Proposed Amendments to Summary Plan Description Regulations

Federal RegisterSep 9, 1998

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SUMMARY: This document contains proposed amendments to the regulations

governing the content of the Summary Plan Description (SPD) required to

be furnished to employee benefit plan participants and beneficiaries

under the Employee Retirement Income Security Act of 1974, as amended,

(ERISA). These amendments are being proposed to implement information

disclosure recommendations of the President's Advisory Commission on

Consumer Protection and Quality in the Health Care Industry, as set

forth in their November 20, 1997 report ``Consumer Bill of Rights and

Responsibilities,'' by clarifying benefit, medical provider and other

information required to be disclosed in, or as part of, the SPD of a

group health plan and for other reasons as well. This document also

contains a proposed amendment to repeal the limited exemption with

respect to SPDs of welfare plans providing benefits through qualified

health maintenance organizations (HMOs). In addition, the Department is

proposing a number of amendments to the SPD content regulation that are

intended to update and clarify the application of provisions affecting

both pension and welfare benefit plans. The amendments contained in

this document will affect employee pension and welfare benefit plans,

including group health plans, as well as administrators, fiduciaries,

participants and beneficiaries of such plans.

DATES: Comments: Written comments concerning the proposed amendments

must be received by November 9, 1998.

ADDRESSES: Interested persons are invited to submit written comments

(preferably three copies) concerning the proposals herein to: Office of

Regulations and Interpretations, Room N-5669, Pension and Welfare

Benefits Administration, U.S. Department of Labor, 200 Constitution

Avenue, NW., Washington, DC 20210, Attention: Proposed SPD Content

Regulations. All written comments should clearly reference the relevant

proposed amendment(s). All submissions will be open to public

inspection in the Public Disclosure Room, Pension and Welfare Benefits

Administration, Room N-5638, 200 Constitution Avenue, N.W. Washington,

D.C.

FOR FURTHER INFORMATION CONTACT: June Solonsky, Office of Regulations

and Interpretations, Pension and Welfare Benefits Administration, (202)

219-8521. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

Pursuant to ERISA section 101(a)(1), the administrator of an

employee benefit plan is required to furnish a summary plan description

(SPD) to each participant covered under the plan and each beneficiary

who is receiving benefits under the plan. Section 102(b) and the

Department's regulation issued thereunder, 29 CFR 2520.102-3, describe

the information required to be included in the SPD. The SPD is the

primary vehicle under ERISA for communicating information to

participants and beneficiaries about their rights, benefits, and

obligations under their employee benefit plans.1

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\1\ Publication of this regulation is not intended to address

any disclosure issues arising under Part 4 of Subtitle B of Title I.

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The Regulation governing the content of the SPD was first adopted

in 1977.2 While this regulation was later amended to

implement changes to ERISA's disclosure provisions enacted as part of

the Health Insurance Portability and Accountability Act of 1996 and the

Newborns' and Mothers' Health Protection Act of 1996,3 most

of the SPD content provisions have not been modified, updated or

otherwise changed since adoption of the 1977 regulation. Since that

time there have been a number of legislative and other changes

affecting plans and plan practices that, in turn, affect the

information necessary for participants and beneficiaries to understand

and exercise their rights under their plans and under ERISA. Taking

into account the continuation coverage provisions enacted under the

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and

subsequent amendments, the portability, access and renewability

requirements enacted as part of the Health Insurance Portability and

Accountability Act of 1996 (HIPAA), the mental health parity provisions

enacted as part of the Mental Health Parity Act of 1996, the

requirements of the Newborns' and Mothers' Health Protection Act of

1996, and the growth of managed care programs and practices, some of

the most significant changes have taken place with respect to group

health plans.

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\2\ 42 FR 37178, July 19, 1977.

\3\ 62 FR 16979, April 8, 1997.

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In addition, the President's Advisory Commission on Consumer

Protection and Quality in the Health Care Industry (the Commission), in

its November 20, 1997 report entitled ``Consumer Bill of Rights and

Responsibilities,'' made a number of recommendations intended to

enhance disclosure of health care plan and other information. In

response to the Commission's report, the Department of Labor identified

various regulatory actions that could be taken to implement the

Commission's recommendation in the area of information disclosure.

Following the Department's response, the President issued a memorandum

to the Department, directing it to ``propose regulations that require

ERISA health plans to ensure the information they provide to plan

participants is consistent with the Patient Bill of Rights.''

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\4\ The President further directed the Department to ``propose

regulations to strengthen the internal appeals process for all

Employee Retirement Income Security Act (ERISA) health plans to

ensure that decisions regarding urgent care are resolved within not

more than 72 hours and generally resolved within 15 days for non-

urgent care.'' The Department is publishing today in the Federal

29 CFR 2560.503-1 to accomplish this goal.

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As discussed below, this document contains a number of proposed

amendments to the regulations governing the content of summary plan

descriptions, specifically, 29 CFR 2520.102-3 and 2520.102-5, that,

consistent with the Department's commitment are intended to implement

the Commission's recommendations for improved information disclosure by

group health plans, as well as generally update the SPD disclosure

requirements for both welfare and pension plans.

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

Responsibilities''

One of the eight principles set forth in the ``Consumer Bill of

Rights and Responsibilities'' is the right of individuals to receive

accurate, easily understood information about their health plans,

professionals and facilities. While the Department does not have the

authority under ERISA to mandate disclosure of all of the information

identified by the Commission in their report, the Department does have

the authority to establish standards governing the style, format and

content of the SPD, which is the primary vehicle through which plan

[[Page 48377]]

benefit and other information is communicated to participants and

beneficiaries. Consistent with the Commission's recommendation that

health care information be communicated in an easily understood manner,

both ERISA and the Department's regulations currently require that SPD

information be communicated in a manner calculated to be understood by

the average plan participant and sufficiently accurate and

comprehensive to reasonably apprise such participants and beneficiaries

of their rights and obligations under the plan.5 The

Department believes these standards serve to further the Commission's

recommendations without modification or amendment at this time. The

Department, however, has concluded that the SPD regulations should be

amended to clarify the required disclosure by group health plans in

their SPDs of various categories of information identified by the

Commission and to ensure that all participants and beneficiaries,

without regard to whether they are covered by a Federally qualified

HMO, are provided health plan information consistent with the SPD

requirements.

