with the

plan’s decision or lack thereof concerning the

qualified status of a domestic relations order

or a medical child support order, you may

file suit in Federal court. If it should happen

that plan fiduciaries misuse the plan’s

money, or if you are discriminated against for

asserting your rights, you may seek assistance

from the U.S. Department of Labor, or you

may file suit in a Federal court. The court

will decide who should pay court costs and

legal fees. If you are successful the court may

order the person you have sued to pay these

costs and fees. If you lose, the court may

order you to pay these costs and fees, for

example, if it finds your claim is frivolous.

Assistance with Your Questions

If you have any questions about your plan,

you should contact the plan administrator. If

you have any questions about this statement

or about your rights under ERISA, or if you

need assistance in obtaining documents from

the plan administrator, you should contact

the nearest office of the Pension and Welfare

Benefits Administration, U.S. Department of

Labor, listed in your telephone directory or

the Division of Technical Assistance and

Inquiries, Pension and Welfare Benefits

Administration, U.S. Department of Labor,

200 Constitution Avenue N.W., Washington,

D.C. 20210. You may also obtain certain

publications about your rights and

responsibilities under ERISA by calling the

publications hotline of the Pension and

Welfare Benefits Administration.

(u) (1) For a group health plan, as

defined in section 733(a)(1) of the Act,

that provides maternity or newborn

infant coverage, a statement describing

any requirements under federal or state

law applicable to the plan, and any

health insurance coverage offered under

the plan, relating to hospital length of

stay in connection with childbirth for

the mother or newborn child. If federal

law applies in some areas in which the

plan operates and state law applies in

other areas, the statement should

describe the different areas and the

federal or state law requirements

applicable in each.

(2) In the case of a group health plan

subject to section 711 of the Act, the

summary plan description will be

deemed to have complied with

paragraph (u)(1) of this section relating

to the required description of federal

law requirements if it includes the

following statement in the summary

plan description:

Group health plans and health insurance

issuers generally may not, under Federal law,

restrict benefits for any hospital length of

stay in connection with childbirth for the

mother or newborn child to less than 48

hours following a vaginal delivery, or less

than 96 hours following a cesarean section.

However, Federal law generally does not

prohibit the mother’s or newborn’s attending

provider, after consulting with the mother,

from discharging the mother or her newborn

earlier than 48 hours (or 96 hours as

applicable). In any case, plans and issuers

may not, under Federal law, require that a

provider obtain authorization from the plan

or the insurance issuer for prescribing a

length of stay not in excess of 48 hours (or

96 hours).

§ 2520.102–5 [Removed]

3. Section 2520.102–5 is removed.

4. Section 2520.104b–3 is amended by

revising the second sentence of

paragraph (a), and paragraphs (d) and (e)

to read as follows:

§ 2520.104b–3 Summary of material

modifications to the plan and changes in

the information required to be included in

the summary plan description.

(a) * * * Except as provided in

paragraph (d) of this section, the plan

administrator shall furnish this

summary, written in a manner

calculated to be understood by the

70244 Federal Register / Vol. 65, No. 225 / Tuesday, November 21, 2000 / Rules and Regulations

average plan participant, not later than

210 days after the close of the plan year

in which the modification or change

was adopted. * * *

* * * * *

(d) Special rule for group health

plans. (1) General. Except as provided

in paragraph (d)(2) of this section, the

administrator of a group health plan, as

defined in section 733(a)(1) of the Act,

shall furnish to each participant covered

under the plan a summary, written in a

manner calculated to be understood by

the average plan participant, of any

modification to the plan or change in

the information required to be included

in the summary plan description, within

the meaning of paragraph (a) of this

section, that is a material reduction in

covered services or benefits not later

than 60 days after the date of adoption

of the modification or change.

(2) 90-day alternative rule. The

administrator of a group health plan

shall not be required to furnish a

summary of any material reduction in

covered services or benefits within the

60-day period described in paragraph

(d)(1) of this section to any participant

covered under the plan who would

reasonably be expected to be furnished

such summary in connection with a

system of communication maintained

by the plan sponsor or administrator,

with respect to which plan participants

are provided information concerning

their plan, including modifications and

changes thereto, at regular intervals of

not more than 90 days and such

communication otherwise meets the

disclosure requirements of 29 CFR

2520.104b–1.

(3) ‘‘Material reduction’’. (i) For

purposes of this paragraph (d), a

‘‘material reduction in covered services

or benefits’’ means any modification to

the plan or change in the information

required to be included in the summary

plan description that, independently or

in conjunction with other

contemporaneous modifications or

changes, would be considered by the

average plan participant to be an

important reduction in covered services

or benefits under the plan.

(ii) A ‘‘reduction in covered services

or benefits’’ generally would include

any plan modification or change that:

eliminates benefits payable under the

plan; reduces benefits payable under the

plan, including a reduction that occurs

as a result of a change in formulas,

methodologies or schedules that serve

as the basis for making benefit

determinations; increases premiums,

deductibles, coinsurance, copayments,

or other amounts to be paid by a

participant or beneficiary; reduces the

service area covered by a health

maintenance organization; establishes

new conditions or requirements (i.e.,

preauthorization requirements) to

obtaining services or benefits under the

plan.

(e) Applicability date. Paragraph (d) of

this section is applicable as of the first

day of the first plan year beginning after

June 30, 1997.

* * * * *

Signed at Washington, D.C., this 15th day

of November, 2000

Leslie B. Kramerich,

Acting Assistant Secretary, Pension and

Welfare Benefits Administration, U.S.

Department of Labor.

[FR Doc. 00–29765 Filed 11–20–00; 8:45 am]

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