[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Rules and Regulations]
[Pages 70226-70244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29765]



[[Page 70225]]

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Part VII





Department of Labor





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Pension and Welfare Benefits Administration



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29 CFR Part 2520



Amendments to Summary Plan Description Regulations; Final Rule

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

[[Page 70226]]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2520

RIN 1210-AA69; RIN 1210-AA55


Amendments to Summary Plan Description Regulations

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Final rule.

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SUMMARY: This document contains a final rule amending the regulations 
governing the content of the Summary Plan Description (SPD) required to 
be furnished to employee benefit plan participants and beneficiaries 
under the Employee Retirement Income Security Act of 1974, as amended 
(ERISA). These amendments implement information disclosure 
recommendations of the President's Advisory Commission on Consumer 
Protection and Quality in the Health Care Industry, as set forth in 
their November 20, 1997, report, ``Consumer Bill of Rights and 
Responsibilities.'' Specifically, the amendments clarify benefit, 
medical provider, and other information required to be disclosed in, or 
as part of, the SPD of a group health plan and repeal the limited 
exemption with respect to SPDs of welfare plans providing benefits 
through qualified health maintenance organizations (HMOs). In addition, 
this document contains several amendments updating and clarifying 
provisions relating to the content of SPDs that affect both pension and 
welfare benefit plans. This document also adopts in final form certain 
regulations that were effective on an interim basis implementing 
amendments to ERISA enacted as part of the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA). This final rule will affect 
employee pension and welfare benefit plans, including group health 
plans, as well as administrators, fiduciaries, participants and 
beneficiaries of such plans.

DATES: The amendments contained herein will be effective January 20, 
2001. Except as otherwise provided, the amendments contained herein 
will be applicable as of the first day of the second plan year 
beginning on or after January 22, 2001.

FOR FURTHER INFORMATION CONTACT: Nalini Close, Office of Regulations 
and Interpretations, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Washington, DC (202) 219-8521. This is not a toll-
free number.

SUPPLEMENTARY INFORMATION:

A. Background

    On September 9, 1998, the Department published in the Federal 
Register (63 FR 48376) proposed amendments to 29 CFR 2520.102-3 and 
2520.102-5, governing the content of the Summary Plan Description 
(SPD). A number of these amendments were proposed to implement 
recommendations of the President's Advisory Commission on Consumer 
Protection and Quality in the Health Care Industry for improved 
disclosure by group health plans. The Commission's recommendations were 
set forth in its November 20, 1997 report, entitled ``Consumer Bill of 
Rights and Responsibilities.'' The Department also proposed several 
additional amendments to the SPD requirements intended to generally 
update and clarify the information required to be disclosed by welfare 
and pension plans.
    Other amendments affecting the SPD requirements were published in 
the Federal Register on April 8, 1997 (62 FR 16979). These amendments, 
published as interim rules, served to implement amendments to ERISA's 
disclosure rules enacted as part the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA). The interim rules addressed certain 
content requirements for SPDs of group health plans and the furnishing 
of summaries of material reductions in covered services or benefits.
    After consideration of the public comments received on both the 
proposed and the interim rules referenced above, the Department is 
adopting final rules affecting the content of SPDs (Sec. 2520.102-3), 
the limited exception for SPDs of welfare plans providing benefits 
through a qualified HMO (Sec. 2520.102-5), and the furnishing of 
summaries of material reductions in covered services or benefits by 
group health plans (Sec. 2520.104b-3).\1\ A discussion of the specific 
amendments and the public comments follow.
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    \1\ Rules governing the use of electronic media for distribution 
of SPD and similar documents will be published separately. In this 
regard, the Department intends to address the interim rule in 29 CFR 
2520.104b-1(c) regarding the use of electronic media for furnishing 
SPDs, SMMs and updated SPDs to participants in group health plans in 
conjunction with the promulgation of a final rule on the use of 
electronic communications and recordkeeping technologies by employee 
benefit plans generally (See 64 FR 4506, January 28, 1999).
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B. Amendments Relating to the Content of SPD

1. Section 2520.102-3 (d)--Type of Plan

    Section 2520.102-3(d) currently requires plan administrators to 
specify in the summary plan description the type of welfare or pension 
plan they administer. In an effort to update that requirement, the 
Department proposed adding ``ERISA section 404(c) plans'' to the list 
of examples of types of pension plans and ``group health plans'' to the 
list of examples of types of welfare plans. One commenter expressed the 
view that the specific disclosures required under the regulation 
section governing section 404(c) plans (29 CFR 2550.404c-1(b)) should 
be adequate to inform participants and beneficiaries as to the nature 
of the plan and that, in some instances, the relief provided by section 
404(c) may not extend to the entire plan. Other commenters suggested 
adding categories of plans to the list of examples, such as defined 
contribution plans, 401(k) plans, ``cash balance'' plans, etc. Upon 
consideration of these comments, the Department has, for purposes of 
the final regulation, decided to retain ``ERISA section 404(c) plan'' 
as an example in the list of types of pension plan, and to further add 
``defined contribution plan,'' ``401(k) plan,'' and ``cash balance 
plan'' to that list. The list of examples is not intended to be 
exhaustive. Rather, section 2520.102-3(d) requires plan administrators 
to clearly communicate in the SPD information to participants and 
beneficiaries about the type of plan in which they participate and the 
features of such plan. In this regard, the Department notes that where 
section 404(c) is intended to apply to only certain aspects of a plan 
or where participants have the right to direct only certain investments 
in their account, such information should be communicated in the SPD in 
a clear, understandable manner. There were no comments raising concerns 
regarding the addition of ``group health plan'' as an example of 
welfare plan. Accordingly, that change is being adopted as proposed.
    With regard to cash balance plans, the Department notes that two 
recent reports issued by the General Accounting Office (GAO) recommend 
changes to the SPD requirements that the GAO believes will serve to 
better inform participants and beneficiaries covered by such plans, or 
involved in a conversion to such a plan, of their rights and benefits 
under the plan.\2\ The

[[Page 70227]]

Department notes that the requirements governing the content of SPDs 
currently require the disclosure of information regarding a pension 
plan's requirements concerning eligibility for participation and 
benefits; a statement of conditions that must be met for eligibility to 
receive benefits; a summary of the benefits; circumstances that may 
result in ineligibility, loss of denial of benefits that a participant 
might otherwise reasonably expect the plan to provide on the basis of 
the description of benefits; and a description of the service required 
to accrue full benefits.\3\ The Department further notes that the 
required information must be sufficiently comprehensive to reasonably 
apprise the plan's participants and beneficiaries of their rights and 
obligations under the plan and must be written in a manner calculated 
to be understood by the average plan participant.\4\ The Department 
believes that the foregoing SPD provisions require a reasonably 
comprehensive and clear description of the provisions of a cash balance 
plan and how a prior conversion may have affected benefits that classes 
of participants may have reasonably expected the plan to provide. In 
this regard, the Department encourages sponsors of cash balance plans 
to review their SPDs to ensure compliance with current disclosure 
requirements. The Department, however, also shares the concerns raised 
by the GAO and agrees that more needs to be done to ensure that 
participants fully understand plan changes and the impact of such 
changes on their benefits under the plan. In this regard, the 
Department invites the views of interested persons on whether, and to 
what extent, changes to the SPD requirements would help ensure better 
communications with participants and beneficiaries about a cash balance 
plan and cash balance plan conversions. The Department also invites 
views on whether standardized language should be develop for the 
disclosure of such information to participants and beneficiaries. 
Suggestions for such language also are invited.
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    \2\ See ``CASH BALANCE PLANS--Implications for Retirement 
Income'' (GAO/HEHS-00-207, dated September 29, 2000) and ``PRIVATE 
PENSIONS--Implications of Conversions to Cash Balance Plans'' (GAO/
HEHS-00-185, dated September 29, 2000). Both GAO reports are 
available for viewing at www.gao.gov. The GAO's recommendations were 
for the Department to amend the disclosure regulations under ERISA 
to require that SPDs/SMMs include: (i) a clear statement regarding 
the difference between the hypothetical account balance and the 
accrued benefit payable at normal retirement age under the cash 
balance plan; (ii) specific information about the impact timing of 
interest crediting has on deferred pension benefits for terminating 
workers; (iii) standardized language providing plan participants 
with their rights to contact PWBA and/or IRS if they are unable to 
understand the information provided and the relevant addresses and 
telephone numbers necessary for such contacts; (iv) a clear 
statement regarding the hypothetical nature of cash balance 
accounts, including that employees do not own the accounts and how 
such accounts differ from any defined contribution accounts an 
employer may also provide; and (v) a clear statement identifying the 
potential of the conversion to reduce future pensions accruals and 
early retirement benefits and under what circumstances such 
reductions are likely to occur.
    \3\ See: 29 CFR 2520.102-3(j), (l), and (n), respectively.
    \4\ See: 29 CFR 252.102-2(a).
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2. Section 2520.102-3(j)--Eligibility for Participation and Benefits

a. Procedures Governing QDRO and QMCSO Determinations
    The Department proposed to amend Sec. 2520.102-3(j)(1) to require 
that the SPD of a pension plan include either a description of the 
plan's procedures governing qualified domestic relations order (QDRO) 
determinations or a statement indicating that participants and 
beneficiaries can obtain, without charge, a copy of such procedures 
from the plan administrator. Similarly, the Department proposed 
amending paragraph (j)(2) to require that the SPD of group health plans 
include either a description of the plan's procedures governing 
qualified medical child support order (QMCSO) determinations or a 
statement indicating that participants and beneficiaries can obtain, 
without charge, a copy of such procedures from the plan. The Department 
did not receive any comments requesting modification of these 
provisions; accordingly, these amendments are being adopted as 
proposed.
b. Pension Plan Disclosures
    A number of commenters suggested that paragraph (j)(2) of 
Sec. 2520.102-3 be changed to expressly require plan administrators to 
explain in pension plan SPDs the difference between the plan's 
requirements for eligibility to participate in a plan and the 
requirements for eligibility to receive benefits. These commenters 
stated that many participants in pension plans do not understand that 
satisfying eligibility requirements to participate in a plan does not 
necessarily mean that the participants are necessarily vested in the 
benefits provided by the plan. The current regulation requires that 
pension plan SPDs describe ``the plan's provisions relating to 
eligibility to participate in the plan, such as age or years of service 
requirements,'' and include ``a statement describing any other 
conditions which must be met before a participant will be eligible to 
receive benefits.'' Accordingly, it is the Department's view that the 
current regulation already requires that SPDs include a description, 
written in a manner calculated to be understood by the average plan 
participant, both of the requirements for eligibility to participate in 
a plan and of any additional conditions for eligibility to receive 
benefits. The Department, therefore, has determined that the requested 
clarification is not necessary.
c. Group Health Plan Disclosures
    In responding to recommendations of the Health Care Commission, the 
Department proposed amending paragraph (j) of 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.\5\ Specifically, subparagraph (3), 
as proposed, would require that the SPD of a group health plan 
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 or specialty medical care; any conditions or 
limits applicable to obtaining emergency medical care; and any 
provisions requiring preauthorizations or utilization review as a 
condition to obtaining a benefit or service under the plan. 
Subparagraph (3) also provided that, in the case of plans with provider 
networks, the listing of providers may be furnished to participants and 
beneficiaries as a separate document, provided that the SPD contains a 
general description of the provider network and indicates that provider 
lists are furnished, without charge, in a separate document. In 
discussing the new subparagraph (3) in the preamble to the proposal, 
the Department expressed its view that the information more 
specifically delineated in the new subparagraph is already required to 
be disclosed pursuant to paragraph (j)(2) of Sec. 2520.102-3, and that 
the amendment is merely intended to remove any ambiguity as to the 
disclosure

[[Page 70228]]

