[Federal Register Volume 63, Number 174 (Wednesday, September 9, 1998)]
[Proposed Rules]
[Pages 48376-48387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24067]



  Federal Register / Vol. 63, No. 174 / Wednesday, September 9, 1998 / 
Proposed Rules  

[[Page 48376]]



DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2520

RIN 1210-AA69


Proposed Amendments to Summary Plan Description Regulations

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed amendments to 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 are being proposed to 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,'' by clarifying benefit, medical provider and other 
information required to be disclosed in, or as part of, the SPD of a 
group health plan and for other reasons as well. This document also 
contains a proposed amendment to repeal the limited exemption with 
respect to SPDs of welfare plans providing benefits through qualified 
health maintenance organizations (HMOs). In addition, the Department is 
proposing a number of amendments to the SPD content regulation that are 
intended to update and clarify the application of provisions affecting 
both pension and welfare benefit plans. The amendments contained in 
this document will affect employee pension and welfare benefit plans, 
including group health plans, as well as administrators, fiduciaries, 
participants and beneficiaries of such plans.

DATES: Comments: Written comments concerning the proposed amendments 
must be received by November 9, 1998.

ADDRESSES: Interested persons are invited to submit written comments 
(preferably three copies) concerning the proposals herein to: Office of 
Regulations and Interpretations, Room N-5669, Pension and Welfare 
Benefits Administration, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Washington, DC 20210, Attention: Proposed SPD Content 
Regulations. All written comments should clearly reference the relevant 
proposed amendment(s). All submissions will be open to public 
inspection in the Public Disclosure Room, Pension and Welfare Benefits 
Administration, Room N-5638, 200 Constitution Avenue, N.W. Washington, 
D.C.

FOR FURTHER INFORMATION CONTACT: June Solonsky, Office of Regulations 
and Interpretations, Pension and Welfare Benefits Administration, (202) 
219-8521. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

    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. Section 102(b) and the 
Department's regulation issued thereunder, 29 CFR 2520.102-3, describe 
the information required to be included in the SPD. The SPD is the 
primary vehicle under ERISA for communicating information to 
participants and beneficiaries about their rights, benefits, and 
obligations under their employee benefit plans.1
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    \1\ Publication of this regulation is not intended to address 
any disclosure issues arising under Part 4 of Subtitle B of Title I.
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    The Regulation governing the content of the SPD was first adopted 
in 1977.2 While this regulation was later amended to 
implement changes to ERISA's disclosure provisions enacted as part of 
the Health Insurance Portability and Accountability Act of 1996 and the 
Newborns' and Mothers' Health Protection Act of 1996,3 most 
of the SPD content provisions have not been modified, updated or 
otherwise changed since adoption of the 1977 regulation. Since that 
time there have been a number of legislative and other changes 
affecting plans and plan practices that, in turn, affect the 
information necessary for participants and beneficiaries to understand 
and exercise their rights under their plans and under ERISA. Taking 
into account the continuation coverage provisions enacted under the 
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and 
subsequent amendments, the portability, access and renewability 
requirements enacted as part of the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA), the mental health parity provisions 
enacted as part of the Mental Health Parity Act of 1996, the 
requirements of the Newborns' and Mothers' Health Protection Act of 
1996, and the growth of managed care programs and practices, some of 
the most significant changes have taken place with respect to group 
health plans.
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    \2\ 42 FR 37178, July 19, 1977.
    \3\ 62 FR 16979, April 8, 1997.
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    In addition, the President's Advisory Commission on Consumer 
Protection and Quality in the Health Care Industry (the Commission), in 
its November 20, 1997 report entitled ``Consumer Bill of Rights and 
Responsibilities,'' made a number of recommendations intended to 
enhance disclosure of health care plan and other information. In 
response to the Commission's report, the Department of Labor identified 
various regulatory actions that could be taken to implement the 
Commission's recommendation in the area of information disclosure. 
Following the Department's response, the President issued a memorandum 
to the Department, directing it to ``propose regulations that require 
ERISA health plans to ensure the information they provide to plan 
participants is consistent with the Patient Bill of Rights.'' 
4
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    \4\ The President further directed the Department to ``propose 
regulations to strengthen the internal appeals process for all 
Employee Retirement Income Security Act (ERISA) health plans to 
ensure that decisions regarding urgent care are resolved within not 
more than 72 hours and generally resolved within 15 days for non-
urgent care.'' The Department is publishing today in the Federal 
Register a proposal that would revise the Department's regulation at 
29 CFR 2560.503-1 to accomplish this goal.
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    As discussed below, this document contains a number of proposed 
amendments to the regulations governing the content of summary plan 
descriptions, specifically, 29 CFR 2520.102-3 and 2520.102-5, that, 
consistent with the Department's commitment are intended to implement 
the Commission's recommendations for improved information disclosure by 
group health plans, as well as generally update the SPD disclosure 
requirements for both welfare and pension plans.

B. Amendments Relating to the ``Consumer Bill of Rights and 
Responsibilities''

    One of the eight principles set forth in the ``Consumer Bill of 
Rights and Responsibilities'' is the right of individuals to receive 
accurate, easily understood information about their health plans, 
professionals and facilities. While the Department does not have the 
authority under ERISA to mandate disclosure of all of the information 
identified by the Commission in their report, the Department does have 
the authority to establish standards governing the style, format and 
content of the SPD, which is the primary vehicle through which plan