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\5\ See ERISA Sec. 102(a)(1), 29 U.S.C. 1022(a)(1), and 29 CFR

2520.102-2.

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In responding to the Commission's recommendations, the Department

indicated that it could propose amendments to the SPD regulations to

ensure that all participants and beneficiaries in group health plans

are provided, consistent with the Commission's recommendations, clear

and understandable information concerning: benefits and limits on

coverage; the extent to which preventive services are covered; whether,

and under what circumstances, coverage is provided for existing and new

drugs; whether, and under what circumstances, coverage is provided for

tests, devices, and procedures; provider network composition; coverage

of out-of-network services; conditions, if any, for access to

speciality medical care; conditions, if any, applicable to urgent care;

and preauthorization and utilization review procedures. The Department

also indicated that it could amend the special rules, at Sec. 2520.102-

5, governing the disclosure of plan information by certain health

maintenance organizations (HMOs) to improve the information furnished

participants and beneficiaries.

1. Changes to the SPD Content Requirements

In order to implement the Department's response to the Commission's

recommendations, the Department is proposing to amend paragraph (j) of

Sec. 2520.102-3 to add a new subparagraph (3) clarifying the

information that must be included in the SPD of a group health plan, as

defined in section 733(a).6 Paragraph (j) generally provides

that the SPD of an employee benefit plan must describe ``[t]he plan's

requirements respecting eligibility for participation and for

benefits.'' Subparagraph (2) of paragraph (j) provides, in the case of

welfare benefit plans, the SPD must also include a ``statement of the

conditions pertaining to eligibility to receive benefits, and a

description or summary of the benefits.'' That subparagraph also

provides that where a plan provides an extensive schedule of benefits,

only a general description is required if reference is made to detailed

schedules of benefits which are available without costs to any

participant or beneficiary who so requests.

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\6\ ERISA Sec. 733(a)(1), defines the term ``group health plan''

to mean ``an employee welfare benefit plan to the extent that the

plan provides medical care (as defined in paragraph (2) and

including items and services paid for as medical care) to employees

or their dependents (as defined under the terms of the plan)

directly or through insurance reimbursement, or otherwise.''

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It is the view of the Department that the information described in

the new paragraph (j)(3) is currently required to be disclosed through

the SPD under paragraph (j)(2), and that most group health plans in

fact disclose such information to participants and beneficiaries in, or

as part of, the plan's SPD. Nonetheless, the Department believes that,

in view of the Commission's report and recommendations, the amendment

proposed herein adding a new paragraph (j)(3) is necessary to remove

any ambiguity as to the required disclosure of such information.

Specifically, paragraph (j)(3) provides that the SPD of a group health

plan shall describe: Any cost-sharing provisions, including premiums,

deductibles, coinsurance, and copayment amounts for which the

participant or beneficiary will be responsible; any annual or lifetime

caps or other limits on benefits under the plan; the extent to which

preventive services are covered under the plan; whether, and under what

circumstances, existing and new drugs are covered under the plan;

whether, and under what circumstances, coverage is provided for medical

tests, devices and procedures; provisions governing the use of network

providers, the composition of the provider network and whether, and

under what circumstances, coverage is provided for out-of-network

services; any conditions or limits on the selection of primary care

providers or providers of speciality medical care; any conditions or

limits applicable to obtaining emergency medical care; and any

provisions requiring preauthorizations or utilization review as a

condition to obtaining a benefit or service under the plan.

Paragraph (j)(3) further provides that, in the case of plans with

provider networks, the listing of providers may be furnished to

participants and beneficiaries as a separate document, provided that

the SPD contains a general description of the provider network and

indicates that provider lists are furnished, without charge, in a

separate document.

With regard to the disclosure of preauthorization and utilization

review procedures, the Department is proposing to amend paragraph (s)

of Sec. 2520.102-3, that currently requires a description of the plan's

claims procedures, to clarify that the required description of

procedures governing claims for benefits includes, in the case of a

group health plan, any procedures for preauthorizations, approvals, or

utilization review. It is the view of the Department that a plan is not

precluded from furnishing a description of the plan's claims procedures

as a separate document that accompanies the plan's SPD, provided that

the description otherwise satisfies the style and format requirements

of Sec. 2520.102-2.

2. Repealing the Limited Exception for SPDs of Plans Providing

Benefits Through a Federally Qualified HMO

The Department is proposing to repeal Sec. 2520.102-5, which

provides that SPDs of welfare benefit plans which provide benefits

through a qualified HMO, as defined in section 1310(d) of the Public

Health Act, 42 U.S.C. 300e-9(d), are not required to include the

information described in Secs. 2520.102-3(j)(2), (l), (q) and (s)

provided certain conditions are met. The Department believes that, in

view of the legislative and other changes affecting the operation of

group health plans since the adoption of Sec. 2520.102-5 in

1981,7 the information required to be disclosed through the

SPD and summaries of changes thereto are as important to participants

and beneficiaries electing coverage through a qualified HMO, as defined

in Sec. 1310(d) of the Public Health Act, 42 U.S.C. 300e-9(d), as any

other employee benefit plan participant or beneficiary.

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\7\ See 46 FR 5884, January 21, 1981.

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[[Page 48378]]

C. Other Amendments Relating to the SPD Content Requirements

The following amendments are intended to update the SPD content

regulations, Sec. 2520.102-3, to reflect legislative and other changes

that have taken place since adoption of the regulations. The amendments

are discussed below paragraph-by-paragraph in the order in which they

appear in the regulation.