requirements applicable to group health plans.
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    \5\ The term ``group health plan'' is defined in ERISA section 
733(a).
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    The Department received a number of comments relating to the 
requirements of proposed paragraph (j)(3). While many commenters agreed 
that much of the information delineated in the proposal is currently 
provided to participants and beneficiaries, a number of the commenters 
indicated that the information is not provided as part of an SPD. In 
this regard, commenters expressed concern that requiring specific 
detailed information relating to covered drugs, preventive services, 
cost-sharing provisions, and provider networks to be included in the 
SPD itself will be burdensome and costly to plans and not helpful for 
participants and beneficiaries. Some commenters indicated that having 
to amend SPDs to reflect frequent changes in specific benefits, such as 
the addition of new drugs, medical tests or devices, would also 
increase burdens and costs for plans. Other commenters expressed 
concern about having to provide all plan participants and beneficiaries 
with an SPD containing all the required disclosures when the plan 
provides different insurance or HMO options or different premium or 
cost-sharing provisions applicable to different categories of 
participants.
    Under ERISA, the SPD is the primary vehicle for informing 
participants and beneficiaries about their rights and benefits under 
the employee benefit plans in which they participate. It is the view of 
the Department, therefore, that the SPD is the appropriate vehicle for 
providing participants and beneficiaries the information described in 
proposed paragraph (j)(3). It is important to note, however, that the 
Department did not intend paragraph (j)(3) to be construed as requiring 
the SPD to list each and every drug, test, device, or procedure covered 
by a group health plan. Rather, paragraph (j)(3) is intended to ensure 
that SPDs adequately inform participants and beneficiaries whether and 
under what circumstances the benefits referenced in paragraph (j)(3) 
will or will not be covered by the plan, and to direct participants and 
beneficiaries as to where additional information may be obtained, free-
of-charge, about plan coverage of a specific benefit, i.e., a 
particular drug, treatment, test, etc. It is the view of the Department 
that paragraph (j)(2) of Sec. 2520.102-3 continues to govern the 
required disclosure of detailed schedules of benefits, including 
schedules and listings of specific preventive services, drugs, tests, 
devices, procedures, and other benefits described in (j)(3), by group 
health plans. In this regard, Sec. 2520.102-3(j)(2) provides, among 
other things, that ``[i]n the case of a welfare plan providing 
extensive schedules of benefits (a group health plan, for example) only 
a general description of such benefits is required if reference is made 
to detailed schedules of benefits which are available, without cost to 
any participant or beneficiary who so requests.''
    The Department also believes that its current law and regulations 
provide group health plans with sufficient flexibility so that they 
will not have increased burdens and costs resulting from having to 
amend SPDs to reflect frequent changes in specific benefits, such as 
the addition of new drugs, medical tests or devices. Rather, to the 
extent that there is a material modification in the terms of the plan 
or a change in the information required to be included in the SPD, 
ERISA section 104(b)(1) and the Department's regulations allow the 
administrator to furnish participants covered under the plan and 
beneficiaries receiving benefits with a summary of material 
modification, or SMM.
    A few commenters requested that Department define specific itemized 
terms, such as ``preventive services'' and ``provider network.'' 
Because the meaning of such terms or concepts may vary from plan to 
plan, the Department believes that, in the context of describing 
covered benefits, such terms are best defined by reference to 
applicable plan provisions, rather than by regulation. Accordingly, the 
Department has not adopted these suggestions.
    With regard to descriptions of group health plan provisions 
requiring preauthorization or utilization review as a condition to 
obtaining a benefit or service under the plan, the Department notes 
that, while only a summary of these provisions is required, the summary 
must be sufficient to apprise participants and beneficiaries of their 
rights and obligations under such provisions. With regard to the 
disclosure of cost sharing information, the Department notes that, 
while specific premium amounts would not have to be disclosed in the 
SPD, the SPD must clearly communicate the circumstances and extent to 
which participants and beneficiaries will be liable under the plan for 
premiums, deductibles, copayments, etc. Deductibles, copayments, 
benefit caps or limits on the benefits payable under the plan should be 
set forth in sufficient detail to reasonably enable participants and 
beneficiaries to assess their responsibility for medical care, hospital 
and other costs under the plan.
    For the above reasons, the Department does not believe that 
requiring inclusion of the benefit information described in paragraph 
(j)(3) will either impose undue burdens on plans or undermine the 
usefulness of the SPD for plan participants and beneficiaries. To the 
contrary, the Department believes that inclusion of such information in 
the SPD is necessary to ensure that participants and beneficiaries are 
provided basic information concerning their plan's coverage of 
preventive medical services, drugs, tests , devices, etc., even if more 
detailed information concerning specific benefits is available on 
request.
    The Department continues to believe, however, that, unlike 
schedules and listings of specific benefits that may be furnished upon 
request, complete listings of network providers should be furnished 
automatically to each participant and beneficiary. The Department 
believes that, where the availability of specific medical services or 
benefits under a plan may depend in whole or in part on knowing the 
specific service provider from whom services may be obtained, the 
selection of a service provider becomes a particularly significant 
benefit decision. The Department believes that, under such 
circumstances, participants and beneficiaries will be in the best 
position to evaluate and assess their medical provider options when 
they can review a complete listing of the providers available to them 
under the terms of the plan, rather than having to inquire on a 
service-by-service or provider-by-provider basis. For this reason, the 
Department is retaining the requirement that detailed provider lists be 
furnished automatically, without charge, to participants. The 
Department recognizes, however, that requiring all providers to be 
listed in an SPD may undermine the usefulness of SPDs as a disclosure 
document. The Department, therefore, is also retaining the proposed 
provision in paragraph (j)(3) permitting the network provider listings 
to be furnished in a separate document, provided that the SPD contains 
a general description of the provider network and, as noted, that 
provider lists are furnished automatically, without charge.
    In response to commenter concerns about having to provide 
participants and beneficiaries with an SPD containing detailed benefit, 
premium, network provider, and other information that may not be 
equally relevant to all participants and beneficiaries, the Department 
notes that plan

[[Page 70229]]

administrators may utilize different SPDs for different classes of 
participants and beneficiaries, as described at 29 CFR 2520.102-4. In 
general, the regulation provides that where an employee benefit plan 
provides different benefits for various classes of participants and 
beneficiaries, the plan administrator may fulfill the requirement to 
furnish an SPD by furnishing each class of participant and beneficiary 
a copy of the SPD appropriate to that class. The regulation further 
provides that, while the SPD may omit information not applicable to the 
class of participants and beneficiaries to which it is furnished, the 
SPD must clearly identify on the first page of text the class of 
participants and beneficiaries for which the SPD was prepared and the 
plan's coverage of other classes. It is the view of the Department that 
where a plan has varying premium structures or benefits for different 
classes of participants and beneficiaries, different SPDs can be 
prepared and furnished in accordance with Sec. 2520.102-4. For example, 
for purposes of Sec. 2520.102-4, participants and beneficiaries may be 
classified by the benefit coverages they select under the plan (e.g., 
fee-for-service option or HMO option), thereby permitting separate SPDs 
to be prepared for each coverage option available under the plan.

3. Section 2520.102-3(1)--Disclosure of Plan Termination Information

    The Department proposed to amend paragraph (1) of Sec. 2520.102-3 
to incorporate principles set forth in Technical Release 84-1 and to 
clarify the application of those principles to plan amendments. 
Specifically, the proposal would require that SPDs include the 
following information: (1) A summary of any plan provisions governing 
the authority of the plan sponsor or others to terminate the plan or to 
eliminate, in whole or in part, benefits under the plan, and the 
circumstances, if any, under which the plan may be terminated and 
benefits amended or eliminated; (2) a summary of any plan provisions 
governing the benefits, rights and obligations of participants and 
beneficiaries under the plan on termination of the plan or amendment or 
elimination of benefits under the plan, including, in the case of an 
employee pension benefit plan, a summary of any provisions relating to 
the accrual and the vesting of pension benefits under the plan upon 
termination of the plan; and (3) a summary of any plan provisions 
governing the allocation and disposition of assets of the plan upon 
termination of the plan.
    Several commenters argued against adopting this provision on the 
basis that it would be difficult for plan administrators to anticipate 
and describe in an SPD all the possible circumstances under which plans 
may be terminated or benefits eliminated. The Department does not view 
the proposed amendment of paragraph (1) as requiring an exhaustive 
listing or description of every circumstance that might result in the 
elimination of benefits or termination of the plan. Rather, SPDs should 
include a clear, understandable summary of the sponsor's authority 
under the plan, as well as limitations thereon, to eliminate benefits 
or terminate the plan. The level of detail provided in the SPD, 
however, may vary depending on the nature of the plan and the plan 
provisions involved. The Department continues to believe, as it has 
since the issuance of Technical Release 84-1, that the disclosure of 
the information relating to the circumstances under which benefits 
might be eliminated or the plan terminated, and the effects of such 
actions on benefits, is of significant importance to participants and 
beneficiaries. For this reason, the Department is adopting, without 
change, the proposed amendment to paragraph (1) of Sec. 2520.102-3.
    A few commenters suggested that the regulations should prohibit 
conflicts between provisions of the SPD and the plan document by 
requiring the use of clear terminology and definitions, prohibiting the 
use of disclaimers in SPDs, and providing that ambiguous SPD provisions 
will be interpreted against the drafter. To the extent these comments 
concern the understandability of SPDs to plan participants and 
beneficiaries, the Department believes that its current general 
standards on style and format of SPDs in 29 CFR 2520.102-2 are 
appropriate and further regulatory guidance is not necessary. Some of 
these comments, such as the request to prohibit ``disclaimers'' in SPDs 
and establishing a rule calling for interpreting ambiguous provisions 
in SPDs against the drafter, raise issues that are beyond the scope of 
these SPD regulations.
    Several commenters suggested that the Department clarify the 
requirement regarding disclosure of subrogation provisions in a plan's 
SPD. It is the Department's view that subrogation, reimbursement, and 
other provisions of a plan that may serve to eliminate, reduce, offset 
or otherwise adversely affect the amount of benefits to which a 
participant or beneficiary is entitled must be disclosed in the SPD 
pursuant to Sec. 2520.102-3(l). Similarly, it is the view of the 
Department that, for purposes of satisfying Sec. 2520.102-3(l), the SPD 
must include a description of any fees or charges that may be imposed 
on a participant or beneficiary, or their individual account, as a 
condition to receiving a benefit, inasmuch as any such fee or charge 
may, directly or indirectly, serve to reduce the benefits the 
participant or beneficiary might otherwise reasonably expect to 
receive. Paragraph (l) has been clarified in this regard.

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

    Section 2520.102-3(m) requires pension plan SPDs to include a 
statement indicating whether benefits of the plan are insured under 
Title IV of ERISA and, if insured, a description of the pension benefit 
guaranty provisions of Title IV and a statement indicating that further 
information can be obtained from the plan administrator or the Pension 
Benefit Guaranty Corporation (PBGC). The regulation provides that a SPD 
is deemed to meet the requirements of paragraph (m)(2) if it includes a 
model statement included in the regulation. The Department proposed to 
amend the model statement in accordance with changes provided by the 
PBGC to more accurately reflect the benefits guaranteed under Title IV, 
as well as update the information relating to the PBGC.
    A commenter stated that the model statement was not appropriate for 
use in SPDs of multiemployer plans because a broader range of 
circumstances can give rise to a plan termination and the level of 
guaranteed benefits may be substantially below the level of benefits 
promised under the plan. In response to this comment, the PBGC prepared 
separate model statements for single-employer plans and multiemployer 
plans, and the Department modified the proposal to include the model 
statement for single-employer plans in paragraph (m)(3) and the model 
statement for multiemployer plans in paragraph (m)(4).

5. Section 2520.102-3(o)--COBRA Rights

    Under the proposal, paragraph (o) of Sec. 2520.102-3 would be 
amended to address the requirement that participants and beneficiaries 
in group health plans subject to the COBRA continuation coverage 
provisions of Part 6 of Title I of ERISA be provided information 
concerning their rights and obligation under those provisions.

[[Page 70230]]

    Two commenters expressed concern about having to provide detailed 
COBRA information in the SPD. One of the commenters suggested 
permitting the information to be furnished in a separate document, like 
the disclosures permitted with respect to QDRO and QMCSO determination 
procedures. The COBRA provisions confer important substantive rights 
upon participants and beneficiaries concerning the continuation of 
their health plan coverage. For this reason, the Department continues 
to believe that participants and beneficiaries should be informed about 
these rights, and their obligations with respect to the exercise of 
these rights, in the summary plan description. The Department, 
therefore, is adopting the proposed amendment of paragraph (o) of 
Sec. 2520.102-3 without change.
    One commenter requested a clarification as to whether the section 
606(a)(1) COBRA notice provided through the SPD should be provided at 
the time the participant first becomes covered under the plan or when 
the participant becomes eligible for COBRA continuation coverage. 
Pursuant to ERISA section 104(b)(1), and the Department's regulations 
issued thereunder, an administrator must distribute an SPD within 90 
days of an individual's becoming a participant or beneficiary under the 
plan. ERISA section 606(a)(1), however, requires group health plans to 
provide covered employees and spouses, if any, with notification of 
their COBRA rights at the time of commencement of coverage under the 
plan, i.e., when the individual becomes a participant or beneficiary. 
As noted in the preamble to the proposed regulation, the Department has 
taken the position that the disclosure obligation under section 
606(a)(1) will be satisfied by furnishing to the covered employee and 
spouse, at the time coverage commences under the plan, an SPD that 
includes the COBRA continuation coverage information required by 
section 606(a)(1).\6\
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    \6\ The Department is currently considering the issuance of 
additional guidance, in form of regulations, that would serve to 
clarify the information disclosure and notification requirements 
under the continuation coverage provisions of Part 6 of Title I, 
including the requirements of section 606(a)(1) of ERISA.
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    Two commenters raised issues concerning spousal notification. One 
commenter inquired whether hand delivery of an SPD with COBRA 
information to a participant at a worksite location with written 
instructions to share the SPD with the spouse would satisfy the section 
606(a)(l) disclosure requirement. The other commenter expressed concern 
that including COBRA information in the SPD may lead some to conclude 
that spousal notification is not required. The mere fact that COBRA 
information is required to be set forth in the SPD does not relieve 
group health plan administrators from their obligation to provide 
notice to an employee's covered spouse under 606(a)(1). The Department, 
however, has taken the position that where a spouse's last known 
address is the same as the covered employee's, a single mailing of the 
required COBRA disclosure (which could be in the form of an SPD), 
addressed to both the employee and the spouse, will constitute good 
faith compliance with the COBRA notice requirements of section 
606(a)(1) (See Technical Release No. 86-2). It is the view of the 
Department that, in the absence of specific contrary regulations, in-
hand delivery to an employee at his or her worksite location of an SPD 
containing COBRA information would not constitute adequate notice to 
the spouse of that employee for purposes of section 606(a)(1).

6. Section 2520.102-3(q)--Funding Medium Information for Group Health 
Plans

    On April 8, 1997, the Department published in the Federal Register 
(62 FR 16970) an amendment to paragraph (q) of Sec. 2520.102-3 
implementing statutory changes to the SPD disclosure requirements 
enacted as part of the Health Insurance Portability and Accountability 
Act of 1996. The amendment was intended to ensure that SPDs clearly 
inform participants and beneficiaries about the role of health 
insurance issuers in their group health plan, particularly in those 
cases where the plan is self-funded and an insurer is serving as a 
contract administrator or claims payor, rather than as an insurer. In 
the preamble to the September 9, 1998, proposed SPD amendments (63 FR 
48386), the Department noted that it intended to adopt paragraph (q) as 
a final regulation in conjunction with the adoption of other amendments 
to the SPD requirements.
    One commenter suggested that paragraph (q) should require that SPDs 
include an explanation of the importance of whether health benefits 
provided by a plan are guaranteed by an insurer, including a disclosure 
that participants and beneficiaries in self-insured group health plans 
do not have access to the consumer protections afforded to participants 
and beneficiaries of plans utilizing state-licensed insurers and HMOs 
(for example, solvency requirements and governmental administrative 
assistance in the event of disputes over coverage). The Department does 
not believe that the SPD is the appropriate vehicle for comparing 
various types of funding arrangements, without regard to whether such 
arrangements are actually utilized by the plan. The Department, 
therefore, is adopting paragraph (q) of Sec. 2520.102-3, without change 
and as it was adopted in interim form, as a final rule.