[[Page 48377]]

benefit and other information is communicated to participants and 
beneficiaries. Consistent with the Commission's recommendation that 
health care information be communicated in an easily understood manner, 
both ERISA and the Department's regulations currently require that SPD 
information be communicated in a manner calculated to be understood by 
the average plan participant and sufficiently accurate and 
comprehensive to reasonably apprise such participants and beneficiaries 
of their rights and obligations under the plan.5 The 
Department believes these standards serve to further the Commission's 
recommendations without modification or amendment at this time. The 
Department, however, has concluded that the SPD regulations should be 
amended to clarify the required disclosure by group health plans in 
their SPDs of various categories of information identified by the 
Commission and to ensure that all participants and beneficiaries, 
without regard to whether they are covered by a Federally qualified 
HMO, are provided health plan information consistent with the SPD 
requirements.
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    \5\ See ERISA Sec. 102(a)(1), 29 U.S.C. 1022(a)(1), and 29 CFR 
2520.102-2.
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    In responding to the Commission's recommendations, the Department 
indicated that it could propose amendments to the SPD regulations to 
ensure that all participants and beneficiaries in group health plans 
are provided, consistent with the Commission's recommendations, clear 
and understandable information concerning: benefits and limits on 
coverage; the extent to which preventive services are covered; whether, 
and under what circumstances, coverage is provided for existing and new 
drugs; whether, and under what circumstances, coverage is provided for 
tests, devices, and procedures; provider network composition; coverage 
of out-of-network services; conditions, if any, for access to 
speciality medical care; conditions, if any, applicable to urgent care; 
and preauthorization and utilization review procedures. The Department 
also indicated that it could amend the special rules, at Sec. 2520.102-
5, governing the disclosure of plan information by certain health 
maintenance organizations (HMOs) to improve the information furnished 
participants and beneficiaries.

1. Changes to the SPD Content Requirements

    In order to implement the Department's response to the Commission's 
recommendations, the Department is proposing to amend paragraph (j) of 
Sec. 2520.102-3 to add a new subparagraph (3) clarifying the 
information that must be included in the SPD of a group health plan, as 
defined in section 733(a).6 Paragraph (j) generally provides 
that the SPD of an employee benefit plan must describe ``[t]he plan's 
requirements respecting eligibility for participation and for 
benefits.'' Subparagraph (2) of paragraph (j) provides, in the case of 
welfare benefit plans, the SPD must also include a ``statement of the 
conditions pertaining to eligibility to receive benefits, and a 
description or summary of the benefits.'' That subparagraph also 
provides that where a plan provides an extensive schedule of benefits, 
only a general description is required if reference is made to detailed 
schedules of benefits which are available without costs to any 
participant or beneficiary who so requests.
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    \6\ ERISA Sec. 733(a)(1), defines the term ``group health plan'' 
to mean ``an employee welfare benefit plan to the extent that the 
plan provides medical care (as defined in paragraph (2) and 
including items and services paid for as medical care) to employees 
or their dependents (as defined under the terms of the plan) 
directly or through insurance reimbursement, or otherwise.''
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    It is the view of the Department that the information described in 
the new paragraph (j)(3) is currently required to be disclosed through 
the SPD under paragraph (j)(2), and that most group health plans in 
fact disclose such information to participants and beneficiaries in, or 
as part of, the plan's SPD. Nonetheless, the Department believes that, 
in view of the Commission's report and recommendations, the amendment 
proposed herein adding a new paragraph (j)(3) is necessary to remove 
any ambiguity as to the required disclosure of such information. 
Specifically, paragraph (j)(3) provides that the SPD of a group health 
plan shall describe: 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.
    Paragraph (j)(3) further provides 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.
    With regard to the disclosure of preauthorization and utilization 
review procedures, the Department is proposing to amend paragraph (s) 
of Sec. 2520.102-3, that currently requires a description of the plan's 
claims procedures, to clarify that the required description of 
procedures governing claims for benefits includes, in the case of a 
group health plan, any procedures for preauthorizations, approvals, or 
utilization review. It is the view of the Department that a plan is not 
precluded from furnishing a description of the plan's claims procedures 
as a separate document that accompanies the plan's SPD, provided that 
the description otherwise satisfies the style and format requirements 
of Sec. 2520.102-2.

2. Repealing the Limited Exception for SPDs of Plans Providing 
Benefits Through a Federally Qualified HMO

    The Department is proposing to repeal Sec. 2520.102-5, which 
provides that SPDs of welfare benefit plans which provide benefits 
through a qualified HMO, as defined in section 1310(d) of the Public 
Health Act, 42 U.S.C. 300e-9(d), are not required to include the 
information described in Secs. 2520.102-3(j)(2), (l), (q) and (s) 
provided certain conditions are met. The Department believes that, in 
view of the legislative and other changes affecting the operation of 
group health plans since the adoption of Sec. 2520.102-5 in 
1981,7 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 qualified HMO, as defined 
in Sec. 1310(d) of the Public Health Act, 42 U.S.C. 300e-9(d), as any 
other employee benefit plan participant or beneficiary.
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    \7\ See 46 FR 5884, January 21, 1981.

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[[Page 48378]]

C. Other Amendments Relating to the SPD Content Requirements

    The following amendments are intended to update the SPD content 
regulations, Sec. 2520.102-3, to reflect legislative and other changes 
that have taken place since adoption of the regulations. The amendments 
are discussed below paragraph-by-paragraph in the order in which they 
appear in the regulation.

1. Sec. 2520.102-3(d)--Type of Pension and Welfare Plan

    Paragraph (d) of Sec. 2520.102-3 requires plan administrators to 
specify in the summary plan description the type of welfare or pension 
plan they administer. The regulation provides examples of types of 
pension and welfare plans. Due to the fact that participant and 
beneficiary rights and obligations may be substantially affected, in 
the case of pension plans, by whether their defined contribution 
pension plan is intended to comply with ERISA section 404(c) and, in 
the case of welfare plans, by whether the plan is a group health plan 
subject to HIPAA, in an effort to update the regulation, the proposal 
would amend paragraph (d) to include references to ERISA section 404(c) 
plans and group health plans as defined in ERISA section 733(a). While 
the Department's regulation at Sec. 2550.404c-1(b)(2)(i)(B)(1)(i) 
already requires participants and beneficiaries to be provided with an 
explanation that the plan is intended to constitute a plan described in 
ERISA section 404(c), the Department intends to emphasize plan 
administrators' notification responsibilities by including the 
reference to ERISA section 404(c) plans in paragraph (d) of 
Sec. 2520.102-3.