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

Paragraph (d) of Sec. 2520.102-3 requires plan administrators to

specify in the summary plan description the type of welfare or pension

plan they administer. The regulation provides examples of types of

pension and welfare plans. Due to the fact that participant and

beneficiary rights and obligations may be substantially affected, in

the case of pension plans, by whether their defined contribution

pension plan is intended to comply with ERISA section 404(c) and, in

the case of welfare plans, by whether the plan is a group health plan

subject to HIPAA, in an effort to update the regulation, the proposal

would amend paragraph (d) to include references to ERISA section 404(c)

plans and group health plans as defined in ERISA section 733(a). While

the Department's regulation at Sec. 2550.404c-1(b)(2)(i)(B)(1)(i)

already requires participants and beneficiaries to be provided with an

explanation that the plan is intended to constitute a plan described in

ERISA section 404(c), the Department intends to emphasize plan

administrators' notification responsibilities by including the

reference to ERISA section 404(c) plans in paragraph (d) of

Sec. 2520.102-3.

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

In addition to the above discussed amendment of paragraph (j) of

Sec. 2520.102-3 relating to group health plans, the Department is

proposing to amend paragraph (j)(1) to require that the SPD of a

pension plan include either a description of the plan's procedures

governing qualified domestic relations order (QDRO) determinations or a

statement indicating that participants and beneficiaries can obtain,

without charge, a copy of such procedures from the plan administrator.

Similarly, the Department is proposing to amend paragraph (j)(2) to

require that the SPD of group health plans include either a description

of the plan's procedures governing qualified medical child support

order (QMCSO) determinations or a statement indicating that

participants and beneficiaries can obtain, without charge, a copy of

such procedures from the plan.8 If an SPD contains a

description of the procedures governing QDRO determinations, in the

case of a pension plan, or QMCSO determinations, in the case of a group

health plan, the description should include information sufficient to

enable prospective alternate payees and alternate recipients to

exercise their rights. The Department believes that participants and

beneficiaries should be aware that procedures exist for making such

determinations and that the most appropriate vehicle for communicating

information about the procedures is through the SPD.

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\8\ The Department notes that the procedures governing qualified

domestic relations order determinations under ERISA Sec. 206(d)(3)

and the procedures governing qualified medical child support order

determinations under ERISA Sec. 609 would constitute an instrument

under which a plan is operated for purposes of ERISA Sec. 104(b)(4),

and, thereby, would be required to be furnished to participants and

beneficiaries upon request. A failure or refusal to furnish a copy

of such instrument in response to a request from a participant or

beneficiary (including prospective alternate payees and alternate

recipients), therefore, may subject the administrator to a penalty

of up to $110 a day from the date of such failure or refusal (See

ERISA Sec. 502(c)(1)).

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3. Sec. 2520.102-3(l)--Plan Terminations and Authority To Eliminate

Benefits

Paragraph (l) of Sec. 2520.102-3 requires pension and welfare

benefit plan administrators to include in their SPDs a statement

clearly identifying circumstances which may result in disqualification,

ineligibility, or denial, loss, forfeiture or suspension of any

benefits that a participant or beneficiary might otherwise reasonably

expect the plan to provide on the basis of the description of benefits

required by the SPD regulations. In 1984, the Department issued ERISA

Technical Release 84-1 setting forth the Department's view that a plan

termination is a circumstance which may result in the denial or loss of

benefits that a participant or beneficiary might otherwise reasonably

expect to receive under a plan such that plan administrators, pursuant

to Sec. 2520.102-2 and Sec. 2520.102-3(l), must include in their SPD

information concerning the provisions of the plan which relate to the

termination of the plan.

It is the Department's view that paragraph (l) currently requires

the disclosure of information concerning the circumstances under which

the plan can be amended to reduce or eliminate benefits. To eliminate

uncertainty, however, the Department is proposing to amend paragraph

(l) in order to incorporate the principles of Technical Release 84-1 in

the SPD content regulation, as well as clarify the application of those

principles to the plan amendments. These changes serve to codify the

principles of Technical Release 84-1, thereby, providing more effective

notice to plan administrators, participants and beneficiaries, and

others regarding the information required to be included in the

SPD.9

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\9\ At least one federal court has interpreted the Department's

regulations as not requiring administrators of ERISA plans to

disclose in their SPDs that the plans are subject to amendment or

termination. See Sprague v. General Motors Corp., 133 F.3d 388 (6th

Cir. 1997), cert. denied, 66 U.S.L.W. 3779 (1998).

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Specifically, the Department proposes to add to the end of

paragraph (l) the requirement that plan administrators include the

following: (1) A summary of any plan provisions governing the authority

of the plan sponsor or others to terminate the plan or eliminate, in

whole or in part, benefits under the plan and the circumstances, if

any, under which the plan may be terminated and under which benefits

under the plan may be amended or eliminated; (2) a summary of any plan

provisions governing the benefits, rights and obligations of

participants and beneficiaries under the plan on termination of the

plan or amendment or elimination of benefits under the plan, including

in the case of an employee pension benefit plan, a summary of any

provisions relating to the accrual and the vesting of pension benefits

under the plan upon termination of the plan; and (3) a summary of any

plan provisions governing the allocation and disposition of assets of

the plan upon termination of the plan.

The Department notes that, in accordance with the general SPD

format requirements of Sec. 2520.102-2(b), any description of an

exception, limitations, reductions or other restrictions--which, in the

Department's view includes plan amendment and termination provisions--

must not be minimized, rendered obscure, or otherwise made to appear

unimportant.