7. Section 2520.102-3(s)--Claims Procedure Information

    The Department proposed to amend paragraph (s) of Sec. 2520.102-3 
to make clear that the claims procedure in the SPD of a group health 
plan must include any plan procedures for preauthorization, approval, 
or utilization review. The proposed amendment also made clear that a 
plan is not precluded from furnishing the plan's claims procedures as a 
separate document that accompanies the plan's SPD, provided that the 
separate document satisfies the style and format requirements of 
Sec. 2520.102-2, and, provided further that the SPD contains a 
statement that the plan's claims procedures are furnished 
automatically, without charge, as a separate document. While commenters 
generally supported the provision allowing the plan's claims procedures 
to be provided in a separate document, a few commenters argued that, 
given the importance of the claims procedures to participants and 
beneficiaries, the full claims procedures should be required to be in 
the SPD.
    The Department agrees that the procedures governing a plan's 
benefit claims and appeal processes are of critical importance to 
participants and beneficiaries. The Department also recognizes that 
requiring incorporation of detailed claims procedures in the SPD, which 
contains a wide variety of benefit-related information, may in some 
instances minimize the importance of the procedures or overwhelm some 
participants. It is the view of the Department that the proposed 
conditions for utilizing a separate document for purposes of disclosing 
a plan's benefit claims and appeals procedures will ensure that 
participants and beneficiaries receive clear and complete information 
about their plan's benefit claims procedures, while providing plan 
administrators the flexibility to choose which method of communication, 
integration in an SPD or furnishing a separate document with the SPD, 
will best serve their plan's participants and beneficiaries. The 
Department, therefore, is adopting the

[[Page 70231]]

proposed amendment to paragraph (s) of Sec. 2520.102-3 without change.

8. Section 2520.102-3(t)--Statement of ERISA Rights

    The proposal would amend paragraph (t)(2) of Sec. 2520.102-3 to 
improve and update the model statement of ERISA rights that plans may 
use to satisfy the requirement to furnish participants and 
beneficiaries with the statement of ERISA rights described in section 
104(c) of the Act. Specifically, the Department proposed to amend the 
model statement to incorporate references to participant rights under 
the COBRA continuation provisions of Part 6 of ERISA and the 
portability provisions of Part 7 of ERISA. The proposal also would 
extend to all employee benefit plans the model statement changes 
applicable to group health plans on an interim basis as a result of 
amendments to ERISA enacted as part of the Health Insurance Portability 
and Accountability Act of 1996. It does so with the addition of a 
sentence to the model statement directing participants and 
beneficiaries who have questions about their ERISA rights to the 
nearest office of the Pension and Welfare Benefits Administration or 
the Division of Technical Assistance and Inquiries in Washington, D.C. 
Other changes to the statement include: modifying the reference of ``up 
to $100 a day'' to ``up to $110 a day,'' to reflect the fact the civil 
monetary amount under ERISA section 502(c)(1) has been increased to 
take inflation into account, as required by the Debt Collection 
Improvement Act of 1996; \7\ clarifications to the language discussing 
the types of documents participants and beneficiaries have the right to 
examine and receive copies of upon request; the addition of a sentence 
indicating that issues involving the qualified status of domestic 
relations orders and medical child support orders may be resolved in 
Federal court; and clarifying the rights of participants and 
beneficiaries under the plan's claims procedures.
---------------------------------------------------------------------------

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

    A number of commenters suggested that the style and readability of 
the model statement could be improved by, for example, varying font 
sizes and using headings and indented text. Other commenters suggested 
that the Department include information concerning the availability of 
Departmental assistance in obtaining SPDs and copies of plan documents, 
while others requested that the Department include a statement urging 
participants and beneficiaries to contact their plans before filing 
complaints with the Department or suing regarding problems with claim 
denials or issues on benefit entitlements.
    In response to these comments, the Department has added headings to 
the model statement that are intended to make the statement easier to 
read. Administrators are encouraged to explore other steps that might 
be taken to enhance readability, without compromising or undermining 
the substantive information provided in the model statement. The 
Department also has modified the proposed model statement to include 
provisions informing participants and beneficiaries that they may 
obtain copies of annual reports (Form 5500s) filed for their plan from 
the Public Disclosure Room of the Pension and Welfare Benefits 
Administration (PWBA) and a notice that assistance is available from 
PWBA's regional offices in obtaining from plan administrators documents 
under which the plan is established or operated.
    With respect to the suggestion that participants be encouraged to 
contact their plans about claims and benefit issues prior to contacting 
the Department of Labor, the Department believes that language of the 
proposed statement--directing plan questions to the plan 
administrator--provides direction to plan participants without 
inhibiting their pursuing issues with the Department. Accordingly, no 
changes to the model statement are being made in this regard.

9. Section 2520.102-3(u)--Newborns' and Mothers' Health Protection Act 
Disclosure

    On September 9, 1998, the Department published in the Federal 
Register (63 FR 48372) a revised interim rule setting forth the 
information required to be disclosed in the SPD concerning the 
provisions of the Newborns' and Mothers' Health Protection Act 
(Newborns' Act), codified at section 711 of ERISA. A concern was 
expressed to the Department that the interim rule in Sec. 2520.102-3(u) 
required all Title I group health plans to include information in their 
SPDs about federal law requirements under the Newborns' Act while 
section 711(f) provides an exception from those requirements for health 
insurance coverage in certain states. Specifically, section 711(f) 
provides that the requirements of section 711 shall not apply with 
respect to health insurance coverage if a state law regulating the 
coverage: (1) requires such coverage to provide for at least a 48-hour 
hospital length of stay following a vaginal delivery and at least a 96-
hour hospital length of stay following a cesarean section; (2) requires 
such coverage to provide for maternity and pediatric care in accordance 
with guidelines established by the American College of Obstetricians 
and Gynecologists, the American Academy of Pediatrics, or other 
established professional medical associations; or (3) requires, in 
connection with such coverage for maternity care, that the hospital 
length of stay for such care is left to the decision of (or required to 
by made by) the attending provider in consultation with the mother. The 
commenter expressed concern that participants and beneficiaries could 
be confused by an SPD disclosure describing federal law requirements in 
situations where only state law applies.
    The Department agrees that plans that are exempt from the federal 
law requirements of section 711 because state law requirements apply 
should be able to focus their SPD disclosure on the applicable state 
law requirements for hospital length of stay following newborn 
deliveries. The final rule therefore modifies the requirement in 
Sec. 2520.102-3(u) to provide that, for a group health plan, as defined 
in section 733(a)(1) of the Act, that provides maternity or newborn 
infant coverage, the SPD must contain a statement describing the 
federal or state law requirements applicable to the plan or any health 
insurance coverage offered under the plan, relating to hospital length 
of stay in connection with childbirth for the mother or newborn child. 
The final rule makes it clear that if federal law applies in some areas 
in which the plan operates and state laws apply in others, the SPD must 
describe the federal and state law requirements that apply in each area 
covered by the plan. The final rule also sets forth a model statement 
that group health plans subject to section 711 of the Act may use to 
comply with paragraph (u) of this section relating to the required 
description of federal law requirements.

C. Repeal of Limited Exemption for SPDs of Plans Providing Benefits 
Through a Federally Qualified HMO

    The proposal would repeal the limited exemption, at 29 CFR 
2520.102-5, for SPDs of welfare benefit plans providing benefits 
through a qualified HMO, as defined in section 1310(d) of the Public 
Health Act, 42 U.S.C. 300e-9(d). Such SPDs are not required to include 
the information described in Secs. 2520.102-3(j)(2), (l), (q) and (s), 
provided certain conditions are met. Several commenters objected to the 
repeal of Sec. 2520.102-5, expressing concern that this change would 
result in

[[Page 70232]]

voluminous and unhelpful SPDs. Specifically, they stated that HMOs 
already provide much of the information described in Secs. 2520.102-
3(j)(2), (l), (q), and (s) directly to participants and beneficiaries, 
that a typical group health plan could provide a choice among benefits 
under a large number of different HMOs, and, in such a case, the plan's 
SPD would have to include extensive and, for some participants and 
beneficiaries, potentially irrelevant information on each of the HMOs. 
Commenters also argued that HMO information changes frequently, which 
would require frequent amendment to SPDs. The elimination of 
Sec. 2520.102-5 would, according to those commenters, result in 
increased plan expenses. Other commenters complained that it would be 
unfair to require plan administrators to be responsible for providing 
information on HMOs to participants and beneficiaries because typical 
HMO contracts preclude the employer from having access to such 
information.
    The Department continues to believe that, given the legislative and 
other changes affecting the operation of group health plans since the 
adoption of Sec. 2520.102-5 in 1981,\8\ the information required to be 
disclosed through the SPD and summaries of changes thereto are as 
important to participants and beneficiaries electing coverage through a 
federally qualified HMO as any other group health plan participant or 
beneficiary. The Department is not convinced that the disclosure 
obligations otherwise applicable to federally qualified HMO are 
adequate to ensure that participants and beneficiaries receive both 
timely and useful information.
---------------------------------------------------------------------------

    \8\ See 46 FR 5884, January 21, 1981.
---------------------------------------------------------------------------

    Moreover, as noted earlier, plan administrators may, pursuant to 
Sec. 2520.102-4, utilize different SPDs for different classes of 
participants within a single plan. Where a group health plan offers 
multiple benefit options, it is the view of the Department that 
participants and beneficiaries may be classified by the benefit 
coverages they elect under the plan (e.g., fee-for-service option or 
HMO option), thereby permitting separate SPDs to be prepared pursuant 
to Sec. 2520.102-4 for each coverage option available under the plan. 
The Department believes that this flexibility permits plan 
administrators to avoid the problems raised by commenters, while 
ensuring that participants and beneficiaries receive relevant 
information about their coverage. With respect to the comments 
expressing concern about administrators being responsible for the 
information provided about federally qualified HMOs, the Department 
notes that administrators currently are responsible for the information 
provided to participants and beneficiaries under non-federally 
qualified HMO coverage and benefit options offered by group health 
plans. For the reasons discussed above, the Department continues to 
believe that extending that same responsibility to the information 
provided about federally qualified HMOs is appropriate.
    Finally, certain commenters argued that the proposal exceeded the 
Department's authority because it is the option to join the HMO that is 
the plan benefit and not the medical coverage provided by the HMO. 
Therefore, the commenters contended, the only HMO information that the 
Department can require to be included in the SPD is information 
regarding eligibility to join the HMO. The Department disagrees with 
this view. As the Department stated in the preamble to its 1981 rule 
providing limited relief to welfare benefit plans that include 
membership in a qualified HMO as an option, ERISA applies to a plan 
that offers benefits listed under section 3(1) of ERISA, regardless of 
whether the benefits are offered through a qualified HMO or otherwise. 
See 46 FR 5882 (January 21, 1981).
    As a result, the Department is adopting the proposal without 
change.

D. Amendments Relating to Furnishing Summaries of Material 
Reductions in Covered Services or Benefits

    Section 104(b)(1) of ERISA requires, among other things, that the 
administrator furnish to each participant, and each beneficiary 
receiving benefits under the plan, copies of modifications in the terms 
of their plans and changes in the information required to be included 
in the SPD not later than 210 days after the end of the plan year in 
which the change is adopted. Section 101(c)(1) of HIPAA amended ERISA 
section 104(b)(1) to provide that, in the case of any modification or 
change that is a ``material reduction in covered services or benefits 
provided under a group health plan,'' participants and beneficiaries 
must be furnished the summary of such modification or change not later 
than 60 days after the adoption of the modification or change, unless 
the plan sponsor provides summaries of modifications or changes at 
regular intervals of not more than 90 days.
    On April 8, 1997, the Department published an interim rule (62 FR 
16985) amending 29 CFR 2520.104b-3 by adding a new paragraph (d) to 
implement the statutory change to section 104(b)(1). Specifically, 
section 2520.104b-3(d)(1) provides that summaries of any modification 
to the plan or change in the information required to be included in the 
SPD that is a material reduction in covered services or benefits must 
be furnished by administrators of group health plans to each 
participant covered under the plan, and each beneficiary receiving 
benefits under the plan, not later than 60 days after the date of 
adoption of the modification or change. Section 2520.104b-3(d)(2) 
provides that the 60-day period for providing such summaries does not 
apply to any participant or beneficiary who would reasonably be 
expected to be furnished such summary in connection with a system of 
communication maintained by the plan sponsor or administrator, with 
respect to which plan participants and beneficiaries are provided 
information concerning their plan, including modifications and changes 
thereto, at regular intervals of not more than 90 days. Section 
2520.104b-3(d)(3)(i) defines a ``material reduction in covered services 
or benefits'' to mean any modification to the plan or change in the 
information required to be included in the SPD that, independently or 
in conjunction with other contemporaneous modifications or changes, 
would be considered by the average plan participant to be an important 
reduction in covered services or benefits. To facilitate compliance, 
paragraph (d)(3)(ii) set forth a listing of modifications or changes 
that generally would constitute a ``reduction in covered services or 
benefits.''
    One commenter expressed confusion over the requirement to provide 
these disclosures to ``beneficiaries receiving benefits under the 
plan'' given the fact that pursuant to 29 CFR 2520.104b-2 only 
beneficiaries receiving benefits under a pension plan are required to 
be furnished a summary plan description. While the included language 
regarding beneficiaries tracks the language of Sec. 2520.104b-3(a), the 
Department agrees with the commenter that the reference to 
``beneficiaries receiving benefits under the plan'' appears to conflict 
with other regulatory provisions that indicate that beneficiaries 
receiving benefits under a welfare plan are excepted from the 
disclosure requirement. In addition to the provisions in 
Sec. 2520.104b-2 noted by the commenter, the Department notes that 29 
CFR 2520.104b-1(a), governing the furnishing of documents required to 
be furnished by direct operation of law

[[Page 70233]]

(such as SPDs and SMMs), specifically excepts from that disclosure 
obligation ``beneficiaries under a welfare plan.'' Accordingly, the 
Department is eliminating the reference to ``each beneficiary receiving 
benefits under the plan'' from paragraph (d) of Sec. 2520.104b-3. The 
Department, nonetheless, would be interested in receiving comments from 
interested persons on whether, and under what circumstance, the current 
regulations should be amended to require disclosure of SPD and related 
information to beneficiaries receiving benefits under a welfare plan.
    With respect to the provision in the interim rule defining 
``material reduction in covered services or benefits,'' one commenter 
suggested that the ``average plan participant'' standard contained in 
the definition is too strict for chronically ill patients. Another 
commenter recommended that the Department adopt a standard that is more 
objective and easier to ascertain. The ``average plan participant'' 
standard has been the standard that plan administrators have used for 
more than twenty years in determining whether an SPD satisfies the 
requirements of Sec. 2520.102-2(a). That general standard is warranted 
because of the variety of plan participants and the impossibility of 
adopting a standard that accounts for all of the circumstances of 
individual plan participants. Therefore, it is the Department's view 
that the ``average plan participant'' standard should be used in 
determining whether a modification or a change is a material reduction 
in covered services or benefits.