2. Sec. 2520.102-3(j)--Eligibility for Participation and Benefits

    In addition to the above discussed amendment of paragraph (j) of 
Sec. 2520.102-3 relating to group health plans, the Department is 
proposing to amend paragraph (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 is proposing to amend 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.8 If an SPD contains a 
description of the procedures governing QDRO determinations, in the 
case of a pension plan, or QMCSO determinations, in the case of a group 
health plan, the description should include information sufficient to 
enable prospective alternate payees and alternate recipients to 
exercise their rights. The Department believes that participants and 
beneficiaries should be aware that procedures exist for making such 
determinations and that the most appropriate vehicle for communicating 
information about the procedures is through the SPD.
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    \8\ The Department notes that the procedures governing qualified 
domestic relations order determinations under ERISA Sec. 206(d)(3) 
and the procedures governing qualified medical child support order 
determinations under ERISA Sec. 609 would constitute an instrument 
under which a plan is operated for purposes of ERISA Sec. 104(b)(4), 
and, thereby, would be required to be furnished to participants and 
beneficiaries upon request. A failure or refusal to furnish a copy 
of such instrument in response to a request from a participant or 
beneficiary (including prospective alternate payees and alternate 
recipients), therefore, may subject the administrator to a penalty 
of up to $110 a day from the date of such failure or refusal (See 
ERISA Sec. 502(c)(1)).
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3. Sec. 2520.102-3(l)--Plan Terminations and Authority To Eliminate 
Benefits

    Paragraph (l) of Sec. 2520.102-3 requires pension and welfare 
benefit plan administrators to include in their SPDs a statement 
clearly identifying circumstances which may result in disqualification, 
ineligibility, or denial, loss, forfeiture or suspension 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 the SPD regulations. In 1984, the Department issued ERISA 
Technical Release 84-1 setting forth the Department's view that a plan 
termination is a circumstance which may result in the denial or loss of 
benefits that a participant or beneficiary might otherwise reasonably 
expect to receive under a plan such that plan administrators, pursuant 
to Sec. 2520.102-2 and Sec. 2520.102-3(l), must include in their SPD 
information concerning the provisions of the plan which relate to the 
termination of the plan.
    It is the Department's view that paragraph (l) currently requires 
the disclosure of information concerning the circumstances under which 
the plan can be amended to reduce or eliminate benefits. To eliminate 
uncertainty, however, the Department is proposing to amend paragraph 
(l) in order to incorporate the principles of Technical Release 84-1 in 
the SPD content regulation, as well as clarify the application of those 
principles to the plan amendments. These changes serve to codify the 
principles of Technical Release 84-1, thereby, providing more effective 
notice to plan administrators, participants and beneficiaries, and 
others regarding the information required to be included in the 
SPD.9
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    \9\ At least one federal court has interpreted the Department's 
regulations as not requiring administrators of ERISA plans to 
disclose in their SPDs that the plans are subject to amendment or 
termination. See Sprague v. General Motors Corp., 133 F.3d 388 (6th 
Cir. 1997), cert. denied, 66 U.S.L.W. 3779 (1998).
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    Specifically, the Department proposes to add to the end of 
paragraph (l) the requirement that plan administrators include the 
following: (1) A summary of any plan provisions governing the authority 
of the plan sponsor or others to terminate the plan or eliminate, in 
whole or in part, benefits under the plan and the circumstances, if 
any, under which the plan may be terminated and under which benefits 
under the plan may be 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.
    The Department notes that, in accordance with the general SPD 
format requirements of Sec. 2520.102-2(b), any description of an 
exception, limitations, reductions or other restrictions--which, in the 
Department's view includes plan amendment and termination provisions--
must not be minimized, rendered obscure, or otherwise made to appear 
unimportant.

4. Sec. 2520.102-3(m)--PBGC Coverage

    Under Sec. 2520.102-3(m)(2), plans with benefits insured under 
Title IV are required to indicate that fact in their SPD along with a 
summary of the pension benefit guaranty provisions of Title IV and a 
statement indicating that further information on the provisions can be 
obtained from the plan administrator or the Pension Benefit Guaranty 
Corporation (PBGC). An SPD is deemed to meet the requirements of 
paragraph (m)(2) if it includes the model

[[Page 48379]]

statement set forth in paragraph (m)(3). The Department is proposing to 
amend the model statement contained in paragraph (m)(3), 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.

5. Sec. 2520.102-3(o)--``Cutback'' Provisions/COBRA

    Paragraph (o) of Sec. 2520.102-3 requires that certain pension 
plans electing use of the ``cutback'' rule of Internal Revenue Code 
Revenue Ruling 76-378 include information concerning the application of 
such election in the SPD. The Department understands that the 
referenced ``cutback'' rule has little, if any, current application. 
Accordingly, the Department is proposing to amend paragraph (o) to 
eliminate the discussion of the ``cutback'' rule.
    The Department is further proposing to address in a new paragraph 
(o) the requirement that participants and beneficiaries in group health 
plans subject to the continuation coverage provisions of COBRA be 
provided information concerning their rights and obligations under 
those provisions. It is the view of the Department that the SPD of 
group health plans, within the meaning of section 607(1), subject to 
the continuation coverage provisions of COBRA, must describe the rights 
and responsibilities of participants and other ``qualified 
beneficiaries'' (as defined in ERISA section 607(3)) under such 
provisions. ERISA section 606(a)(1) also requires that group health 
plans, within the meaning of section 607(1) of ERISA, provide, at the 
time of commencement of coverage under the plan, a notice to each 
covered employee and his or her spouse informing them of their rights 
under the COBRA continuation coverage provisions. It is the view of the 
Department that the disclosure obligation under section 606(a)(1) will 
be satisfied by furnishing to the covered employee and spouse, at the 
time of commencement of coverage, an SPD that includes the required 
COBRA continuation coverage description.10
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    \10\ The Department 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 addressed to both 
the employee and spouse will constitute good faith compliance with 
the general COBRA disclosure requirement. See ERISA Technical 
Release No. 86-2.
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    Specifically, paragraph (o), as amended, would require group health 
plans subject to the COBRA continuation coverage provisions to describe 
the rights and obligations of participants and beneficiaries with 
respect to continuation coverage, providing, among other things, 
information concerning qualifying events, premiums, notice and election 
requirements and procedures, and duration of coverage.