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

Under Sec. 2520.102-3(m)(2), plans with benefits insured under

Title IV are required to indicate that fact in their SPD along with a

summary of the pension benefit guaranty provisions of Title IV and a

statement indicating that further information on the provisions can be

obtained from the plan administrator or the Pension Benefit Guaranty

Corporation (PBGC). An SPD is deemed to meet the requirements of

paragraph (m)(2) if it includes the model

[[Page 48379]]

statement set forth in paragraph (m)(3). The Department is proposing to

amend the model statement contained in paragraph (m)(3), in accordance

with changes provided by the PBGC, to more accurately reflect the

benefits guaranteed under Title IV, as well as update the information

relating to the PBGC.

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

Paragraph (o) of Sec. 2520.102-3 requires that certain pension

plans electing use of the ``cutback'' rule of Internal Revenue Code

Revenue Ruling 76-378 include information concerning the application of

such election in the SPD. The Department understands that the

referenced ``cutback'' rule has little, if any, current application.

Accordingly, the Department is proposing to amend paragraph (o) to

eliminate the discussion of the ``cutback'' rule.

The Department is further proposing to address in a new paragraph

(o) the requirement that participants and beneficiaries in group health

plans subject to the continuation coverage provisions of COBRA be

provided information concerning their rights and obligations under

those provisions. It is the view of the Department that the SPD of

group health plans, within the meaning of section 607(1), subject to

the continuation coverage provisions of COBRA, must describe the rights

and responsibilities of participants and other ``qualified

beneficiaries'' (as defined in ERISA section 607(3)) under such

provisions. ERISA section 606(a)(1) also requires that group health

plans, within the meaning of section 607(1) of ERISA, provide, at the

time of commencement of coverage under the plan, a notice to each

covered employee and his or her spouse informing them of their rights

under the COBRA continuation coverage provisions. It is the view of the

Department that the disclosure obligation under section 606(a)(1) will

be satisfied by furnishing to the covered employee and spouse, at the

time of commencement of coverage, an SPD that includes the required

COBRA continuation coverage description.10

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\10\ The Department has taken the position that, where a

spouse's last known address is the same as the covered employee's, a

single mailing of the required COBRA disclosure addressed to both

the employee and spouse will constitute good faith compliance with

the general COBRA disclosure requirement. See ERISA Technical

Release No. 86-2.

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Specifically, paragraph (o), as amended, would require group health

plans subject to the COBRA continuation coverage provisions to describe

the rights and obligations of participants and beneficiaries with

respect to continuation coverage, providing, among other things,

information concerning qualifying events, premiums, notice and election

requirements and procedures, and duration of coverage.

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

On April 8, 1997, the Department published an amendment to

paragraph (q) of Sec. 2520.102-3 , implementing statutory changes to

SPD disclosure requirements enacted as part of the Health Insurance

Portability and Accountability Act of 1996.11 This amendment

is intended to ensure that SPDs clearly inform participants and

beneficiaries about the role of insurance issuers with respect to their

group health plan, particularly in those cases where the plan is self-

funded and an insurer is serving as a contract administrator or claim

payer, rather than an insurer. Although this notice of proposed

rulemaking does not propose any change to paragraph (q), the Department

intends to publish one consolidated final rule covering the proposals

published in this document and the portions of the April 1997 interim

rule that address SPD content requirements.

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\11\ 62 FR 16979, April 8, 1997.

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7. Sec. 2520.102-3(t)--Statement of ERISA Rights

Under paragraph (t) of Sec. 2520.102-3(t), the requirement to

furnish participants and beneficiaries with the statement of ERISA

rights described in section 104(c) of the Act is satisfied by providing

the model statement set forth in paragraph (t)(2) or a statement

prepared by the plan containing the information in the model statement.

The Department is proposing to amend paragraph (t)(2) to improve and

update the model statement. Specifically, the Department is proposing

to amend the model statement to incorporate references to participant

rights under the COBRA continuation coverage and the portability

provisions of Parts 6 and 7, respectively, of ERISA, added to ERISA

since the publication of the statement of ERISA rights in 1977. The

Department also is proposing to extend to all employee benefit plans

the model statement changes applicable to group health plans as a

result of amendments enacted as part of the Health Insurance

Portability and Accountability Act of 1996. In general, these changes

to the statement of ERISA rights resulted in the addition of a sentence

directing participants and beneficiaries who have questions about the

statement of rights or their rights under ERISA to the nearest office

of the Pension and Welfare Benefits Administration, U.S. Department of

Labor, or the Division of Technical Assistance and Inquiries, Pension

and Welfare Benefits Administration, in Washington, D.C. 12

The Department believes the information included in the revised

statement will benefit participants and beneficiaries of both pension

and welfare plans generally, as well as group health plans. Other

changes to the statement include: modifying the reference of ``up to

$100 a day'' to ``up to $110 a day'', reflecting the fact the civil

monetary amount under ERISA section 502(c)(1) has been increased to

take inflation into account, as required by the Debt Collection

Improvement Act of 1996, 13 clarifications to the language

discussing the types of documents participants and beneficiaries have

the right to examine and receive copies upon request, and the addition

of a sentence indicating that issues involving the qualified status of

domestic relations orders and medical child support orders may be

pursued in Federal court.

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\12\ 62 FR 16979, April 8, 1997.

\13\ See 62 FR 40696.

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8. Sec. 2520.102-3(u)--Newborns' and Mothers' Health Protection Act

Disclosure

On April 8, 1997, the Department published, in the Federal Register

(62 FR 16979) an interim rule setting forth information required to be

disclosed in the SPD concerning the provisions of the Newborns' and

Mothers' Health Protection Act of 1996 (NMHPA). The Department, in

response to concerns about the adequacy of the information currently

required to be disclosed pursuant to paragraph (u) of Sec. 2520.102-3,

is publishing in the ``rules and regulations'' section of today's

Federal Register an interim rule expanding the information required to

be disclosed in the SPD concerning the NMHPA provisions.