E. Applicability Dates

    The Department expressed its view in the proposal that the 
information delineated in paragraph (j)(3), applicable to group health 
plans, paragraph (j)(1) and paragraph (l) of Sec. 2520.102-3 is 
currently required to be disclosed under the disclosure framework of 
ERISA. Accordingly, the Department considered the proposed addition of 
the new paragraph (j)(3) and the amendment of paragraphs (j)(1) and (l) 
as clarifications of existing law, rather than new disclosure 
requirements. With regard to the other proposed amendments, the 
Department proposed to require plans to comply with the new 
requirements no later than the earlier of: (1) The date on which the 
first summary of material modification (or updated SPD) is required to 
be furnished participants and beneficiaries following the effective 
date of the amendments or (2) the first day of the second plan year 
beginning after the effective date of the final rule.
    Several commenters disagreed with the Department's view of 
paragraphs (j)(3), (j)(1) and (l) of Sec. 2520.102-3, and requested 
additional time to comply with these paragraphs of the regulation. 
Commenters also asked the Department to coordinate the applicability 
date of these regulations with that of the Department's final 
regulations governing plans' benefit claims procedures to make it 
possible for plans to coordinate the revision of their claims 
procedures with the revision of their SPDs. Additionally, one commenter 
suggested coordinating the applicability date of this regulation with 
the date that qualified plans subject to ERISA must be restated under 
the Small Business Jobs Protection Act (SBJPA) and the Taxpayer Relief 
Act of 1997 (TRA '97). The commenter expressed concern that if the 
applicability date is not coordinated, many plans may have to revise 
their SPDs twice in a very short period of time leading to confusion 
and needless expenditure of plan assets.
    The Department continues to adhere to its view that the information 
delineated in paragraphs (j)(3), (j)(1) and (l) of Sec. 2520.102-3 is 
currently required to be disclosed under the existing disclosure 
framework of ERISA. In response to the other comments, however, the 
Department has determined to modify the proposal and to adopt a single 
applicability date for the new SPD disclosures in the proposal. 
Specifically, plans will be required to comply with the new SPD content 
requirements being adopted in this regulation no later than the first 
day of the second plan year beginning after the effective date of the 
final rule.
    Finally, the interim rules that are being finalized in this notice 
are already effective, and accordingly, a special applicability date is 
not required. Rather, the special applicability dates for the interim 
rules codified in paragraph (v) of Sec. 2520.102-3 are obsolete and, 
accordingly, are being removed as part of this final rule.

Economic Analysis Under Executive Order 12866

    Under Executive Order 12866, the Department must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule: (1) Having an annual effect on the economy of $100 million 
or more, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    Pursuant to the terms of Executive Order 12866, it has been 
determined that this action is consistent with the President's 
priorities with respect to ensuring that all participants in group 
health plans receive understandable information about their plans, as 
described in the report of the President's Advisory Commission on 
Consumer Protection and Quality in the Health Care Industry entitled, 
``Consumer Bill of Rights and Responsibilities.'' The added cost 
estimated to be associated with the amendments to existing regulations 
implemented in this final rule total $208 million in 2002, the year in 
which these amendments are expected to be applicable for the majority 
of plans. Therefore, this notice is ``significant'' and subject to OMB 
review under Sections 3(f)(1) and 3(f)(4) of the Executive Order.
    Accordingly, the Department has undertaken to assess the costs and 
benefits of this regulatory action. The Department's assessment, and 
the analysis underlying that assessment, is detailed following the 
statements concerning the Regulatory Flexibility Act and the Paperwork 
Reduction Act.
    The Consumer Bill of Rights and Responsibilities states that, 
``Consumers have the right to receive accurate, easily understood 
information about their health plans, facilities and professionals to 
assist them in making informed health care decisions.'' The purpose of 
this final rule is to implement this principle within the framework of 
existing disclosure requirements under ERISA, based on the September 9, 
1998 proposal and comments received in response, as well as to 
generally update the disclosure requirements for both welfare and 
pension plans.
    Currently available information supports the conclusion that many 
group health plans already provide the majority of information 
identified in these amendments, including benefits and limitations, 
whether drug formularies are used and how drugs and

[[Page 70234]]

procedures are deemed experimental, information on cost sharing, and 
appeal procedures.\9\ Comments received in response to the proposal 
support this conclusion as well, although they point out, and the 
respondents to the GAO survey included in its report on the 
Commission's disclosure recommendations agree, that some group health 
plans rely on a combination of documents to make disclosures. However, 
it is understood that while many plans may conform with or exceed a 
minimum standard of information disclosure, some portion of the very 
large number of group health plans do not currently meet this standard. 
To the extent that plans do not currently provide the required 
information, they will be caused by these amendments to revise their 
disclosure documents and distribute additional or modified information 
to participants.
---------------------------------------------------------------------------

    \9\ See ``Consumer Bill of Rights and Responsibilities Costs and 
Benefits: Information Disclosure and Internal Appeals,'' The Lewin 
Group, November 15, 1997; and ``CONSUMER HEALTH CARE INFORMATION--
Many Quality Commission Disclosure Recommendations Are Not Current 
Practice'' (GAO/HEHS-98-137, April 1998). The GAO report indicates 
that only about half of the information recommended by the 
Commission to be provided to consumers is currently provided by 
large purchasers. However, it is information on health plan features 
such as covered benefits, cost-sharing, access to emergency services 
and specialists, and appeal processes which is currently routinely 
provided, while information about health care facilities and the 
business relationships and financial arrangements among health 
professionals, and quality and performance measures is not typically 
provided. Although the Commission's recommendations go beyond 
current practice, the provisions of this final rule are considered 
to be reasonably consistent with the current practices of the large 
purchasers surveyed by GAO.
---------------------------------------------------------------------------

    Although the amendments pertinent to pension plans are 
substantially more limited, many are expected to require certain 
additions or revisions to their disclosure documents as a result of 
this final rule. It is anticipated that these revisions will be readily 
made either in connection with routine updating of these documents, or 
through distribution of an SMM.
    Based on the applicability date of the final rule, and an 
assumption as to current compliance, it is estimated that approximately 
30 percent of pension plans and 50 percent of group health plans will 
be required to modify and distribute revised disclosure materials by 
the end of calendar year 2002. The expenses expected to be associated 
with the preparation and distribution of these additions and revisions 
are relatively easily quantified, and constitute the estimated cost of 
the regulation.
    The Department estimates the cost of these amendments to be $47 
million in 2001, rising to $208 million in 2002, falling to $24 million 
in 2003 and in each year thereafter. The peak cost in 2002 reflects $32 
million for the preparation of 155,000 different SPDs describing 1.2 
million pension and welfare plans and $176 million for the distribution 
of those SPDs to 36 million participants. The variation in cost over 
this period reflects the interaction of the final rule's effective date 
with the distribution of the recordkeeping years used by pension and 
health plans years across the months of the year. Because more than 
half of plans use a calendar plan year, the final rule will be 
effective for a majority of plans in 2002. It is also assumed that 
plans that would be making changes to their disclosure materials prior 
to 2002, even absent the final rule, will elect to make both those 
changes and revisions necessary as a result of this final rule at the 
same time.
    The benefits of the regulation are more qualitative in nature, but 
are nevertheless significant for participants and beneficiaries, plan 
sponsors, and the performance of the health care system in general. The 
regulation will ensure that participants have better access to more 
complete information about their benefit plans. Such information is 
important to participants' ability to understand and secure their 
rights under their plans at critical decision points, such as when 
illness arises, when they must decide whether to participate in a plan, 
or when they must determine which benefit package option might be most 
suitable to individual or family needs. Participants generally desire 
health care benefits which support their health and limit their 
exposure to financial risk. In 1998, 131 million participants and 
dependents had private employment-based health care coverage \10\, for 
which they contributed an average of $123 per month for family 
coverage, and $29 per month for single coverage. \11\ Adherence to 
disclosure standards will enable participants to make effective choices 
concerning this substantial investment, taking into consideration their 
knowledge of their own health and financial circumstances, and accurate 
information about their plans.
---------------------------------------------------------------------------

    \10\ March 1999 Current Population Survey
    \11\ Average employee and employer monthly contribution figures 
as reported in, ``Health Benefits in 1998,'' KPMG.
---------------------------------------------------------------------------

    These amendments will also assist plan administrators to meet their 
statutory disclosure obligations with greater certainty, which is 
expected to be helpful given the many changes that have occurred since 
guidance on the required content of SPDs was originally issued in 1977. 
In addition to their compliance with statutory and regulatory 
disclosure obligations, plan sponsors are also concerned about the 
pricing and availability of appropriate coverage options. Private 
employers play a significant role in the acquisition of health care 
coverage. Over 64 percent of the total population had private 
employment-based health care coverage in 1998, for which employers 
contributed an average of $318 per active employee. \12\ Better 
information will also enhance the ability of plan sponsors to purchase 
products that are appropriate to both their needs and the health and 
financial needs of their employees.
---------------------------------------------------------------------------

    \12\ ``National Survey of Employer-sponsored Health Plans,'' 
Foster Higgins, 1998.
---------------------------------------------------------------------------

    Information will promote the efficiency of the competitive market 
through which this array of needs is met. There is wide-spread 
agreement that the efficiency of the health care market can be improved 
if purchasers, consumers, and patients are provided with better 
information. Improved information is expected to promote efficiency by 
fostering competition based on considerations beyond pricing alone, and 
by encouraging providers to enhance quality and reduce costs for value-
conscious consumers. Complete disclosure will limit competitive 
disadvantages that arise when, for example, incomplete or inaccurate 
information on different benefit option packages is used for decision 
making purposes. Information disclosure also promotes accountability by 
ensuring adherence to standards.
    Equally importantly, information disclosure under the SPD 
regulation, if combined with additional disclosures pertaining to plan 
and provider performance, and with other health system reforms that 
promote efficient, competitive choices in the health care market, could 
yield even greater benefits. The Lewin report points out that such 
reformed systems, as exemplified by CalPERS and other examples of 
privately sponsored ``managed competition,'' have successfully reduced 
health care inflation, producing savings that dwarf the cost of these 
amendments and other pro-competitive reforms. Better information, 
clarified guidance to plan administrators, and improved market 
efficiency thus constitute the benefits of the regulation.
    The Department believes, therefore, that the benefits of this 
regulation will substantially outweigh its costs. The disclosures it 
describes are a component of evolving legislative, regulatory, and