6. Sec. 2520.102-3(q)--Identity of Funding Medium/Interim Amendment

    On April 8, 1997, the Department published an amendment to 
paragraph (q) of Sec. 2520.102-3 , implementing statutory changes to 
SPD disclosure requirements enacted as part of the Health Insurance 
Portability and Accountability Act of 1996.11 This amendment 
is intended to ensure that SPDs clearly inform participants and 
beneficiaries about the role of insurance issuers with respect to their 
group health plan, particularly in those cases where the plan is self-
funded and an insurer is serving as a contract administrator or claim 
payer, rather than an insurer. Although this notice of proposed 
rulemaking does not propose any change to paragraph (q), the Department 
intends to publish one consolidated final rule covering the proposals 
published in this document and the portions of the April 1997 interim 
rule that address SPD content requirements.
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    \11\ 62 FR 16979, April 8, 1997.
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7. Sec. 2520.102-3(t)--Statement of ERISA Rights

    Under paragraph (t) of Sec. 2520.102-3(t), the requirement to 
furnish participants and beneficiaries with the statement of ERISA 
rights described in section 104(c) of the Act is satisfied by providing 
the model statement set forth in paragraph (t)(2) or a statement 
prepared by the plan containing the information in the model statement. 
The Department is proposing to amend paragraph (t)(2) to improve and 
update the model statement. Specifically, the Department is proposing 
to amend the model statement to incorporate references to participant 
rights under the COBRA continuation coverage and the portability 
provisions of Parts 6 and 7, respectively, of ERISA, added to ERISA 
since the publication of the statement of ERISA rights in 1977. The 
Department also is proposing to extend to all employee benefit plans 
the model statement changes applicable to group health plans as a 
result of amendments enacted as part of the Health Insurance 
Portability and Accountability Act of 1996. In general, these changes 
to the statement of ERISA rights resulted in the addition of a sentence 
directing participants and beneficiaries who have questions about the 
statement of rights or their rights under ERISA to the nearest office 
of the Pension and Welfare Benefits Administration, U.S. Department of 
Labor, or the Division of Technical Assistance and Inquiries, Pension 
and Welfare Benefits Administration, in Washington, D.C. 12 
The Department believes the information included in the revised 
statement will benefit participants and beneficiaries of both pension 
and welfare plans generally, as well as group health plans. Other 
changes to the statement include: modifying the reference of ``up to 
$100 a day'' to ``up to $110 a day'', reflecting 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, 13 clarifications to the language 
discussing the types of documents participants and beneficiaries have 
the right to examine and receive copies upon request, and the addition 
of a sentence indicating that issues involving the qualified status of 
domestic relations orders and medical child support orders may be 
pursued in Federal court.
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    \12\  62 FR 16979, April 8, 1997.
    \13\ See 62 FR 40696.
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8. Sec. 2520.102-3(u)--Newborns' and Mothers' Health Protection Act 
Disclosure

    On April 8, 1997, the Department published, in the Federal Register 
(62 FR 16979) an interim rule setting forth information required to be 
disclosed in the SPD concerning the provisions of the Newborns' and 
Mothers' Health Protection Act of 1996 (NMHPA). The Department, in 
response to concerns about the adequacy of the information currently 
required to be disclosed pursuant to paragraph (u) of Sec. 2520.102-3, 
is publishing in the ``rules and regulations'' section of today's 
Federal Register an interim rule expanding the information required to 
be disclosed in the SPD concerning the NMHPA provisions.

D. Effective Dates

    The Department is proposing to make the amendments contained herein 
effective 60 days after publication of the final rule in the Federal 
Register. In general, the Department believes that the information 
delineated in paragraphs (j)(3), applicable to group health plans, and 
(l) of Sec. 2520.102-3 is currently required to be disclosed under the 
current disclosure framework of ERISA. Accordingly, the Department 
views the proposed addition of the new

[[Page 48380]]

paragraph (j)(3) and the amendment of paragraph (l) as clarifications 
of existing law, rather than new disclosure requirements. Other 
amendments proposed herein may result in new disclosure obligations. 
With regard to these amendments, the Department is proposing 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.

E. Request for Comments

    The Department invites interested persons to submit written 
comments on the amendments contained herein. Comments (preferably three 
copies) should be submitted to: the Office of Regulations and 
Interpretations, Room N-5669, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, 200 Constitution Avenue, 
N.W., Washington D.C. 20210, Attention: Proposed SPD Content 
Regulations. Comments must be submitted no later than November 9, 1998. 
All submissions will be open to public inspection in the Public 
Disclosure Room, Pension and Welfare Benefits Administration, Room N-
5638, 200 Constitution Avenue, N.W., Washington, D.C.

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 the Executive Order, 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 Commission's Consumer Bill of Rights and 
Responsibilities. To avoid underestimating of the burdens attributable 
to this regulation, and as more fully explained below, the Department 
used assumptions designed to result in cost estimates that represent 
the maximum potential impact of the proposal. This regulatory action, 
as a result, is being treated as having an economic effect exceeding 
$100 million in the year 2000. Therefore, this notice is 
``significant'' and subject to OMB review under Sections 3(f)(1) and 
3(f)(4) of the Executive Order.
    Therefore, consistent with the Executive Order, 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 discussions of the Regulatory 
Flexibility Act and the Paperwork Reduction Act.
    Although the requirements of the proposal are generally 
clarifications of rather than additions to the requirements of the 
existing regulation, it is believed that the variety of clarifications 
in the proposal will cause many plan administrators to reevaluate and 
revise existing SPDs. For purposes of this analysis, it has been 
assumed that all plans will add to or otherwise modify the content of 
their SPDs and distribute them to participants by the end of calendar 
year 2000 as a result of this proposal. Expenses associated with the 
preparation and distribution of these additions and revisions 
substantially constitute the estimated cost of the proposal.
    The Department estimates the cost of the revisions implemented by 
this proposal to be $37 million in 1999, $176 million in 2000, falling 
to $15 million in 2001, and thereafter increasing or decreasing only in 
proportion to participation. The peak costs in 2000 reflect the 
preparation of 535,000 different SPDs describing 2.4 million pension 
and welfare plans and the distribution of those SPDs to 107 million 
participants. As noted above, the Department believes that these 
estimates are conservatively high.14
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    \14\ In fact, many plans already provide much of this 
information to participants and beneficiaries in SPDs and other 
materials. For example, many managed care organizations routinely 
disclose information to enrollees either as a condition of private 
accreditation or in response to plan sponsors, government program 
requirements, and other competitive pressures. Also, approximately 
27% of plans are already known to amend and reissue their SPDs each 
year to account for routine changes in plan terms.
---------------------------------------------------------------------------