D. Effective Dates

The Department is proposing to make the amendments contained herein

effective 60 days after publication of the final rule in the Federal

delineated in paragraphs (j)(3), applicable to group health plans, and

(l) of Sec. 2520.102-3 is currently required to be disclosed under the

current disclosure framework of ERISA. Accordingly, the Department

views the proposed addition of the new

[[Page 48380]]

paragraph (j)(3) and the amendment of paragraph (l) as clarifications

of existing law, rather than new disclosure requirements. Other

amendments proposed herein may result in new disclosure obligations.

With regard to these amendments, the Department is proposing to require

plans to comply with the new requirements no later than the earlier of:

(1) the date on which the first summary of material modification (or

updated SPD) is required to be furnished participants and beneficiaries

following the effective date of the amendments or (2) the first day of

the second plan year beginning after the effective date of the final

rule.

E. Request for Comments

The Department invites interested persons to submit written

comments on the amendments contained herein. Comments (preferably three

copies) should be submitted to: the Office of Regulations and

Interpretations, Room N-5669, Pension and Welfare Benefits

Administration, U.S. Department of Labor, 200 Constitution Avenue,

N.W., Washington D.C. 20210, Attention: Proposed SPD Content

Regulations. Comments must be submitted no later than November 9, 1998.

All submissions will be open to public inspection in the Public

Disclosure Room, Pension and Welfare Benefits Administration, Room N-

5638, 200 Constitution Avenue, N.W., Washington, D.C.

Economic Analysis Under Executive Order 12866

Under Executive Order 12866, the Department must determine whether

the regulatory action is ``significant'' and therefore subject to the

requirements of the Executive Order and subject to review by the Office

of Management and Budget (OMB). Under section 3(f), the order defines a

``significant regulatory action'' as an action that is likely to result

in a rule: (1) having an annual effect on the economy of $100 million

or more, or adversely and materially affecting a sector of the economy,

productivity, competition, jobs, the environment, public health or

safety, or State, local or tribal governments or communities (also

referred to as ``economically significant''); (2) creating serious

inconsistency or otherwise interfering with an action taken or planned

by another agency; (3) materially altering the budgetary impacts of

entitlement grants, user fees, or loan programs or the rights and

obligations of recipients thereof; or (4) raising novel legal or policy

issues arising out of legal mandates, the President's priorities, or

the principles set forth in the Executive Order.

Pursuant to the terms of the Executive Order, it has been

determined that this action is consistent with the President's

priorities with respect to ensuring that all participants in group

health plans receive understandable information about their plans, as

described in the Commission's Consumer Bill of Rights and

Responsibilities. To avoid underestimating of the burdens attributable

to this regulation, and as more fully explained below, the Department

used assumptions designed to result in cost estimates that represent

the maximum potential impact of the proposal. This regulatory action,

as a result, is being treated as having an economic effect exceeding

$100 million in the year 2000. Therefore, this notice is

``significant'' and subject to OMB review under Sections 3(f)(1) and

3(f)(4) of the Executive Order.

Therefore, consistent with the Executive Order, the Department has

undertaken to assess the costs and benefits of this regulatory action.

The Department's assessment, and the analysis underlying that

assessment, is detailed following the discussions of the Regulatory

Flexibility Act and the Paperwork Reduction Act.

Although the requirements of the proposal are generally

clarifications of rather than additions to the requirements of the

existing regulation, it is believed that the variety of clarifications

in the proposal will cause many plan administrators to reevaluate and

revise existing SPDs. For purposes of this analysis, it has been

assumed that all plans will add to or otherwise modify the content of

their SPDs and distribute them to participants by the end of calendar

year 2000 as a result of this proposal. Expenses associated with the

preparation and distribution of these additions and revisions

substantially constitute the estimated cost of the proposal.

The Department estimates the cost of the revisions implemented by

this proposal to be $37 million in 1999, $176 million in 2000, falling

to $15 million in 2001, and thereafter increasing or decreasing only in

proportion to participation. The peak costs in 2000 reflect the

preparation of 535,000 different SPDs describing 2.4 million pension

and welfare plans and the distribution of those SPDs to 107 million

participants. As noted above, the Department believes that these

estimates are conservatively high.14

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\14\ In fact, many plans already provide much of this

information to participants and beneficiaries in SPDs and other

materials. For example, many managed care organizations routinely

disclose information to enrollees either as a condition of private

accreditation or in response to plan sponsors, government program

requirements, and other competitive pressures. Also, approximately

27% of plans are already known to amend and reissue their SPDs each

year to account for routine changes in plan terms.

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The proposed regulation will assist plan administrators to meet

their statutory disclosure obligations. The proposed regulation will

also assure that participants have better access to more complete

information on their benefit plans. Such information is important to

participants' ability to understand and secure their rights under their

plans. Better information will also enable participants to derive more

value from their benefit plans, and will lead both participants and

plan sponsors to make more economically efficient decisions regarding

benefit plans. This enhanced value and efficiency from better

information, along with the clarified guidance to plan administrators,

constitute the benefits of the regulation.

There is wide-spread agreement that the market for health care can

be improved if purchasers, consumers, and patients are provided with

better information. In an analysis of the Consumer Bill of Rights

conducted for the Commission, The Lewin Group 15 notes that

there is currently considerable information being collected which is

not routinely passed on to consumers. For instance, information

reported through a private-accreditation survey or collected by a large

purchaser may not be available to individuals to help them make

decisions. The proposed SPD regulations would clarify the requirement

that certain types of information, such as provider network composition

and utilization review procedures, be provided in the SPD.

---------------------------------------------------------------------------

\15\ Consumer Bill of Rights and Responsibilities Cost and

Benefits: Information Disclosure and External Appeals, The Lewin

Group, November 15, 1997.