[[Page 70235]]

voluntary private reforms that together are already improving health 
care market efficiency.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are 
likely to have a significant economic impact on a substantial number of 
small entities. Unless an agency certifies that a final rule will not 
have a significant economic impact on a substantial number of small 
entities, section 604 of the RFA requires the agency to present a final 
regulatory flexibility analysis describing the impact of the rule on 
small entities at the time of publication of the notice of final 
rulemaking. Small entities include small businesses, organizations, and 
governmental jurisdictions.
    For purposes of analysis under the RFA, PWBA continues to consider 
a small entity to be an employee benefit plan with fewer than 100 
participants. The basis of this definition is found in section 
104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe 
simplified annual reports for pension plans which cover fewer than 100 
participants. Under section 104(a)(3), the Secretary may also provide 
for simplified annual reporting and disclosure if the statutory 
requirements of part 1 of Title I of ERISA would otherwise be 
inappropriate for welfare benefit plans.
    PWBA believes that assessing the impact of this rule on small plans 
is an appropriate substitute for evaluating the effect on small 
entities. Because this definition differs from the definition of small 
business which is based on size standards promulgated by the Small 
Business Administration (SBA) (13 CFR 121.201) pursuant to the Small 
Business Act (5 U.S.C. 631 et seq.), PWBA solicited comments on the use 
of this standard for evaluating the effects of the proposal on small 
entities. One commenter was concerned that prior to adopting the 
proposed size standard, the Department first consult with the Office of 
Advocacy of the Small Business Administration (SBA) and provide an 
opportunity for public comment. The Department consulted with the SBA 
regarding its proposed size standard prior to publication of the 
proposed amendments to the SPD regulation and its proposed regulation 
relating to employee benefit plan claims procedures under ERISA, which 
was also published on September 9, 1998 (63 FR 48390). The SBA has 
agreed with PWBA's use of the proposed alternate size standard, 
indicating in the claims regulation and other contexts that the 
Department has provided a reasonable justification for its definition. 
We are using the same justification in connection with this final rule. 
No other comments were received with respect to this size standard. A 
summary of the final regulatory flexibility analysis based on the 100 
participant size standard is presented below.
    This regulation applies to all small employee benefit plans covered 
by ERISA. Employee benefit plans with fewer than 100 participants 
include 693,000 pension plans, 2.8 million health plans, and 3.4 
million non-health welfare plans (mainly life and disability insurance 
plans).
    The final rule amends the Department's existing SPD regulation, 
which implements ERISA's statutory SPD requirements. Both ERISA and the 
existing regulation require plans to provide SPDs that include certain 
information and adhere to certain formats to participants according to 
statutory schedules. The compliance requirements assumed for purposes 
of this regulation consist of revising SPDs and preparing SMMs 
consistent with the regulation's requirements, and distributing them to 
participants consistent with the regulation's applicability date. An 
extensive list of authorities may be found in the Statutory Authority 
section, below.
    The objective of this revised regulation is to ensure that employee 
benefit plan participants and beneficiaries have complete and up-to-
date information about their plans. Certain provisions pertaining to 
group health plans are being implemented in accordance with 
recommendations of the President's Advisory Commission on Consumer 
Protection and Quality in the Health Care Industry in its November 20, 
1997 report entitled ``Consumer Bill of Rights and Responsibilities.''
    The Department believes that revising an SPD or describing changes 
in an SMM requires a combination of professional and clerical skills. 
Professional skills pertaining to employee benefits law and plan design 
and administration are needed to draft language for inclusion in an 
SPD, and therefore an average rate which takes into account wage rates 
and overhead for attorneys and financial managers ($56 per hour) is 
used to estimate the costs of needed professional services. Clerical 
skills are needed to type, assemble and format SPD materials, and to 
reproduce the materials and either mail or transmit materials 
electronically to participants. A wage and overhead rate of $21 per 
hour is used to estimate the cost of these functions.
    The Department has estimated that about 30 percent of pension plans 
and 50 percent of group health plans will be required to revise and 
distribute SPDs or SMMs in response to this final rule, regardless of 
plan size. The cost for small plans is moderated by the fact that small 
welfare plans, the number of which is approximately 2.75 million, are 
known to make use of a relatively small number of providers of service 
to design plans and provide disclosure materials, which tends to 
increase administrative efficiency and lower costs for small plans.
    The cost of these amendments for small plans may be borne in a 
variety of ways, depending upon a plan's governing rules, cost sharing 
provisions of the plan, administrative practices, the terms of 
contracts in place with administrators and insurers, and the magnitude 
of the actual compliance cost. Insurers and administrators may choose 
to absorb some costs to maintain competitive products, or may pass on 
administrative or premium charges to policyholders. Sponsors may elect 
to finance such cost increases, or may pass them along to participants. 
The ultimate allocation of these costs cannot be accurately predicted.
    The Department's assessment of the regulation's costs and benefits, 
and the extent to which the Department has minimized the impact on 
small entities, is detailed below, following the discussion of the 
Paperwork Reduction Act. The Department estimates that the added cost 
to small plans of complying with the regulation will amount to $17 
million in 2001, $38 million in 2002, and $4 million in 2003 and 
subsequent years. The peak year cost of $38 million in 2002 consists of 
$3 million to prepare 124,000 unique SPDs describing 1.1 million plans, 
and $35 million to distribute these SPDs to 8 million participants. 
These costs amount to $34 per affected small plan and $5.08 per 
affected small plan participant. By contrast, the added cost to large 
plans in 2002 is estimated at $170 million, or $5,549 per affected 
large plan and $5.93 per affected large plan participant. The principal 
reason for the substantially greater per-plan cost for large plans is 
the cost of distribution to greater numbers of plan participants.
    The cost estimates for small plans are modest in large part because 
the features of the majority of small health and other welfare plans 
are chosen from a finite menu of products offered by insurers and HMOs. 
The insurers and HMOs

[[Page 70236]]

prepare the majority of SPD material, describing their small plan 
products, and provide that material to their small plan customers. 
Thus, the cost of preparing a relatively small number of unique SPDs is 
spread over a far larger number of small plans.
    Finally, in promulgating this final rule, the Department has 
minimized the economic impact on small entities by adopting a delayed 
applicability date that lets plan administrators avoid the largest 
component of the cost of a regulatory change in the SPD content 
requirements (i.e., distribution expenses) by allowing them to 
incorporate the required revisions into the periodic SPD updates that 
they would otherwise be distributing as part of their usual and 
customary business practices.
    The Department is not aware of any rules or requirements which 
overlap or duplicate the requirements of this final rule. State 
insurance statutes typically require that certain disclosures be made 
to policyholders, but these disclosures either do not overlap with the 
requirements described in this regulation, or a single disclosure 
package can be used to satisfy both state and federal requirements.

Paperwork Reduction Act

    On September 9, 1998, the Pension and Welfare Benefits 
Administration published a Notice of Proposed Rulemaking (September 9 
proposal) concerning Amendments to Summary Plan Description Regulations 
(63 FR 48376), which included a request for comments on its information 
collection provisions. That proposal, if adopted as proposed, would 
have revised the information collection request (ICR) included in 
existing regulations relating to the content of Summary Plan 
Descriptions under ERISA. Also on September 9, 1998, the Department 
submitted the revised ICR to OMB for review and clearance under the 
Paperwork Reduction Act of 1995 (PRA 95), and solicited public comments 
concerning the revision of the information collection request (ICR) 
included in the proposal.
    Further, the Department submitted a revised ICR to OMB for 
emergency clearance in connection with its Interim Rule Amending 
Summary Plan Description for the Newborns' and Mothers' Health 
Protection Act (63 FR 48372, September 9, 1998). OMB subsequently 
approved the request for emergency clearance; OMB's consideration of 
the revisions proposed in connection with the September 9 proposal was 
deferred to the publication of the final rule and submission to OMB of 
the ICR included in the final rule. The Department had also previously 
submitted and received OMB's approval of the Summary Plan Description 
ICR as amended in connection with the Interim Rules Amending ERISA 
Disclosure Requirements for Group Health Plans (62 FR 16979, April 8, 
1997). This final rule implements the information collection provisions 
of the September 9, 1998 proposal, as modified in the final rule, along 
with those of the April 8, 1997 Interim Final Rules as they pertain to 
SPDs under ERISA.
    An additional revision to the Summary Plan Description ICR was 
subsequently made in connection with PWBA's Proposed Rule on the Use of 
Electronic Communication and Recordkeeping Technologies by Employee 
Pension and Welfare Benefit Plans (64 FR 4506, January 28, 1999). This 
proposal included guidance on the use of electronic technologies to 
satisfy notice and disclosure requirements of ERISA. OMB approved the 
submission of this revised ICR which addressed electronic communication 
of SPDs on June 1, 1999.
    OMB has approved the ICR included in this Notice of Final Rule 
relating to Amendments to Summary Plan Description Regulations. A copy 
of the ICR, with applicable supporting documentation, may be obtained 
by contacting the Department of Labor, Departmental Clearance Officer, 
Ira Mills, at (202) 693-4122. (This is not a toll-free number.)

Statute and Existing Regulations

    Pursuant to ERISA section 101(a)(1), the administrator of an 
employee benefit plan is required to furnish a Summary Plan Description 
(SPD) to each participant covered under the plan and each beneficiary 
who is receiving benefits under the plan. The SPD is required to be 
written in a manner calculated to be understood by the average plan 
participant, and must be sufficiently comprehensive to apprise the 
plan's participants and beneficiaries of their rights and obligations 
under the plan. To the extent that there is a material modification in 
the terms of the plan or a change in the information required to be 
included in the SPD, ERISA requires that the administrator furnish 
participants covered under the plan and beneficiaries receiving 
benefits with a summary of such changes (Summary of Material 
Modification, or SMM).
    ERISA section 102(b) describes the types of information 
specifically required to be included in the SPD. The Department has 
previously issued guidance concerning the required contents of summary 
plan descriptions in regulations at 29 CFR 2520.102-3.

Proposed Revisions and Final Rule

    As described in the September 9, 1998 publication, revisions 
proposed for Secs. 2520.102-3 and 2520.102-5 would have modified the 
required contents of summary plan descriptions in a number of ways that 
would be expected to affect the nature and burden of the information 
collection under PRA 95. The proposal included amendments to 
Secs. 2520.102-3(j) and (s) and Sec. 2520.102-5 that were designed to 
implement certain recommendations of the President's Advisory 
Commission on Consumer Protection and Quality in the Health Care 
Industry as incorporated in the Consumer Bill of Rights with respect to 
ERISA covered group health plans. Specifically, the proposal provided 
that group health plans would not be deemed to have satisfied content 
requirements unless they had provided understandable information in 
their SPDs concerning any cost-sharing provisions, including premiums, 
deductibles, coinsurance, and copayment amounts for which the 
participant or beneficiary would be responsible; any annual or lifetime 
caps or other limits on benefits under the plan; the extent to which 
preventive services would be covered under the plan; whether, and under 
what circumstances, existing and new drugs would be covered under the 
plan; whether, and under what circumstances, coverage would be provided 
for medical tests, devices and procedures; provisions governing the use 
of network providers, the composition of the provider network and 
whether, and under what circumstances, coverage would be provided for 
out-of-network services; any conditions or limits on the selection of 
primary care providers or providers of speciality medical care; any 
conditions or limits applicable to obtaining emergency medical care; 
and any provisions requiring preauthorizations or utilization review as 
a condition to obtaining a benefit or service under the plan.
    The April 8, 1997 Interim Final Rules implemented changes finalized 
here with respect to the content and timing of disclosures by group 
health plans, specifically, the timing of providing participants with 
summaries of material reductions in coverage, disclosure of the role of 
health insurance issuers, and disclosure of the availability of 
assistance from the Department.
    As explained earlier in this preamble, after consideration of 
comments received in response to the proposal, the

[[Page 70237]]

Department has determined that it is appropriate to adopt the proposed 
and interim final regulations essentially as published, with certain 
clarifications, and modification of the proposed applicability date. 
Although the underlying requirements are on the whole unchanged from 
the proposal, the burden hour and cost estimates have been 
significantly modified in response to public comment.
    Specifically, changes in burden estimates have resulted from 
adjustments to certain of the Department's underlying assumptions. For 
example, commenters indicated that the 17 hours estimated for a plan 
which must incorporate the changes recommended in the Consumer Bill of 
Rights was understated. Although comments indicate that many plans in 
fact presently provide the recommended Consumer Bill of Rights 
disclosures, the Department finds these comments persuasive with 
respect to those plans that have not yet undertaken to provide the 
recommended disclosures, and has adjusted this assumption to an average 
of 25 hours.
    In response to specific comments, the Department has also added 
previously omitted estimated printing costs (an average of $2.25 per 
SMM or SPD for pension plans, and $3.50 for group health plans) to the 
cost of distributing SMMs and SPDs, although this change does not 
affect the incremental cost of this final rule except to the extent 
that more printing is likely to be required as a result of these 
amendments. Health plan materials are assumed to require an additional 
$1.00 in printing costs in those circumstances in which SPDs have not 
yet been revised to include the Consumer Bill of Rights disclosures.
    The assumed printing costs are lower than the $7 to $12 unit 
printing costs reported by the commenters because it is assumed that 
some plans will be able to comply by providing SMMs, which would be 
substantially less costly to print. The use of lower estimates is also 
intended to account for the fact that some portion of the total 
printing cost would be likely to be incurred as a usual business 
practice in the absence of the statutory or regulatory requirements as 
to SPD content. This assumption change has a very significant impact on 
the total operating and maintenance costs for this ICR, more than 
doubling the aggregate cost of the regulation.
    Assumptions with respect to the rate of hourly wages have been 
adjusted in response to comments upward from the $50 blended 
professional rate and $11 clerical rate previously used in the 
estimates for the proposal to $56 and $21, respectively. Adjustments 
were also made based on updated data for enrollment in health plans, 
numbers of pension plans, and rates of growth in wage and salary 
employment.
    Numerous comments indicating that plans already comply with the 
proposed revisions, although not necessarily in exactly the manner 
commenters construed the proposal to require (as to matters such as the 
level of detail, or including numerous benefit options in a single SPD) 
support the Department's original view that some portion of plans will 
be unaffected by these amendments because they already comply. At the 
time of the proposal, however, and in the absence of specific evidence 
on the rate of current compliance in the record, the Department used 
the conservative estimate that 100% of plans would be required to 
revise SPDs or issue substantial SMMs. The Department has now revised 
this assumption to reflect the estimate that in the aggregate only 
about 30 percent of pension plans and 50 percent of group health plans 
will be required to revise SPDs or issue substantial SMMs as a result 
of changes implemented by this final rule.
    In addition to commenters' questions about the appropriateness of 
the assumptions used in the Department's analysis of the proposal, a 
number of commenters also expressed concern that certain revisions 
proposed would generate additional and unnecessary expense, and would 
limit the usefulness of the SPD. Commenters indicated, for example, 
that the SPD was not an appropriate vehicle for communicating time-
sensitive or frequently changing information because other 
communication vehicles already provide the needed information promptly 
and efficiently. Others stated that requiring a significant amount of 
detail in an SPD on such matters as provider networks, premium and cost 
sharing rates, coverage of experimental or investigational treatments 
and drugs, would be costly and unnecessary, and would result in more 
frequent change to maintain current information in such detail.
    The Department has discussed its responses to these comments in 
detail earlier in this preamble. In general, the Department has 
clarified that certain required disclosures, such as claims procedures, 
provider listings or extensive benefit schedules, may be provided 
separately provided that the SPD directs participants and beneficiaries 
to where additional information can be found. The Department has also 
indicated that it did not intend the provisions of the proposal to be 
construed to require an SPD to list every drug, test, device or 
procedure, nor necessarily the dollar amount of premium or employee 
contributions required for coverage, so long as a summary or 
description is included that is adequate to communicate participants' 
rights under the plan, and the manner in which they will become 
responsible for expenses incurred under the plan. The Department also 
notes that plan administrators may under existing regulations prepare 
separate SPDs for different classes of participants, and may make use 
of an SMM to inform participants of material changes in the information 
required to be included in the SPD. Each of these options may have a 
moderating effect on the cost of preparing and distributing disclosure 
materials in accordance with these final rules.
    Because the Department viewed the revised disclosure requirements 
as proposed as requiring a more limited level of detail than apparently 
understood by these commenters, on the basis of these clarifications, 
the Department believes that SPDs amended pursuant to the requirements 
of the final rules will provide participants and beneficiaries with an 
appropriate level of detail and not result in unwarranted ongoing 
expense. As a consequence, the analysis of the impact of these 
amendments has not been changed, except as to the assumptions 
specifically identified above.
    With respect to the proposed elimination of the exemption from SPD 
requirements for federally qualified HMOs, commenters stated that 
causing a single SPD to be prepared to include information currently 
provided by HMOs to enrollees but consistent with the style, format and 
content requirements of the regulation would result in significant 
costs and duplication of effort. Commenters also indicated that causing 
all HMO options and other benefit options to be described in a single 
SPD would result in unnecessary costs and unusably large and complex 
documents. More than one commenter expressed the view that the 
increased costs arising from this requirement would ultimately result 
in elimination of HMO options currently available to participants and 
beneficiaries.
    The Department has responded to concerns that the inclusion of all 
options in a single document would result in unwarranted costs, 
impractical disclosure vehicles, and more limited benefit options by 
noting that plan administrators may use different SPDs for different 
classes of participants, including those classes identified by their 
elected benefit coverages.