    The proposed regulation will assist plan administrators to meet 
their statutory disclosure obligations. The proposed regulation will 
also assure that participants have better access to more complete 
information on their benefit plans. Such information is important to 
participants' ability to understand and secure their rights under their 
plans. Better information will also enable participants to derive more 
value from their benefit plans, and will lead both participants and 
plan sponsors to make more economically efficient decisions regarding 
benefit plans. This enhanced value and efficiency from better 
information, along with the clarified guidance to plan administrators, 
constitute the benefits of the regulation.
    There is wide-spread agreement that the market for health care can 
be improved if purchasers, consumers, and patients are provided with 
better information. In an analysis of the Consumer Bill of Rights 
conducted for the Commission, The Lewin Group 15 notes that 
there is currently considerable information being collected which is 
not routinely passed on to consumers. For instance, information 
reported through a private-accreditation survey or collected by a large 
purchaser may not be available to individuals to help them make 
decisions. The proposed SPD regulations would clarify the requirement 
that certain types of information, such as provider network composition 
and utilization review procedures, be provided in the SPD.
---------------------------------------------------------------------------

    \15\ Consumer Bill of Rights and Responsibilities Cost and 
Benefits: Information Disclosure and External Appeals, The Lewin 
Group, November 15, 1997.
---------------------------------------------------------------------------

    According to Lewin, the collection and dissemination of this type 
of information will foster value-based purchasing. The information 
disclosure requirements contained in the revised SPD regulations will 
also assist employees in choosing health plan options that best meet 
their needs. According to Lewin, such empowerment ``may lead to 
increased satisfaction'' and may ``improve consumer confidence in the 
health care system.''
    Lewin and others assert that information disclosure will aid in the 
development of an efficient, competitive market. While some have argued 
that the lack of ``perfect'' information will hamper the usefulness of 
information to consumers, there is strong evidence

[[Page 48381]]

from other markets (e.g., the securities and investment industry) that 
indicates basic information disclosure requirements such as the one 
contained in the revised SPD regulation will help to improve the 
quality of information available to consumers over time.
    Equally important, information disclosure under the proposed 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 redoubled benefits. Lewin 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 this proposed SPD 
regulation and other pro-competitive reforms.
    The Department believes, therefore, that the benefits of this 
proposed regulation will substantially outweigh its costs. The 
disclosures it describes are a component of evolving legislative, 
regulatory, and 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. If an agency determines that a proposed rule is likely 
to have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires that the agency present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities, and seeking public comment on such impact. Small 
entities include small businesses, organizations, and governmental 
jurisdictions.
    For purposes of analysis under the RFA, PWBA proposes to continue 
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. Pursuant to the authority of 
section 104(a)(3), the Department has previously issued at 
Secs. 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-
10 certain simplified reporting provisions and limited exemptions from 
reporting and disclosure requirements for small plans, including 
unfunded or insured welfare plans covering fewer than 100 participants 
and which satisfy certain other requirements.
    Further, while some large employers may have small plans, in 
general, most small plans are maintained by small employers. Thus, PWBA 
believes that assessing the impact of this proposed rule on small plans 
is an appropriate substitute for evaluating the effect on small 
entities. The definition of small entity considered appropriate for 
this purpose differs, however, from a 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 therefore requests comments on the 
appropriateness of the size standard used in evaluating the impact of 
this proposed rule on small entities.
    On this basis, however, PWBA has preliminarily determined that this 
rule will not have a significant economic impact on a substantial 
number of small entities. In support of this determination, and in an 
effort to provide a sound basis for this conclusion, PWBA has 
considered the elements of an initial regulatory flexibility analysis 
in the discussion which follows.
    This regulation applies to all small employee benefit plans covered 
by ERISA. Employee benefit plans with fewer than 100 participants 
include 629,000 pension plans, 2.6 million health plans, and 3.4 
million non-health welfare plans (mainly life and disability insurance 
plans).
    The proposed regulation 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 proposed regulation consist 
of revising SPDs consistent with the proposed regulation's requirements 
and distributing them to participants consistent with the proposed 
regulation's assumed effective date.
    The Department believes that revising an SPD 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, while clerical skills are 
needed to type, assemble and format SPD materials. Distributing SPDs 
requires clerical skills to reproduce the materials and to mail or 
electronically transmit materials to participants.
    The Department estimates that the cost to small plans of complying 
with the proposed regulation will amount to $16 million in 1999, $42 
million in 2000, and $3 million in 2001 and subsequent years, changing 
thereafter only in proportion to plan participation.
    The peak year cost of $42 million in 2000 consists of $13 million 
to prepare 460,000 unique SPDs describing 2.3 million plans, and $29 
million to distribute these SPDs to 23 million participants. These 
costs amount to $18 per affected small plan and $1.81 per affected 
small plan participant. By contrast, the total cost to large plans in 
2000 is estimated at $134 million, or $1,803 per affected large plan 
and $1.61 per affected large plan participant.
    The costs are modest in large part because the features of the 
large 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 prepare the large 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 thinly over a far larger number of small plans.
    The basis of these estimates is explained below, following the 
discussion of the Paperwork Reduction Act.