---------------------------------------------------------------------------

According to Lewin, the collection and dissemination of this type

of information will foster value-based purchasing. The information

disclosure requirements contained in the revised SPD regulations will

also assist employees in choosing health plan options that best meet

their needs. According to Lewin, such empowerment ``may lead to

increased satisfaction'' and may ``improve consumer confidence in the

health care system.''

Lewin and others assert that information disclosure will aid in the

development of an efficient, competitive market. While some have argued

that the lack of ``perfect'' information will hamper the usefulness of

information to consumers, there is strong evidence

[[Page 48381]]

from other markets (e.g., the securities and investment industry) that

indicates basic information disclosure requirements such as the one

contained in the revised SPD regulation will help to improve the

quality of information available to consumers over time.

Equally important, information disclosure under the proposed SPD

regulation, if combined with additional disclosures pertaining to plan

and provider performance, and with other health system reforms that

promote efficient, competitive choices in the health care market, could

yield redoubled benefits. Lewin points out that such reformed systems,

as exemplified by CalPERS and other examples of privately sponsored

``managed competition,'' have successfully reduced health care

inflation, producing savings that dwarf the cost of this proposed SPD

regulation and other pro-competitive reforms.

The Department believes, therefore, that the benefits of this

proposed regulation will substantially outweigh its costs. The

disclosures it describes are a component of evolving legislative,

regulatory, and voluntary private reforms that together are already

improving health care market efficiency.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes

certain requirements with respect to Federal rules that are subject to

the notice and comment requirements of section 553(b) of the

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

likely to have a significant economic impact on a substantial number of

small entities. If an agency determines that a proposed rule is likely

to have a significant economic impact on a substantial number of small

entities, section 603 of the RFA requires that the agency present an

initial regulatory flexibility analysis at the time of the publication

of the notice of proposed rulemaking describing the impact of the rule

on small entities, and seeking public comment on such impact. Small

entities include small businesses, organizations, and governmental

jurisdictions.

For purposes of analysis under the RFA, PWBA proposes to continue

to consider a small entity to be an employee benefit plan with fewer

than 100 participants. The basis of this definition is found in section

104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe

simplified annual reports for pension plans which cover fewer than 100

participants. Under section 104(a)(3), the Secretary may also provide

for simplified annual reporting and disclosure if the statutory

requirements of part 1 of Title I of ERISA would otherwise be

inappropriate for welfare benefit plans. Pursuant to the authority of

section 104(a)(3), the Department has previously issued at

Secs. 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-

10 certain simplified reporting provisions and limited exemptions from

reporting and disclosure requirements for small plans, including

unfunded or insured welfare plans covering fewer than 100 participants

and which satisfy certain other requirements.

Further, while some large employers may have small plans, in

general, most small plans are maintained by small employers. Thus, PWBA

believes that assessing the impact of this proposed rule on small plans

is an appropriate substitute for evaluating the effect on small

entities. The definition of small entity considered appropriate for

this purpose differs, however, from a definition of small business

which is based on size standards promulgated by the Small Business

Administration (SBA) (13 CFR 121.201) pursuant to the Small Business

Act (5 U.S.C. 631 et seq.). PWBA therefore requests comments on the

appropriateness of the size standard used in evaluating the impact of

this proposed rule on small entities.

On this basis, however, PWBA has preliminarily determined that this

rule will not have a significant economic impact on a substantial

number of small entities. In support of this determination, and in an

effort to provide a sound basis for this conclusion, PWBA has

considered the elements of an initial regulatory flexibility analysis

in the discussion which follows.

This regulation applies to all small employee benefit plans covered

by ERISA. Employee benefit plans with fewer than 100 participants

include 629,000 pension plans, 2.6 million health plans, and 3.4

million non-health welfare plans (mainly life and disability insurance

plans).

The proposed regulation amends the Department's existing SPD

regulation, which implements ERISA's statutory SPD requirements. Both

ERISA and the existing regulation require plans to provide SPDs that

include certain information and adhere to certain formats to

participants according to statutory schedules. The compliance

requirements assumed for purposes of this proposed regulation consist

of revising SPDs consistent with the proposed regulation's requirements

and distributing them to participants consistent with the proposed

regulation's assumed effective date.

The Department believes that revising an SPD requires a combination

of professional and clerical skills. Professional skills pertaining to

employee benefits law and plan design and administration are needed to

draft language for inclusion in an SPD, while clerical skills are

needed to type, assemble and format SPD materials. Distributing SPDs

requires clerical skills to reproduce the materials and to mail or

electronically transmit materials to participants.

The Department estimates that the cost to small plans of complying

with the proposed regulation will amount to $16 million in 1999, $42

million in 2000, and $3 million in 2001 and subsequent years, changing

thereafter only in proportion to plan participation.

The peak year cost of $42 million in 2000 consists of $13 million

to prepare 460,000 unique SPDs describing 2.3 million plans, and $29

million to distribute these SPDs to 23 million participants. These

costs amount to $18 per affected small plan and $1.81 per affected

small plan participant. By contrast, the total cost to large plans in

2000 is estimated at $134 million, or $1,803 per affected large plan

and $1.61 per affected large plan participant.

The costs are modest in large part because the features of the

large majority of small health and other welfare plans are chosen from

a finite menu of products offered by insurers and HMOs. The insurers

and HMOs prepare the large majority of SPD material, describing their

small plan products, and provide that material to their small plan

customers. Thus, the cost of preparing a relatively small number of

unique SPDs is spread thinly over a far larger number of small plans.

The basis of these estimates is explained below, following the

discussion of the Paperwork Reduction Act.

Paperwork Reduction Act

The Department of Labor, as part of its continuing effort to reduce

paperwork and respondent burden, conducts a preclearance consultation

program to provide the general public and Federal agencies with an

opportunity to comment on proposed and continuing collections of

information in accordance with the Paperwork Reduction Act of 1995 (PRA

95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data

can be provided in the desired format, reporting burden (time and

financial resources) is minimized, collection instruments are clearly

understood, and

[[Page 48382]]

the impact of collection requirements on respondents can be properly

assessed.