[[Page 70238]]

Furthermore, in the Department's view, the information required to be 
incorporated in the SPD is important to participants and beneficiaries 
electing coverage through a federally qualified HMO, even though an 
expense may be associated with bringing the HMO disclosure material 
into compliance. Accordingly, the Department has not modified its cost 
estimates in response to these comments.
    The resulting burden estimates are summarized below. A more 
detailed description of the assumptions and methodology underlying 
these estimates will be found below in the Analysis of Costs.
    Agency: Pension and Welfare Benefits Administration.
    Title: Regulations Regarding Required Contents of Summary Plan 
Descriptions for Employee Benefit Plans (Final Amendments to Summary 
Plan Description Regulations).
    OMB Number: 1210-0039.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Frequency of Response: On occasion.
    Total Respondents: 943,779 (2001); 1,790,161 (2002).
    Total Responses: 52,771,000 (2001); 88,911,000 (2002).
    Estimated Burden Hours: 710,134 (2001); 1,117,801 (2002).
    Estimated Annual Costs (Operating and Maintenance): $243,226,000 
(2001); $400,056,000 (2002).
    Persons are not required to respond to the revised information 
collection unless it displays a currently valid OMB control number.

Analysis of Cost

    The Department performed a comprehensive, unified analysis to 
estimate the costs of the regulation for purposes of compliance with 
Executive Order 12866, the Regulatory Flexibility Act, and the 
Paperwork Reduction Act. The methods and results of that analysis are 
summarized below, along with a discussion of comments received on the 
analysis included in the original proposal.
    To estimate the costs, it was necessary to estimate the number of 
SPDs in the ERISA-covered employee benefit plan universe, the frequency 
with which those SPDs are updated and distributed, and the number of 
participants to whom they must be distributed. It was also necessary to 
make certain assumptions about the cost of preparing and distributing 
SPDs, in particular the cost of bringing SPDs into compliance with the 
regulation's provisions. The Department separately estimated the 
baseline cost of its existing SPD regulation and the incremental cost 
of this final rule.
    In response to its proposed rulemaking, the Department received a 
number of comments bearing on the estimates of the economic impact of 
the regulation. Several commenters stated the general view that the SPD 
was not an appropriate vehicle for communicating time-sensitive or 
frequently changing information because other communication vehicles 
already in use provide the needed information promptly and efficiently. 
Others indicated that requiring a significant amount of detail in an 
SPD on such matters as provider networks, premium and cost sharing 
rates, coverage of experimental or investigational treatments and 
drugs, would be costly and unnecessary, and would result in more 
frequent change in the future. Commenters also indicated that the speed 
with which they would be required to make the very substantial 
revisions to SPDs would increase the cost to comply.
    With respect to the elimination of the exemption from SPD 
requirements for federally qualified HMOs, commenters stated that 
causing a single SPD to be prepared to include the information 
currently provided by HMOs to enrollees but consistent with the style, 
format and content requirements of the regulation would result in 
significant costs and duplication of effort. Commenters also indicated 
that causing all HMOs and other benefit options to be described in a 
single SPD would result in unnecessary costs and unusably large and 
complex documents. More than one commenter expressed the view that the 
increased costs arising from this requirement would ultimately result 
in elimination of HMO options currently available to participants and 
beneficiaries.
    Other comments indicated that in light of the very significant new 
requirements, the Department's cost estimates were substantially 
understated, despite the commenters' assertions that much of the 
information is already provided. Concerns were expressed about the time 
required and timing of the required revisions, the hourly wage rates, 
and the omission of printing costs from the Department's estimates. The 
Department has considered these comments in view of commenters' 
apparent interpretations of the requirements of the proposed rules, and 
has adjusted a number of its assumptions as specifically detailed below 
to address comments on required resources, wage rates, and printing 
costs. A revision was also made to the final rule's effective date to 
address issues of flexibility and efficiency in plan administrators' 
implementation of required revisions.
    In response to concerns raised about the potential for the proposed 
revisions to generate additional and unnecessary expense, and to result 
in SPDs of limited usefulness, the Department has earlier in this 
preamble expressed its views concerning the level of detail required to 
be included in an SPD. In general, the Department has clarified that 
certain required disclosures, such as claims procedures, provider 
listings or extensive benefit schedules, may be provided separately, 
provided that the SPD directs participants and beneficiaries to where 
additional information can be found. The Department has also indicated 
that it did not intend the provisions of the proposal to be construed 
to require an SPD to list every drug, test, device or procedure, nor 
necessarily the dollar amount of premium or employee contributions 
required for coverage, so long as a summary or description is included 
that is adequate to communicate participants' rights under the plan, 
and the manner in which they will become responsible for expenses 
incurred under the plan. The Department also notes that plan 
administrators may under existing regulations prepare separate SPDs for 
different classes of participants, and may make use of an SMM to inform 
participants of material changes in the information required to be 
included in the SPD. Each of these options may have a moderating effect 
on the cost of preparing and distributing disclosure materials in 
accordance with these final rules.
    Because the Department viewed the revised disclosure requirements 
as proposed as requiring a more limited level of detail than apparently 
understood by these commenters, on the basis of these clarifications, 
the Department believes that SPDs amended pursuant to the requirements 
of the final rules will provide participants and beneficiaries with an 
appropriate level of detail and not result in unwarranted ongoing 
expense. As a consequence, the analysis of the impact of these 
amendments has not been changed, except as to the assumptions 
specifically identified below.
    With respect to the proposed elimination of the exemption from SPD 
requirements for federally qualified HMOs, commenters stated that 
causing a single SPD to be prepared to include information currently 
provided by HMOs to enrollees but consistent with the style, format and 
content requirements of the regulation would

[[Page 70239]]

result in significant costs and duplication of effort. Commenters also 
indicated that causing all HMO options and other benefit options to be 
described in a single SPD would result in unnecessary costs and 
unusably large and complex documents. More than one commenter expressed 
the view that the increased costs arising from this requirement would 
ultimately result in elimination of HMO options currently available to 
participants and beneficiaries.
    The Department has responded to concerns that the inclusion of all 
options in a single document would result in unwarranted costs, 
impractical disclosure vehicles, and more limited benefit options by 
noting that plan administrators may use different SPDs for different 
classes of participants, including those classes identified by their 
elected benefit coverages. Furthermore, in the Department's view, the 
information required to be incorporated in the SPD is important to 
participants and beneficiaries electing coverage through a federally 
qualified HMO, even though an expense may be associated with bringing 
the HMO disclosure material into compliance. Accordingly, the 
Department has not modified its cost estimates in response to these 
comments concerning the federally qualified HMO disclosure 
requirements.
    As a result, the basic framework and assumptions used in the 
analysis are generally unchanged. However, certain specific assumptions 
have been revised in response to comments received, or based on the 
availability of more recent or more complete data. The modification of 
the applicability date should allow many plans a somewhat longer period 
of time to come into compliance, and lessen their overall cost to 
comply by providing flexibility in their use of resources. The 
Department has increased its assumption concerning the amount of 
professional time required to effect compliance with the Consumer Bill 
of Rights disclosure provisions, and has altered its original 
assumption as to the proportion of plans that currently comply based on 
a number of comments indicating current compliance in substance. 
Professional and clerical wage rates have been adjusted upward, and an 
estimate of previously omitted printing costs has been included. 
Details of the analysis of costs follow.
    The Department's estimates of both the pension and health universes 
have been updated based on current data, the overall effect of which is 
the use of slightly larger numbers of pension plans, and substantially 
higher numbers of health plans than used for estimates of the impact of 
the proposal (specifically, 2.8 million plans compared with the 2.5 
million plans at the time of the proposal). The Department estimated 
the number of plans, SPDs and the number of participants based on 1995 
Form 5500 Series data, the March 1999 Current Population Survey (CPS), 
the 1996 Medical Expenditure Panel Survey (MEPS), and 1995 Census 
Bureau data on firms and establishments. Each pension plan is estimated 
to maintain one SPD, and Form 5500 data demonstrates the number of 
pension plans and participants. The number of welfare plans is more 
difficult to determine because the majority of welfare plans are exempt 
from the requirement to file Form 5500 due to their having fewer than 
100 participants and being unfunded or fully insured. The 1996 data 
from MEPS on health plans offered by establishments was converted from 
establishments to firms using 1995 Census Bureau data, and then 
converting the estimate of firms to plans using Form 5500 pension data 
estimates on the number of multiemployer plans. The number of 
participants was generated using March 1999 CPS data inflated to 2002 
using BLS employment projections. Form 5500 data for 1995 was used to 
distribute the CPS aggregate between large and small plans.
    With respect to group health plans, the number of SPDs is estimated 
to be smaller than the number of plans because small plans typically 
buy standard products from vendors. In addition, individual plan 
sponsors often sponsor more than one plan and/or offer more than one 
kind of benefit (such as retirement and disability) under a single 
plan, but describe two or more of their plans or benefit types in a 
single SPD. The Department assumes that pension plans and health plans 
(or products) maintain separate SPDs, but that 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 693,000 unique pension plan SPDs. The 
estimate of 84,900 unique health plan SPDs is assumed to encompass all 
other welfare plan SPDs. The estimated number of unique health plan 
SPDs has been increased for the purposes of analysis of this final rule 
based on updated and more detailed information on the numbers of plans, 
rates of self-funding, and numbers of group health plan issuers of 
insurance policies.
    With respect to the frequency of updating and distributing SPDs, 
plans filing the Form 5500 indicate whether they amended and 
distributed their SPDs in the preceding year. About 30 percent of plans 
so report. This figure is interpreted to represent a baseline level of 
SPD modification and distribution activity. The amendments implemented 
by this final rule are not expected to change the baseline rate of SPD 
modification for pension plans, but are expected to cause some health 
plans to make changes to SPDs sooner than they would otherwise have 
made them.
    The Department generally assumes that preparing a revised SPD 
requires four hours of combined professional and clerical time, priced 
at $56 and $21 per hour, respectively. Previous assumptions were $50 
and $11. The Department assumes that distributing an SPD consumes two 
minutes of clerical labor at $21 per hour, plus $2.25 for printing, 
materials, and mailing (or electronic dissemination) for pension plans 
and $3.50 for printing, materials, and mailing (or electronic 
dissemination) for welfare plans. This amounts to $2.95 per pension SPD 
and $4.20 per welfare plan SPD distributed. As noted earlier, printing 
costs were not previously estimated, and have been included here in 
response to comments.
    The Department estimates the baseline cost to prepare and 
distribute SPDs under the current regulation at $218 million in 2001, 
$224 million in 2002, and approximately $230 million in 2003 based on 
projected enrollment growth. Total cost in a typical baseline year such 
as 2001 includes $46 million to prepare 208,000 unique SPDs, and $172 
million to distribute copies to 51 million participants.
    The Department separately estimated the cost of revisions to SPDs 
that plan administrators may undertake to update their SPDs following 
adoption of final amendments of the SPD content requirements. This cost 
is separate from the baseline cost attributable to normal SPD 
revisions, such as those made pursuant to plan amendments. Plans 
preparing SPDs solely to comply with the final rule would incur only 
the costs attributable to those revisions deemed necessary to comply 
with the provisions of the final rule, while plans simultaneously 
revising their SPDs for other reasons would incur this additional cost 
plus the baseline unit cost.
    With respect to pension plans, the Department assumes that 
preparing an SPD to comply with the final rule requires 30 minutes of 
professional time

