PenChecks Blog

Say It Loud And Clear-the Importance Of Good Plan Communications

By Carol Buckmann, J.D.

Good plan communications are an important part of administering a retirement plan. They help participants understand the basic plan rules, which are not easily found in the technical plan documents. They are necessary to comply with ERISA regulations. And they help plan fiduciaries avoid lawsuits.

When plan sponsors fail to abide by ERISA communication regulations, they open themselves to potential lawsuits and other negative consequences. CIGNA found this out the hard way when a judge required it to ignore a plan restriction not described in its plan communications and pay additional benefits to a group of participants. The U.S. Supreme Court has indicated that providing misleading communications can be a fiduciary breach, and there have been other instances where benefits not provided in the official plan document have been ordered to be paid out.

In addition, if participants are provided with booklets or notices that are so deficient they are considered not to have complied with the disclosure requirements, monetary penalties can be assessed. For example, the penalty for failing to provide a summary plan description to a participant who requests one can be $149 per day.

Despite these potential consequences, many plan sponsors continue to send out poorly drafted notices and summary plan descriptions, for a variety of reasons.

The “One Size Fits All” Document
Just as “one size fits all” clothing never fits everyone, you can’t have one communication that works for plans with very different features. As pre-approved plans in which boxes are checked to select plan provisions became popular, vendors stopped drafting SPDs and notices that described the plan provisions that actually applied to the participants. As a result, confusing and unhelpful text such as, “Your plan has one of the following four contribution formulas” started appearing in SPDS and safe harbor notices.

Another typical description that conveys no useful information to participants reads something like, “Your plan may permit you to elect options other than a lump sum. Ask your employer if this applies to you.” Or, “If your employer has so elected, your bonuses will count as plan compensation. Consult your summary plan description.”

SPDs are supposed to be self-contained documents, not a list of questions to ask the plan sponsor or check elsewhere. It is not clear that “one size fits all” SPDs are compliant because these communications certainly don’t do the job of explaining the plan provisions in plain language. Moreover, the vendors who create these communications documents are not responsible for legal compliance of the communications they produce. Vendors typically recommend that these documents be reviewed by ERISA counsel; however, most aren’t.

For a small additional investment of time and money, fiduciaries and their legal counsel can modify the vendor documents to tell participants exactly which plan provisions apply to them and eliminate all references to provisions that don’t. This protects the fiduciaries and helps participants gain a better understanding of the plan.

The “Puff Piece”
Too many communications describe plan revisions as “exciting” or “improvements”, or as changes we are “pleased to announce”. Many also describe investment lineup changes as providing superior choices, while penalties or negative consequences of changes don’t get the attention they deserve in these puff pieces.

Communications requirements are supposed to give participants accurate information about the changes, which may not affect everyone in the same way. Any sponsor that describes its investment menu as providing superior performance is open to a lawsuit if investments don’t perform as anticipated. (And we all know that past performance doesn’t guarantee future returns.)

Plan sponsors spend money on their plans and want their employees to appreciate it, but required communications are not the place to blow your own horn.

Lack of Government Review
When ERISA was first enacted, plan sponsors were required to file SPDs with the Department of Labor, with the expectation they would be reviewed. That never happened, and the filing requirement was eliminated. Safe harbor and other required IRS notices aren’t required to be filed either. Unless a plan is audited or a participant files a lawsuit, no one outside the plan sees the communications. By the time either of these occurs, it may be too late to avoid costly consequences of inadequate communications.

Protect Yourself (Because No One Else Will)
As a plan fiduciary, you are responsible for ensuring plan communications compliance, which can be accomplished in a few simple steps.

  • Don’t automatically send out “one size fits all” or “puff pieces” provided by your vendor.
  • Carefully review all documents with legal counsel to make them understandable and accurate.
  • Avoid using overly-promising language, such as “superior performance,” that could lead to a lawsuit.
  • Be sure to adequately describe potential fees or other negative consequences, such as transfer restrictions, resulting from investment lineup changes.

Good plan communications will help you avoid unnecessary legal entanglements, and your participants will thank you for making the plan easier to understand.

Carol I. Buckmann, JD is the co-founding partner of Cohen & Buckmann, P.C. ( She is one of the top-rated employee benefits and ERISA attorneys in the U.S., and deals with some of the foremost issues in ERISA, including pension plan compliance, fiduciary responsibilities and investment fund formation.

The views expressed in this article are those of the author and do not necessarily represent the views of PenChecks Trust, its subsidiaries or affiliates.


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