Currently, the Pension and Welfare Benefits Administration is

soliciting comments concerning the proposed revision of the information

collection request (ICR) included in the Proposed Amendments to Summary

Plan Description Regulations. A copy of the existing ICR may be

obtained by contacting the office listed in the addressee section of

this notice. This proposal would modify the existing ICR, which is also

revised pursuant to the Interim Rule Amending Summary Plan Description

Regulation (Interim Rule),16 also published in today's

Federal Register.

---------------------------------------------------------------------------

\16\ The Interim Rule modifies the required content to group

health plan SPDs to clarify the applicability under the Newborns'

and Mothers' Health Protection Act of minimum hospital lengths of

stay for mothers and newborn children following childbirth.

---------------------------------------------------------------------------

The Department has submitted a copy of the proposed information

collection, as modified by the Interim Rule Amending Summary Plan

Description, to OMB in accordance with 44 U.S.C. 3507(d) for review of

its information collections. The Department has requested emergency

clearance for that portion of the ICR which is changed by the Interim

Rule, specifically, the SPD disclosure provision concerning hospital

lengths of stay in connection with childbirth for a mother or newborn

child. The Department and OMB are particularly interested in comments

that:

Evaluate whether the proposed collection of information is

necessary for the proper performance of the functions of the agency,

including whether the information will have practical utility;

Evaluate the accuracy of the agency's estimate of the

burden of the proposed collection of information, including the

validity of the methodology and assumptions used;

Enhance the quality, utility, and clarity of the

information to be collected; and

Minimize the burden of the collection of information on

those who are to respond, including through the use of appropriate

automated, electronic, mechanical, or other technological collection

techniques or other forms of information technology, e.g., permitting

electronic submission of responses.

Comments should be sent to the Office of Information and Regulatory

Affairs, Office of Management and Budget, Room 10235, New Executive

Office Building, Washington, D.C. 20503; Attention: Desk Officer for

the Pension and Welfare Benefits Administration. Although comments may

be submitted through November 9, 1998, OMB requests that comments be

received within 30 days of publication of the Notice of Proposed

Rulemaking to ensure their consideration.

ADDRESSES (PRA 95): Gerald B. Lindrew, Office of Policy and Research,

U.S. Department of Labor, Pension and Welfare Benefits Administration,

200 Constitution Avenue, NW, Room N-5647, Washington, D.C. 20210.

Telephone: (202) 219-4782; Fax: (202) 219-4745. These are not toll-free

numbers.

I. Background

Pursuant to ERISA section 101(a)(1), the administrator of an

employee benefit plan is required to furnish a Summary Plan Description

(SPD) to each participant covered under the plan and each beneficiary

who is receiving benefits under the plan. The SPD is required to be

written in a manner calculated to be understood by the average plan

participant, and must be sufficiently comprehensive to apprise the

plan's participants and beneficiaries of their rights and obligations

under the plan. To the extent that there is a material modification in

the terms of the plan or a change in the information required to be

included in the SPD, ERISA requires that the administrator furnish

participants covered under the plan and beneficiaries receiving

benefits with a summary of such changes.

ERISA section 102(b) describes the types of information

specifically required to be included in the SPD. The Department has

previously issued guidance concerning the required contents of summary

plan descriptions in regulations at 29 CFR 2520.102-3.

II. Current Actions

As described in this preamble, the proposed revisions to

Sec. 2520.102-3 would modify the required contents of summary plan

descriptions in a number of ways that may be expected to affect the

nature and burden of the information collection under PRA 95. The

proposal includes amendments to Secs. 2520.102-3(j) and (s) and

Sec. 2520.102-5 that are designed to implement with respect to ERISA

covered group health plans the Commission's recommendations as

incorporated in the Consumer Bill of Rights. Specifically, the proposal

provides that group health plans will not be deemed to have satisfied

content requirements unless they have provided understandable

information in their SPDs concerning any cost-sharing provisions,

including premiums, deductibles, coinsurance, and copayment amounts for

which the participant or beneficiary will be responsible; any annual or

lifetime caps or other limits on benefits under the plan; the extent to

which preventive services are covered under the plan; whether, and

under what circumstances, existing and new drugs are covered under the

plan; whether, and under what circumstances, coverage is provided for

medical tests, devices and procedures; provisions governing the use of

network providers, the composition of the provider network and whether,

and under what circumstances, coverage is provided for out-of-network

services; any conditions or limits on the selection of primary care

providers or providers of speciality medical care; any conditions or

limits applicable to obtaining emergency medical care; and any

provisions requiring preauthorizations or utilization review as a

condition to obtaining a benefit or service under the plan.

In the Department's view, these proposed changes clarify existing

rules in light of changes in group health plan practices in recent

years. Although the Department believes that most ERISA covered group

health plans currently provide this information, many plan sponsors may

take the opportunity to address ambiguities and update their SPDs

following adoption of final amendments. Because the number of plans

that fully comply with the clarifications set forth in the proposal is

unknown, a conservatively high assumption as to the number of plans

that will consider SPD revisions necessary has been made for purposes

of this analysis.

For purposes of this analysis, it is estimated that the Consumer

Bill of Rights disclosures, including the proposal with respect to

disclosure of procedures governing claims for benefits, will require

approximately 17 additional hours of preparation time for group health

plans with over 100 participants and for the estimated 8,600 small

group products utilized by approximately 2.6 million group health plans

with fewer than 100 participants. It is also estimated that the

additional time necessary to ensure that this material is included in

the mailings that are otherwise necessary will add approximately an

additional minute to the time spent in accumulating and mailing

information to participants, and an additional $0.50 in materials and

mailing costs. These incremental increases have been incorporated in

both the preparation and distribution burden estimates.