Paperwork Reduction Act

    The Department of Labor, as part of its continuing effort to reduce 
paperwork and respondent burden, conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data 
can be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and

[[Page 48382]]

the impact of collection requirements on respondents can be properly 
assessed.
    Currently, the Pension and Welfare Benefits Administration is 
soliciting comments concerning the proposed revision of the information 
collection request (ICR) included in the Proposed Amendments to Summary 
Plan Description Regulations. A copy of the existing ICR may be 
obtained by contacting the office listed in the addressee section of 
this notice. This proposal would modify the existing ICR, which is also 
revised pursuant to the Interim Rule Amending Summary Plan Description 
Regulation (Interim Rule),16 also published in today's 
Federal Register.
---------------------------------------------------------------------------

    \16\ The Interim Rule modifies the required content to group 
health plan SPDs to clarify the applicability under the Newborns' 
and Mothers' Health Protection Act of minimum hospital lengths of 
stay for mothers and newborn children following childbirth.
---------------------------------------------------------------------------

    The Department has submitted a copy of the proposed information 
collection, as modified by the Interim Rule Amending Summary Plan 
Description, to OMB in accordance with 44 U.S.C. 3507(d) for review of 
its information collections. The Department has requested emergency 
clearance for that portion of the ICR which is changed by the Interim 
Rule, specifically, the SPD disclosure provision concerning hospital 
lengths of stay in connection with childbirth for a mother or newborn 
child. The Department and OMB are particularly interested in comments 
that:
     Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, D.C. 20503; Attention: Desk Officer for 
the Pension and Welfare Benefits Administration. Although comments may 
be submitted through November 9, 1998, OMB requests that comments be 
received within 30 days of publication of the Notice of Proposed 
Rulemaking to ensure their consideration.

ADDRESSES (PRA 95): Gerald B. Lindrew, Office of Policy and Research, 
U.S. Department of Labor, Pension and Welfare Benefits Administration, 
200 Constitution Avenue, NW, Room N-5647, Washington, D.C. 20210. 
Telephone: (202) 219-4782; Fax: (202) 219-4745. These are not toll-free 
numbers.

I. Background

    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.
    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.

II. Current Actions

    As described in this preamble, the proposed revisions to 
Sec. 2520.102-3 would modify the required contents of summary plan 
descriptions in a number of ways that may be expected to affect the 
nature and burden of the information collection under PRA 95. The 
proposal includes amendments to Secs. 2520.102-3(j) and (s) and 
Sec. 2520.102-5 that are designed to implement with respect to ERISA 
covered group health plans the Commission's recommendations as 
incorporated in the Consumer Bill of Rights. Specifically, the proposal 
provides that group health plans will not be deemed to have satisfied 
content requirements unless they have provided understandable 
information in their SPDs concerning 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 Department's view, these proposed changes clarify existing 
rules in light of changes in group health plan practices in recent 
years. Although the Department believes that most ERISA covered group 
health plans currently provide this information, many plan sponsors may 
take the opportunity to address ambiguities and update their SPDs 
following adoption of final amendments. Because the number of plans 
that fully comply with the clarifications set forth in the proposal is 
unknown, a conservatively high assumption as to the number of plans 
that will consider SPD revisions necessary has been made for purposes 
of this analysis.
    For purposes of this analysis, it is estimated that the Consumer 
Bill of Rights disclosures, including the proposal with respect to 
disclosure of procedures governing claims for benefits, will require 
approximately 17 additional hours of preparation time for group health 
plans with over 100 participants and for the estimated 8,600 small 
group products utilized by approximately 2.6 million group health plans 
with fewer than 100 participants. It is also estimated that the 
additional time necessary to ensure that this material is included in 
the mailings that are otherwise necessary will add approximately an 
additional minute to the time spent in accumulating and mailing 
information to participants, and an additional $0.50 in materials and 
mailing costs. These incremental increases have been incorporated in 
both the preparation and distribution burden estimates.

[[Page 48383]]

    Additional burden has also been computed in connection with the 
proposed elimination of the limited exemption with respect to SPDs of 
welfare plans providing benefits through a federally qualified HMO. 
Under the proposal to eliminate the limited exemption, disclosures of 
rules for eligibility and participation, circumstances which may result 
in loss of or disqualification from eligibility, plan funding medium, 
and claim and appeal procedures, would be required to be included in an 
SPD, and all other generally applicable provisions as to SPD style, 
content, and format would apply for SPDs provided to participants and 
beneficiaries covered by a federally qualified HMO. Based upon 
available information as to the number of federally qualified HMOs and 
the numbers of ERISA covered plans offering HMOs, it has been estimated 
that approximately 153,000 plans will be required to implement SPD 
content and format changes that will eliminate the existing 50 percent 
savings in preparation time for these plans.
    Clarifications proposed with respect to procedures governing 
qualified domestic relations orders (QDRO) and qualified medical child 
support orders (QMCSO), disclosures concerning plan type, updating of 
the model statement of ERISA rights, disclosures with respect to the 
circumstances under which the plan can be amended to reduce or 
eliminate benefits and plan's provisions and participants' rights and 
obligations upon termination of the plan, and disclosure of participant 
rights under the Consolidated Omnibus Budget Reconciliation Act (COBRA) 
have also been taken into account in estimating the total burden 
expected to be imposed by the proposed changes to SPD content 
requirements. While the clarifications with respect to QDRO, QMCSO, 
amendment/termination provision disclosures, and COBRA disclosures are 
expected to result in some increase in preparation burden, as a group 
these clarifications are estimated to represent only a slight burden 
increase.
    As to the distribution burden for SPDs that the Department is 
assuming for purposes of this analysis will be revised as a result of 
the proposed content requirements, ERISA section 104(b)(1) and 
regulations published at Secs. 2520.104b-2 and 2520.104b-3, describe 
the obligation of an employee benefit plan administrator to furnish the 
SPD and the summary of material modifications (SMM) to participants and 
the time frames within which this distribution is required to be made. 
In general, a plan administrator must furnish an updated SPD every five 
years, unless no amendments have been made to the plan within that 
five-year period. In that event, the updated SPD must be furnished only 
every ten years. A plan administrator is also required to furnish each 
participant with a summary description of any material change made to 
the plan or SPD content during a period prior to preparation of an 
updated SPD, which may be appended to the participant's SPD.
    For purposes of this analysis under PRA 95, the Department has 
treated the change to the NMHPA disclosure provision included in the 
Interim Rule as a change implemented by this proposal. This is because 
the distribution burden associated with revision of an SPD represents 
the greater portion of total burden, and it is assumed that plans will 
prepare and distribute revised disclosure materials in the most cost-
efficient way, which would likely involve incorporating as many changes 
as possible in a single distribution.
    Because this single ICR is currently the subject of two separate 
regulatory actions, the Department believes that a meaningful burden 
analysis should contemplate as a whole the nature and timing of all 
changes to existing Summary Plan Descriptions that might be made by 
plan administrators due to regulatory amendments. As a result, the 
burden analysis included in this proposal addresses the impact of the 
Interim Rule in addition to the changes that might be made as a result 
of this proposal. The methodology and assumptions used in estimating 
burden are applicable to both the proposed amendments and the interim 
final regulation. Both the total burden of the ICR and the burden 
specifically associated with this proposal are displayed in this 
notice.
    As a consequence of SPD distribution requirements, and the fact 
that the majority of plans have either chosen to or have been required 
to make material changes to plan provisions in recent years, about 27 
percent of plans routinely update and distribute an SPD each year. The 
methodology for estimating burden associated with the proposed 
clarifications to the SPD content rules must, therefore, integrate the 
recurring baseline burden with the projected incremental preparation 
and distribution burden in the years in which those increases are 
expected to be incurred.
    For purposes of the burden estimates for these proposed 
clarifications, and based on the expected applicability dates for the 
clarifications, it has been assumed that no incremental increases will 
be experienced by plans until 1999.17 It is further assumed 
that plans that would ordinarily be preparing and distributing SPDs in 
1999 will elect to incorporate the revisions in SPD content they 
consider necessary as a result of the proposal as part of the updated 
SPDs they would otherwise be preparing. Finally, it has been assumed 
for this analysis that all plans will have prepared and distributed a 
revised SPD by the end of the year 2000, whether or not an SPD would 
ordinarily have been prepared during this period. It is anticipated 
that these proposed rules will be applicable generally by the end of 
2000.
---------------------------------------------------------------------------