[[Page 70240]]

at a rate of $56 per hour. The time and expense associated with 
distributing each SPD are assumed to be unchanged from the baseline.
    To estimate the per-unit cost to prepare revised health plan SPDs, 
the Department originally drew on two studies of the cost to health 
plans to comply with the Consumer Bill of Rights, one cited earlier by 
The Lewin Group for the President's Commission, and one by Coopers and 
Lybrand for the Kaiser Family Foundation.\13\ Excerpting and adjusting 
these studies' estimates to reflect the regulation's provisions, the 
Department essentially adopted the midpoint of these two studies' 
findings. With the addition of the small burden attributable to other 
provisions, the cost to prepare a health plan SPD to bring it into 
conformity with the regulation was originally estimated to require an 
average of approximately 18 hours at $50 per hour (17 hours for the 
Consumer Bill of Rights disclosures). Based on the comments received on 
this estimate, the Department has adjusted its assumptions concerning 
the time required to implement Consumer Bill of Rights disclosures 
where not previously implemented from an average of 17 hours to 25 
hours, and the total time required to come into compliance with all 
health plan provisions of the final rule from an average of 18 hours to 
an average of about 27 hours. This adjustment is responsive to 
comments, and has the effect of giving the Lewin cost estimates greater 
weight in the analysis of the impact of this final rule. The resulting 
estimate takes into account a range of current compliance, based on 
comments received indicating that many plans already provide the 
required information, although not necessarily in the format the 
commenters construed the proposal to require, and the fact that some 
plans more nearly in compliance may choose to comply with an SMM, 
presumably lessening the cost of compliance. The average cost of 
preparation of group health plan disclosures is estimated at about 
$1,400 per unique SPD.
---------------------------------------------------------------------------

    \13\ ``Estimated Costs of Selected Consumer Protection 
Proposals--A Cost Analysis of the President's Advisory Commission's 
Consumer Bill of Rights and Responsibilities and the Patient Access 
to Responsible Care Act,'' Coopers & Lybrand, LLP for the Kaiser 
Family Foundation, April, 1998.
---------------------------------------------------------------------------

    Numerous comments indicating that plans already comply with the 
proposed revisions, although not precisely in the manner commenters 
construed the proposal to require (as to level of detail, including 
numerous benefit options in a single SPD), support the Department's 
original view that some portion of plans will be unaffected because 
they already comply. At the time of the proposal, however, and in the 
absence of specific evidence of the rate of current compliance in the 
record, the Department used the conservative estimate that 100% of 
plans would be required to revise SPDs or issue substantial SMMs. The 
Department has now revised this assumption to reflect the estimate that 
in the aggregate 30 percent of pension plans and 50 percent of group 
health plans will be required to revise SPDs or issue substantial SMMs 
as a result of changes implemented by this final rule.
    The Department assumed that the cost to distribute a group health 
plan SPD with the additional disclosures will rise in connection with 
the regulation, consuming an additional one minute of clerical time at 
$21 per hour and an additional $1.00 for materials and mailing or 
electronic distribution, for a total for $1.35 per SPD distributed.
    The Department estimates the added cost attributable to this 
regulation to be $47 million in 2001 and $208 million in 2002. The peak 
incremental cost in 2002 includes $32 million to prepare 155,000 
different SPDs describing 1.2 million pension and welfare plans, and 
$176 million to distribute those SPDs to 36 million participants.
    Combining this added cost with the baseline cost attributable to 
the existing regulation, the total cost to prepare and distribute SPDs 
under the regulation amounts to $265 million in 2001, and $432 million 
in 2002. The peak cost in 2002 includes $78 million to prepare 321,000 
SPDs describing 1.8 million plans, and $354 million to distribute those 
SPDs to 89 million participants.
    The baseline, additional, and total costs associated with the final 
SPD regulation are summarized in the table below:

                        [In millions of dollars]
------------------------------------------------------------------------
               Year                  Baseline    Additional     Total
------------------------------------------------------------------------
2001                               $218,360,00  $47,129,000  $265,489,00
                                             0                         0
2002                               223,949,000  208,070,000  432,019,000
------------------------------------------------------------------------

    Plans that are assumed for purposes of this analysis to prepare and 
distribute SPDs for the sole purpose of complying with the regulation 
have the option of complying by preparing and distributing SMMs 
instead, the choice likely depending on the extent of the changes 
required for the plan involved. Plans are expected to make use of an 
SMM to come into compliance when a moderate to small number of 
revisions are required, resulting in a relatively low cost to comply 
relative to an extensive revision of an SPD. As a result of its use of 
an assumption representing a midpoint between an SMM cost and an SPD 
cost, the Department's estimates of the costs to revise and distribute 
compliant disclosure materials in response to this regulation can be 
interpreted to account for the likelihood that some plans will elect to 
prepare and distribute SMMs.

Executive Order 13132 Statement

    This final rule does not have federalism implications because it 
has no substantial direct effect on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government. 
Section 514 of ERISA provides, with certain exceptions specifically 
enumerated, that the provisions of Titles I and IV of ERISA supercede 
any and all laws of the States as they relate to any employee benefit 
plan covered under ERISA. This final rule, therefore, does not affect 
the States or change the relationship or distribution of power between 
the national government and the States. Further, this final rule 
implements certain revisions to annual reporting and disclosure 
regulations which have been in effect in similar form for many years. 
The amendments incorporated in this final rule do not alter the 
fundamental requirements of the statute with respect to the reporting 
and disclosure requirements for employee benefit plans, and as such 
have no implications for the States or the relationship or distribution 
of power between the national government and the States.

[[Page 70241]]

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this rule does not include 
any Federal mandate that may result in expenditures by State, local, or 
tribal governments, but does include mandates which may impose 
expenditures of $100 million or more on the private sector. The basis 
for this statement is described in the analysis of costs for purposes 
of Executive Order 12866. Identification of the authorizing statute, 
and the assessment of the anticipated costs and benefits, and economic 
effect of this regulation are also presented elsewhere in this 
preamble.
    In promulgating this final rule, the Department has adopted the 
least burdensome method of achieving the rule's objective of improving 
the information that participants and beneficiaries receive about their 
ERISA covered pension and welfare plans. The majority of the costs 
associated with the SPD arise from the distribution costs that must be 
incurred to comply with ERISA's requirement that plan administrators 
disclose certain information to participants and beneficiaries within 
specified time frames. Because plan administrators must communicate 
changes in the terms of the plan or other changes that affect the 
information required to be included in the SPD even absent any change 
in regulatory requirements, they periodically update and distribute SPD 
information to participants and beneficiaries as part of their usual 
and customary business practices. To ensure that the regulatory 
amendments being adopted as part of this final rule may be implemented 
by administrators in the least burdensome manner, the Department 
adopted a delayed applicability date that lets plan administrators 
avoid the largest component of the cost of a regulatory change in the 
SPD content requirements (i.e., distribution expenses) by allowing them 
to incorporate the required revisions into the periodic SPD updates 
that they would otherwise be distributing as part of their usual and 
customary business practices.

Small Business Regulatory Enforcement Fairness Act

    This final rule is subject to the provisions of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) 
(SBREFA), and is a major rule under SBREFA. Accordingly, this final 
rule has been transmitted to Congress and the Comptroller General for 
review.

Statutory Authority

    This regulation is adopted pursuant to the authority in sections 
101, 103, 104, 109, 110, 111, 504 and 505 of ERISA and under Secretary 
of Labor's Order No. 1-87, 52 FR 13139, April 21, 1987.

List of Subjects in 29 CFR Part 2520

    Employee benefit plans, Employee Retirement Income Security Act, 
Group health plans, Pension plans, Welfare benefit plans.

    For the reasons set forth above, Part 2520 of Title 29 of the Code 
of Federal Regulations is amended as follows:
    1. The authority for Part 2520 continues to read as follows:

    Authority: Secs. 101, 102, 103, 104, 105, 109, 110, 111(b)(2), 
111(c), and 505, Pub. L. 93-406, 88 Stat. 840-52 and 894 (29 U.S.C. 
1021-1025, 1029-31, and 1135); Secretary of Labor's Order No. 27-74, 
13-76, 1-87, and Labor Management Services Administration Order 2-6.

    2. Section 2520.102-3 is amended by removing paragraph (v), 
revising paragraphs (d), (j), (l), (m)(3), (o), (s), (t)(2), and (u), 
revising the last sentence of paragraph (q), and adding paragraph 
(m)(4) to read as follows:


Sec. 2520.102-3  Contents of summary plan description.

* * * * *
    (d) The type of pension or welfare plan, i.e., for pension plans-- 
defined benefit, defined contribution, 401(k), cash balance, money 
purchase, profit sharing, ERISA section 404(c) plan, etc., and for 
welfare plans--group health plans, disability, pre-paid legal services, 
etc.
* * * * *
    (j) The plan's requirements respecting eligibility for 
participation and for benefits. The summary plan description shall 
describe the plan's provisions relating to eligibility to participate 
in the plan and the information identified in paragraphs (j)(1), (2) 
and (3) of this section, as appropriate.
    (1) For employee pension benefit plans, it shall also include a 
statement describing the plan's normal retirement age, as that term is 
defined in section 3(24) of the Act, and a statement describing any 
other conditions which must be met before a participant will be 
eligible to receive benefits. Such plan benefits shall be described or 
summarized. In addition, the summary plan description shall include a 
description of the procedures governing qualified domestic relations 
order (QDRO) determinations or a statement indicating that participants 
and beneficiaries can obtain, without charge, a copy of such procedures 
from the plan administrator.
    (2) For employee welfare benefit plans, it shall also include a 
statement of the conditions pertaining to eligibility to receive 
benefits, and a description or summary of the benefits. In the case of 
a welfare plan providing extensive schedules of benefits (a group 
health plan, for example), only a general description of such benefits 
is required if reference is made to detailed schedules of benefits 
which are available without cost to any participant or beneficiary who 
so requests. In addition, the summary plan description shall include a 
description of the procedures governing qualified medical child support 
order (QMCSO) determinations or a statement indicating that 
participants and beneficiaries can obtain, without charge, a copy of 
such procedures from the plan administrator.
    (3) For employee welfare benefit plans that are group health plans, 
as defined in section 733(a)(1) of the Act, the summary plan 
description shall include a description of any cost-sharing provisions, 
including premiums, deductibles, coinsurance, and copayment amounts for 
which the participant or beneficiary will be responsible; any annual or 
lifetime caps or other limits on benefits under the plan; the extent to 
which preventive services are covered under the plan; whether, and 
under what circumstances, existing and new drugs are covered under the 
plan; whether, and under what circumstances, coverage is provided for 
medical tests, devices and procedures; provisions governing the use of 
network providers, the composition of the provider network, and 
whether, and under what circumstances, coverage is provided for out-of-
network services; any conditions or limits on the selection of primary 
care providers or providers of speciality medical care; any conditions 
or limits applicable to obtaining emergency medical care; and any 
provisions requiring preauthorizations or utilization review as a 
condition to obtaining a benefit or service under the plan. In the case 
of plans with provider networks, the listing of providers may be 
furnished as a separate document that accompanies the plan's SPD, 
provided that the summary plan description contains a general 
description of the provider network and provided further that the SPD 
contains a statement that provider lists are furnished automatically, 
without charge, as a separate document.
* * * * *

[[Page 70242]]

    (l) For both pension and welfare benefit plans, a statement clearly 
identifying circumstances which may result in disqualification, 
ineligibility, or denial, loss, forfeiture, suspension, offset, 
reduction, or recovery (e.g., by exercise of subrogation or 
reimbursement rights) of any benefits that a participant or beneficiary 
might otherwise reasonably expect the plan to provide on the basis of 
the description of benefits required by paragraphs (j) and (k) of this 
section. In addition to other required information, plans must include 
a summary of any plan provisions governing the authority of the plan 
sponsors or others to terminate the plan or amend or eliminate benefits 
under the plan and the circumstances, if any, under which the plan may 
be terminated or benefits may be amended or eliminated; a summary of 
any plan provisions governing the benefits, rights and obligations of 
participants and beneficiaries under the plan on termination of the 
plan or amendment or elimination of benefits under the plan, including, 
in the case of an employee pension benefit plan, a summary of any 
provisions relating to the accrual and the vesting of pension benefits 
under the plan upon termination; and a summary of any plan provisions 
governing the allocation and disposition of assets of the plan upon 
termination. Plans also shall include a summary of any provisions that 
may result in the imposition of a fee or charge on a participant or 
beneficiary, or on an individual account thereof, the payment of which 
is a condition to the receipt of benefits under the plan. The foregoing 
summaries shall be disclosed in accordance with the requirements under 
29 CFR 2520.102-2(b).
    (m) * * *
    (3) A summary plan description for a single-employer plan will be 
deemed to comply with paragraph (m)(2) of this section if it includes 
the following statement:

    Your pension benefits under this plan are insured by the Pension 
Benefit Guaranty Corporation (PBGC), a federal insurance agency. If 
the plan terminates (ends) without enough money to pay all benefits, 
the PBGC will step in to pay pension benefits. Most people receive 
all of the pension benefits they would have received under their 
plan, but some people may lose certain benefits.
    The PBGC guarantee generally covers: (1) Normal and early 
retirement benefits; (2) disability benefits if you become disabled 
before the plan terminates; and (3) certain benefits for your 
survivors.
    The PBGC guarantee generally does not cover: (1) Benefits 
greater than the maximum guaranteed amount set by law for the year 
in which the plan terminates; (2) some or all of benefit increases 
and new benefits based on plan provisions that have been in place 
for fewer than 5 years at the time the plan terminates; (3) benefits 
that are not vested because you have not worked long enough for the 
company; (4) benefits for which you have not met all of the 
requirements at the time the plan terminates; (5) certain early 
retirement payments (such as supplemental benefits that stop when 
you become eligible for Social Security) that result in an early 
retirement monthly benefit greater than your monthly benefit at the 
plan's normal retirement age; and (6) non-pension benefits, such as 
health insurance, life insurance, certain death benefits, vacation 
pay, and severance pay.
    Even if certain of your benefits are not guaranteed, you still 
may receive some of those benefits from the PBGC depending on how 
much money your plan has and on how much the PBGC collects from 
employers.
    For more information about the PBGC and the benefits it 
guarantees, ask your plan administrator or contact the PBGC's 
Technical Assistance Division, 1200 K Street N.W., Suite 930, 
Washington, D.C. 20005-4026 or call 202-326-4000 (not a toll-free 
number). TTY/TDD users may call the federal relay service toll-free 
at 1-800-877-8339 and ask to be connected to 202-326-4000. 
Additional information about the PBGC's pension insurance program is 
available through the PBGC's website on the Internet at http://www.pbgc.gov.

    (4) A summary plan description for a multiemployer plan will be 
deemed to comply with paragraph (m)(2) of this section if it includes 
the following statement:

    Your pension benefits under this multiemployer plan are insured 
by the Pension Benefit Guaranty Corporation (PBGC), a federal 
insurance agency. A multiemployer plan is a collectively bargained 
pension arrangement involving two or more unrelated employers, 
usually in a common industry.
    Under the multiemployer plan program, the PBGC provides 
financial assistance through loans to plans that are insolvent. A 
multiemployer plan is considered insolvent if the plan is unable to 
pay benefits (at least equal to the PBGC's guaranteed benefit limit) 
when due.
    The maximum benefit that the PBGC guarantees is set by law. 
Under the multiemployer program, the PBGC guarantee equals a 
participant's years of service multiplied by (1) 100% of the first 
$5 of the monthly benefit accrual rate and (2) 75% of the next $15. 
The PBGC's maximum guarantee limit is $16.25 per month times a 
participant's years of service. For example, the maximum annual 
guarantee for a retiree with 30 years of service would be $5,850.
    The PBGC guarantee generally covers: (1) Normal and early 
retirement benefits; (2) disability benefits if you become disabled 
before the plan becomes insolvent; and (3) certain benefits for your 
survivors.
    The PBGC guarantee generally does not cover: (1) Benefits 
greater than the maximum guaranteed amount set by law; (2) benefit 
increases and new benefits based on plan provisions that have been 
in place for fewer than 5 years at the earlier of: (i) The date the 
plan terminates or (ii) the time the plan becomes insolvent; (3) 
benefits that are not vested because you have not worked long 
enough; (4) benefits for which you have not met all of the 
requirements at the time the plan becomes insolvent; and (5) non-
pension benefits, such as health insurance, life insurance, certain 
death benefits, vacation pay, and severance pay.
    For more information about the PBGC and the benefits it 
guarantees, ask your plan administrator or contact the PBGC's 
Technical Assistance Division, 1200 K Street, N.W., Suite 930, 
Washington, D.C. 20005-4026 or call 202-326-4000 (not a toll-free 
number). TTY/TDD users may call the federal relay service toll-free 
at 1-800-877-8339 and ask to be connected to 202-326-4000. 
Additional information about the PBGC's pension insurance program is 
available through the PBGC's website on the Internet at http://www.pbgc.gov.
* * * * *
    (o) In the case of a group health plan, within the meaning of 
section 607(1) of the Act, subject to the continuation coverage 
provisions of Part 6 of Title I of ERISA, a description of the rights 
and obligations of participants and beneficiaries with respect to 
continuation coverage, including, among other things, information 
concerning qualifying events and qualified beneficiaries, premiums, 
notice and election requirements and procedures, and duration of 
coverage.
* * * * *
    (q) * * * If a health insurance issuer, within the meaning of 
section 733(b)(2) of the Act, is responsible, in whole or in part, for 
the financing or administration of a group health plan, the summary 
plan description shall indicate the name and address of the issuer, 
whether and to what extent benefits under the plan are guaranteed under 
a contract or policy of insurance issued by the issuer, and the nature 
of any administrative services (e.g., payment of claims) provided by 
the issuer.
* * * * *
    (s) The procedures governing claims for benefits (including 
procedures for obtaining preauthorizations, approvals, or utilization 
review decisions in the case of group health plan services or benefits, 
and procedures for filing claim forms, providing notifications of 
benefit determinations, and reviewing denied claims in the case of any 
plan), applicable time limits, and remedies available under the plan 
for the redress of claims which are denied in whole or in part 
(including procedures required under section 503 of Title I of the 
Act). The plan's claims procedures may be furnished as a separate 
document that accompanies the plan's SPD, provided

[[Page 70243]]

that the document satisfies the style and format requirements of 29 CFR 
2520.102-2 and, provided further that the SPD contains a statement that 
the plan's claims procedures are furnished automatically, without 
charge, as a separate document.
    (t) * * *
    (2) A summary plan description will be deemed to comply with the 
requirements of paragraph (t)(1) of this section if it includes the 
following statement; items of information which are not applicable to a 
particular plan should be deleted:

    As a participant in (name of plan) you are entitled to certain 
rights and protections under the Employee Retirement Income Security 
Act of 1974 (ERISA). ERISA provides that all plan participants shall 
be entitled to:

Receive Information About Your Plan and Benefits

    Examine, without charge, at the plan administrator's office and 
at other specified locations, such as worksites and union halls, all 
documents governing the plan, including insurance contracts and 
collective bargaining agreements, and a copy of the latest annual 
report (Form 5500 Series) filed by the plan with the U.S. Department 
of Labor and available at the Public Disclosure Room of the Pension 
and Welfare Benefit Administration.
    Obtain, upon written request to the plan administrator, copies 
of documents governing the operation of the plan, including 
insurance contracts and collective bargaining agreements, and copies 
of the latest annual report (Form 5500 Series) and updated summary 
plan description. The administrator may make a reasonable charge for 
the copies.
    Receive a summary of the plan's annual financial report. The 
plan administrator is required by law to furnish each participant 
with a copy of this summary annual report.
    Obtain a statement telling you whether you have a right to 
receive a pension at normal retirement age (age * * *) and if so, 
what your benefits would be at normal retirement age if you stop 
working under the plan now. If you do not have a right to a pension, 
the statement will tell you how many more years you have to work to 
get a right to a pension. This statement must be requested in 
writing and is not required to be given more than once every twelve 
(12) months. The plan must provide the statement free of charge.

Continue Group Health Plan Coverage

    Continue health care coverage for yourself, spouse or dependents 
if there is a loss of coverage under the plan as a result of a 
qualifying event. You or your dependents may have to pay for such 
coverage. Review this summary plan description and the documents 
governing the plan on the rules governing your COBRA continuation 
coverage rights.
    Reduction or elimination of exclusionary periods of coverage for 
preexisting conditions under your group health plan, if you have 
creditable coverage from another plan. You should be provided a 
certificate of creditable coverage, free of charge, from your group 
health plan or health insurance issuer when you lose coverage under 
the plan, when you become entitled to elect COBRA continuation 
coverage, when your COBRA continuation coverage ceases, if you 
request it before losing coverage, or if you request it up to 24 
months after losing coverage. Without evidence of creditable 
coverage, you may be subject to a preexisting condition exclusion 
for 12 months (18 months for late enrollees) after your enrollment 
date in your coverage.

Prudent Actions by Plan Fiduciaries

    In addition to creating rights for plan participants ERISA 
imposes duties upon the people who are responsible for the operation 
of the employee benefit plan. The people who operate your plan, 
called ``fiduciaries'' of the plan, have a duty to do so prudently 
and in the interest of you and other plan participants and 
beneficiaries. No one, including your employer, your union, or any 
other person, may fire you or otherwise discriminate against you in 
any way to prevent you from obtaining a (pension, welfare) benefit 
or exercising your rights under ERISA.

Enforce Your Rights

    If your claim for a (pension, welfare) benefit is denied or 
ignored, in whole or in part, you have a right to know why this was 
done, to obtain copies of documents relating to the decision without 
charge, and to appeal any denial, all within certain time schedules.
    Under ERISA, there are steps you can take to enforce the above 
rights. For instance, if you request a copy of plan documents or the 
latest annual report from the plan and do not receive them within 30 
days, you may file suit in a Federal court. In such a case, the 
court may require the plan administrator to provide the materials 
and pay you up to $110 a day until you receive the materials, unless 
the materials were not sent because of reasons beyond the control of 
the administrator. If you have a claim for benefits which is denied 
or ignored, in whole or in part, you may file suit in a state or 
Federal court. In addition, if you disagree with the plan's decision 
or lack thereof concerning the qualified status of a domestic 
relations order or a medical child support order, you may file suit 
in Federal court. If it should happen that plan fiduciaries misuse 
the plan's money, or if you are discriminated against for asserting 
your rights, you may seek assistance from the U.S. Department of 
Labor, or you may file suit in a Federal court. The court will 
decide who should pay court costs and legal fees. If you are 
successful the court may order the person you have sued to pay these 
costs and fees. If you lose, the court may order you to pay these 
costs and fees, for example, if it finds your claim is frivolous.

Assistance with Your Questions

    If you have any questions about your plan, you should contact 
the plan administrator. If you have any questions about this 
statement or about your rights under ERISA, or if you need 
assistance in obtaining documents from the plan administrator, you 
should contact the nearest office of the Pension and Welfare 
Benefits Administration, U.S. Department of Labor, listed in your 
telephone directory or the Division of Technical Assistance and 
Inquiries, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 
20210. You may also obtain certain publications about your rights 
and responsibilities under ERISA by calling the publications hotline 
of the Pension and Welfare Benefits Administration.

    (u) (1) For a group health plan, as defined in section 733(a)(1) of 
the Act, that provides maternity or newborn infant coverage, a 
statement describing any requirements under federal or state law 
applicable to the plan, and any health insurance coverage offered under 
the plan, relating to hospital length of stay in connection with 
childbirth for the mother or newborn child. If federal law applies in 
some areas in which the plan operates and state law applies in other 
areas, the statement should describe the different areas and the 
federal or state law requirements applicable in each.
    (2) In the case of a group health plan subject to section 711 of 
the Act, the summary plan description will be deemed to have complied 
with paragraph (u)(1) of this section relating to the required 
description of federal law requirements if it includes the following 
statement in the summary plan description:

    Group health plans and health insurance issuers generally may 
not, under Federal law, restrict benefits for any hospital length of 
stay in connection with childbirth for the mother or newborn child 
to less than 48 hours following a vaginal delivery, or less than 96 
hours following a cesarean section. However, Federal law generally 
does not prohibit the mother's or newborn's attending provider, 
after consulting with the mother, from discharging the mother or her 
newborn earlier than 48 hours (or 96 hours as applicable). In any 
case, plans and issuers may not, under Federal law, require that a 
provider obtain authorization from the plan or the insurance issuer 
for prescribing a length of stay not in excess of 48 hours (or 96 
hours).


Sec. 2520.102-5  [Removed]

    3. Section 2520.102-5 is removed.

    4. Section 2520.104b-3 is amended by revising the second sentence 
of paragraph (a), and paragraphs (d) and (e) to read as follows:


Sec. 2520.104b-3  Summary of material modifications to the plan and 
changes in the information required to be included in the summary plan 
description.

    (a) * * * Except as provided in paragraph (d) of this section, the 
plan administrator shall furnish this summary, written in a manner 
calculated to be understood by the

[[Page 70244]]

average plan participant, not later than 210 days after the close of 
the plan year in which the modification or change was adopted. * * *
* * * * *
    (d) Special rule for group health plans. (1) General. Except as 
provided in paragraph (d)(2) of this section, the administrator of a 
group health plan, as defined in section 733(a)(1) of the Act, shall 
furnish to each participant covered under the plan a summary, written 
in a manner calculated to be understood by the average plan 
participant, of any modification to the plan or change in the 
information required to be included in the summary plan description, 
within the meaning of paragraph (a) of this section, that is a material 
reduction in covered services or benefits not later than 60 days after 
the date of adoption of the modification or change.
    (2) 90-day alternative rule. The administrator of a group health 
plan shall not be required to furnish a summary of any material 
reduction in covered services or benefits within the 60-day period 
described in paragraph (d)(1) of this section to any participant 
covered under the plan who would reasonably be expected to be furnished 
such summary in connection with a system of communication maintained by 
the plan sponsor or administrator, with respect to which plan 
participants are provided information concerning their plan, including 
modifications and changes thereto, at regular intervals of not more 
than 90 days and such communication otherwise meets the disclosure 
requirements of 29 CFR 2520.104b-1.
    (3) ``Material reduction''. (i) For purposes of this paragraph (d), 
a ``material reduction in covered services or benefits'' means any 
modification to the plan or change in the information required to be 
included in the summary plan description that, independently or in 
conjunction with other contemporaneous modifications or changes, would 
be considered by the average plan participant to be an important 
reduction in covered services or benefits under the plan.
    (ii) A ``reduction in covered services or benefits'' generally 
would include any plan modification or change that: eliminates benefits 
payable under the plan; reduces benefits payable under the plan, 
including a reduction that occurs as a result of a change in formulas, 
methodologies or schedules that serve as the basis for making benefit 
determinations; increases premiums, deductibles, coinsurance, 
copayments, or other amounts to be paid by a participant or 
beneficiary; reduces the service area covered by a health maintenance 
organization; establishes new conditions or requirements (i.e., 
preauthorization requirements) to obtaining services or benefits under 
the plan.
    (e) Applicability date. Paragraph (d) of this section is applicable 
as of the first day of the first plan year beginning after June 30, 
1997.
* * * * *

    Signed at Washington, D.C., this 15th day of November, 2000
Leslie B. Kramerich,
Acting Assistant Secretary, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-29765 Filed 11-20-00; 8:45 am]
BILLING CODE 4510-29-P