[[Page 48383]]

Additional burden has also been computed in connection with the

proposed elimination of the limited exemption with respect to SPDs of

welfare plans providing benefits through a federally qualified HMO.

Under the proposal to eliminate the limited exemption, disclosures of

rules for eligibility and participation, circumstances which may result

in loss of or disqualification from eligibility, plan funding medium,

and claim and appeal procedures, would be required to be included in an

SPD, and all other generally applicable provisions as to SPD style,

content, and format would apply for SPDs provided to participants and

beneficiaries covered by a federally qualified HMO. Based upon

available information as to the number of federally qualified HMOs and

the numbers of ERISA covered plans offering HMOs, it has been estimated

that approximately 153,000 plans will be required to implement SPD

content and format changes that will eliminate the existing 50 percent

savings in preparation time for these plans.

Clarifications proposed with respect to procedures governing

qualified domestic relations orders (QDRO) and qualified medical child

support orders (QMCSO), disclosures concerning plan type, updating of

the model statement of ERISA rights, disclosures with respect to the

circumstances under which the plan can be amended to reduce or

eliminate benefits and plan's provisions and participants' rights and

obligations upon termination of the plan, and disclosure of participant

rights under the Consolidated Omnibus Budget Reconciliation Act (COBRA)

have also been taken into account in estimating the total burden

expected to be imposed by the proposed changes to SPD content

requirements. While the clarifications with respect to QDRO, QMCSO,

amendment/termination provision disclosures, and COBRA disclosures are

expected to result in some increase in preparation burden, as a group

these clarifications are estimated to represent only a slight burden

increase.

As to the distribution burden for SPDs that the Department is

assuming for purposes of this analysis will be revised as a result of

the proposed content requirements, ERISA section 104(b)(1) and

regulations published at Secs. 2520.104b-2 and 2520.104b-3, describe

the obligation of an employee benefit plan administrator to furnish the

SPD and the summary of material modifications (SMM) to participants and

the time frames within which this distribution is required to be made.

In general, a plan administrator must furnish an updated SPD every five

years, unless no amendments have been made to the plan within that

five-year period. In that event, the updated SPD must be furnished only

every ten years. A plan administrator is also required to furnish each

participant with a summary description of any material change made to

the plan or SPD content during a period prior to preparation of an

updated SPD, which may be appended to the participant's SPD.

For purposes of this analysis under PRA 95, the Department has

treated the change to the NMHPA disclosure provision included in the

Interim Rule as a change implemented by this proposal. This is because

the distribution burden associated with revision of an SPD represents

the greater portion of total burden, and it is assumed that plans will

prepare and distribute revised disclosure materials in the most cost-

efficient way, which would likely involve incorporating as many changes

as possible in a single distribution.

Because this single ICR is currently the subject of two separate

regulatory actions, the Department believes that a meaningful burden

analysis should contemplate as a whole the nature and timing of all

changes to existing Summary Plan Descriptions that might be made by

plan administrators due to regulatory amendments. As a result, the

burden analysis included in this proposal addresses the impact of the

Interim Rule in addition to the changes that might be made as a result

of this proposal. The methodology and assumptions used in estimating

burden are applicable to both the proposed amendments and the interim

final regulation. Both the total burden of the ICR and the burden

specifically associated with this proposal are displayed in this

notice.

As a consequence of SPD distribution requirements, and the fact

that the majority of plans have either chosen to or have been required

to make material changes to plan provisions in recent years, about 27

percent of plans routinely update and distribute an SPD each year. The

methodology for estimating burden associated with the proposed

clarifications to the SPD content rules must, therefore, integrate the

recurring baseline burden with the projected incremental preparation

and distribution burden in the years in which those increases are

expected to be incurred.

For purposes of the burden estimates for these proposed

clarifications, and based on the expected applicability dates for the

clarifications, it has been assumed that no incremental increases will

be experienced by plans until 1999.17 It is further assumed

that plans that would ordinarily be preparing and distributing SPDs in

1999 will elect to incorporate the revisions in SPD content they

consider necessary as a result of the proposal as part of the updated

SPDs they would otherwise be preparing. Finally, it has been assumed

for this analysis that all plans will have prepared and distributed a

revised SPD by the end of the year 2000, whether or not an SPD would

ordinarily have been prepared during this period. It is anticipated

that these proposed rules will be applicable generally by the end of

2000.

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\17\ It should be noted that while no incremental increase is

incorporated in 1998 estimates for the proposed clarifications of

the SPD content regulations, the 1998 burden hour and cost estimates

do include increments previously computed in connection with

amendments to the disclosure provisions of ERISA enacted as part of

HIPAA, the NMHPA, and the interim disclosure rules issued on April

8, 1997 (62 FR 16979).

---------------------------------------------------------------------------

The recurring baseline burden is estimated on the basis of several

assumptions. It is assumed that routine preparation of an updated SPD

requires 4 hours. Routine distribution is estimated to require two

minutes and $0.50 in materials and postage per participant. It is

further assumed that 100 percent of small, fully insured welfare plans

and, on average, 75 percent of other plans hire outside parties to

prepare and distribute the SPD. These preparation services are assumed

to be purchased at a rate of $50 per hour, which is a blend of both

professional and clerical rates. The clerical rate incorporated in

estimates of distribution burden is $11 per hour. The assumptions with

respect to the rates of use of purchased services affect the

distribution of burden between hours and costs for purposes of PRA 95.

Type of Review: Revision of a currently approved collection.

Agency: Pension and Welfare Benefits Administration.

Title: Regulations Regarding Required Contents of Summary Plan

Descriptions for Employee Benefit Plans (Proposed Amendments to Summary

Plan Description Regulations).

OMB Number: 1210-0039.

Affected Public: Individuals or households; Business or other for-

profit; