September 11, 2024

There are a few different notice requirements in play when an employer makes a midyear change to benefits. First, ERISA includes a summary of material modification (SMM) requirement. The SMM requirement pertains to material changes in a group health plan. ERISA does not define “material,” but this term would generally refer to any information or changes that impact the rights or obligations of plan participants and beneficiaries. Such changes may include, but are not limited to, changes in plan benefits, funding, or management.

When the plan is changed in a way that materially affects the content of the Summary Plan Description (SPD), the administrator must inform participants of these changes. The plan administrator must generally furnish an SMM within 210 days after the end of the plan year in which the modification or change was adopted. However, if there is a material reduction in covered services or benefits, the plan administrator must provide a summary of material reduction (SMR) within 60 days of the adoption of the material reduction. The SMM and SMR are intended to provide participants with a description of the specific material changes to the plan or to the information required to be in the SPD. It should be written in a manner calculated to be understood by the average plan participant and must be furnished in a timeframe compliant with the regulations. However, regardless of the legal deadline, the best practice is to distribute the notice in advance of the material change, if possible, since participants will be relying upon the prior information provided until they receive the updated notice.

The ACA includes a Summary of Benefits and Coverage (SBC) requirement that requires group health plans and health insurance issuers to provide a concise document detailing, in plain language, simple and consistent information about health plan benefits and coverage. The SBC is designed to help beneficiaries compare different coverage options by summarizing key features of the plan or coverage, such as the covered benefits, cost-sharing provisions, and coverage limitations. If there's a material change that impacts the information provided in the SBC, and that change occurs outside of open enrollment (i.e., it occurs midyear), then the employer must distribute an updated SBC (or a notice describing the change) 60 days in advance of the change. So, for many modifications to the plan that occur midyear, that advance-notice SBC will likely need to be distributed. Remember that providing the updated SBC will also meet ERISA’s SMM and SMR requirements.

Now, if the change or modification (even if it’s a reduction) is occurring as part of renewal or open enrollment (that is, changes that are taking effect for the new plan year), then those changes can be included in a new SBC that is distributed during open enrollment. In that case, there's no need to distribute an updated SBC (or notice describing the change) 60 days in advance. Instead, the employer could just include the updated SBC/notice in the open enrollment materials.

Employers should ensure they fulfill their fiduciary obligations to provide required disclosures within the appropriate time interval.