    \17\ It should be noted that while no incremental increase is 
incorporated in 1998 estimates for the proposed clarifications of 
the SPD content regulations, the 1998 burden hour and cost estimates 
do include increments previously computed in connection with 
amendments to the disclosure provisions of ERISA enacted as part of 
HIPAA, the NMHPA, and the interim disclosure rules issued on April 
8, 1997 (62 FR 16979).
---------------------------------------------------------------------------

    The recurring baseline burden is estimated on the basis of several 
assumptions. It is assumed that routine preparation of an updated SPD 
requires 4 hours. Routine distribution is estimated to require two 
minutes and $0.50 in materials and postage per participant. It is 
further assumed that 100 percent of small, fully insured welfare plans 
and, on average, 75 percent of other plans hire outside parties to 
prepare and distribute the SPD. These preparation services are assumed 
to be purchased at a rate of $50 per hour, which is a blend of both 
professional and clerical rates. The clerical rate incorporated in 
estimates of distribution burden is $11 per hour. The assumptions with 
respect to the rates of use of purchased services affect the 
distribution of burden between hours and costs for purposes of PRA 95.
    Type of Review: Revision of a currently approved collection.
    Agency: Pension and Welfare Benefits Administration.
    Title: Regulations Regarding Required Contents of Summary Plan 
Descriptions for Employee Benefit Plans (Proposed 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: 2,027,293 (1998); 888,393 (1999); 2,641,818 
(2000).
    Total Responses: 83,332,000 (1998); 52,115,000 (1999); 160,703,000 
(2000).
    Estimated Burden Hours: 842,586 (1998); 815,850 total, 815,029 for 
existing ICR and Proposed Amendments (1999); 2,101,624 total, 2,099,405 
for

[[Page 48384]]

existing ICR and Proposed Amendments (2000).
    Estimated Annual Costs (Operating and Maintenance): $95,265,366 
(1998); $101,465,306 total, $101,255,399 for existing ICR and Proposed 
Amendments (1999); $218,395,191 total, $218,118,450 for existing ICR 
and Proposed Amendments (2000).
    Comments submitted in response to this notice will be summarized 
and/or included in the request for OMB approval of the information 
collection request; they will also become a matter of public record.

Analysis of Cost

    The Department performed a comprehensive, unified analysis to 
estimate the costs of the proposed 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.
    To estimate the cost of the proposed regulation, 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 proposed regulation's 
provisions. The Department separately estimated the baseline cost of 
its current SPD regulation and the incremental cost of the proposed 
regulation. As noted earlier, the incremental cost is based on a 
conservative assumption, which results in an estimate of the maximum 
impact the proposal may be expected to have.
    The Department estimated the number of SPDs and the number of 
participants based on Form 5500 Series data and other sources. Each 
pension plan is estimated to maintain one SPD. With respect to welfare 
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 then 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 non-health 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 690,000 unique pension plan SPDs and 
51,000 unique health plan SPDs, which together encompass all other 
welfare plan SPDs.
    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 27 percent of plans 
so report. This figure is interpreted to represent a baseline level of 
SPD modification and distribution activity. In an exception to this 
general assumption, the Department estimates that a larger proportion 
of health plans have modified or will modify their SPDs in 1998 in 
order to comply with the Department's interim final regulation 
implementing the disclosure provisions of HIPAA and the NMHPA.
    The Department generally assumes that preparing a revised SPD 
requires four hours of combined professional and clerical time, priced 
at $50 per hour (a blended professional and clerical rate). In 
connection with the interim final regulation implementing the 
disclosure provisions of HIPAA and the NMHPA, the Department assumed a 
burden of one hour at $50. The time required was assumed to be less 
than for a typical SPD revision because HIPAA requires only that 
certain brief and specific disclosures be added to SPDs or provided in 
SMMs. The Department assumes that distributing an SPD consumes two 
minutes of clerical labor at $11 per hour, plus $0.50 for materials and 
mailing or electronic dissemination. This amounts to $0.87 per SPD 
distributed.
    The Department estimates the baseline cost to prepare and 
distribute SPDs under the current regulation at $113 million in 1998, 
falling to $86 million in 1999, and thereafter growing in tandem with 
plan participation to reach $89 million in 2001. The higher cost in 
1998 reflects HIPAA requirements that health plans revise and 
distribute their SPDs or prepare and distribute SMMs by the end of that 
year. Focusing on 1999, a more typical baseline year, the $86 million 
total cost includes $41 million to prepare 206,000 unique SPDs, and $45 
million to distribute copies to 52 million participants.
    The Department separately estimated the cost of revisions to SPDs 
that plan administrators may undertake to address ambiguities and 
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 
clarifications of the proposed regulation would incur only the costs 
attributable to those revisions deemed necessary to comply with the 
clarifications, 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 proposal requires 30 minutes of 
combined professional and clerical labor, at a blended rate of $50 per 
hour. The time and expense associated with distributing each SPD is 
assumed to be unchanged from the baseline.
    To estimate the per-unit cost to prepare revised health plan SPDs, 
the Department drew on two studies of the cost to health plans to 
comply with the Consumer Bill of Rights, one by The Lewin Group for the 
President's Commission, and one by Coopers and Lybrand for the Kaiser 
Family Foundation.18 Excerpting and adjusting these studies' 
estimates to reflect proposed 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 
clarifications of the proposed regulation amounts to approximately 18 
hours at $50 per hour.
---------------------------------------------------------------------------

    \18\ 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.
---------------------------------------------------------------------------

    The Department assumed that the cost to distribute a health plan 
SPD will rise, consuming an additional one minute of clerical time at 
$11 per hour and an additional $0.50 for materials and mailing or 
electronic distribution, for a total for $1.55 per SPD.
    The Department estimates the added cost attributable to this 
proposed regulation to be $37 million in 1999 and $176 million in 2000, 
falling to $15 million in 2001 and subsequent years, growing only in 
proportion to plan participation. The peak costs in 2000 reflect $41 
million to prepare 535,000 different SPDs describing 2.4 million 
pension and welfare plans, and $135 million to distribute those SPDs to 
107 million participants.

[[Page 48385]]

    Combining this added cost with the baseline cost attributable to 
the current regulation, the total cost to prepare and distribute SPDs 
under the proposed regulation amounts to $123 million in 1999, $264 
million in 2000, and $104 million in 2001 and beyond. The peak costs in 
2000 include $82 million to prepare 597,000 SPDs describing 2.6 million 
plans, and $182 million to distribute those SPDs to 161 million 
participants.
    The baseline, additional, and total costs associated with this 
proposed SPD regulation are summarized in the table below.

                   Cost of the Proposed SPD Regulation                  
                              [$ millions]                              
------------------------------------------------------------------------
               Year                  Baseline    Additional     Total   
------------------------------------------------------------------------
1998*............................         $113           $0         $113
1999.............................           86           37          123
2000.............................           88          176          264
2001.............................           89           15          104
------------------------------------------------------------------------
* Includes the cost of certain SPD revisions necessitated by HIPAA.     

    Plans that are assumed for purposes of this analysis to prepare and 
distribute SPDs in 2000 for the sole purpose of complying with the 
proposed regulation would have the option of complying by preparing and 
distributing SMMs instead. The content of such SMMs would essentially 
duplicate the content that would otherwise be added to or substituted 
into SPDs. Plans presumably would elect to prepare and distribute SMMs 
only if doing so lessened their overall cost to comply. Therefore, as a 
means to comply with the proposed regulation, preparing and 
distributing SMMs should be no more costly than revising and 
distributing SPDs. The Department's estimates of the costs to revise 
and distribute SPDs in response to this proposed regulation can 
therefore be interpreted to account for the likelihood that some plans 
will elect to prepare and distribute SMMs instead.

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 proposed 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 an annual burden 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 and the Regulatory Flexibility Act.

Small Business Regulatory Enforcement Fairness Act

    The rule proposed in this action 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. The 
rule, if finalized, will be transmitted to Congress and the Comptroller 
General for review.

Statutory Authority

    These regulations are proposed pursuant to authority contained in 
section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894, 29 U.S.C. 1135) and 
sections 104(b) of ERISA, as amended, 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:

PART 2520--[AMENDED]

    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 revising paragraphs (d), (j), 
(l), (m)(3), (o), (S), and (t)(2) to read as follows:


Sec. 2520.102-3  Contents of summary plan description.

* * * * *
    (d) The type of pension or welfare plan, e.g., for pension plans--
defined benefit, money purchase, profit sharing, ERISA section 404(c) 
plans, 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), 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 sec. 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

[[Page 48386]]

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, provided that the summary plan 
description contains a general description of the provider network and 
indicates that provider lists are furnished automatically, without 
charge, as a separate document.
* * * * *
    (l) For both pension and welfare benefit plans, a statement clearly 
identifying circumstances which may result in disqualification, 
ineligibility, or denial, loss, forfeiture or suspension 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. Such 
summaries shall be disclosed in accordance with the requirements under 
29 CFR 2520.102-2(b).
    (m) * * *
    (3) A summary plan description 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
* * * * *
    (o) In the case of a group health plan, within the meaning of 
section 607(1), 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, premiums, notice and election requirements and procedures, and 
duration of coverage.
* * * * *
    (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, 
filing claim forms, notifications of benefit determinations, and review 
of 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 that the document satisfies the style and format requirements 
of Sec. 2520.102-2, and, provided further, that the summary plan 
description contains a statement that the plan's claims procedures are 
furnished, 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 the 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:
    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.
    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 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

[[Page 48387]]

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.
    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. If your claim for a (pension, 
welfare) benefit is denied in whole or in part you must receive a 
written explanation of the reason for the denial. You have the right 
to have the plan review and reconsider your claim. Under ERISA, 
there are steps you can take to enforce the above rights. For 
instance, if you request materials 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.
    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, 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.
* * * * *


Sec. 2520.102-5  [Removed]

    3. Section 2520.102-5 is removed.

    Signed at Washington, DC, this 28th day of August, 1998.
Meredith Miller,
Deputy Assistant Secretary for Policy, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 98-24067 Filed 9-4-98; 8:45 am]
BILLING CODE 4510-29-P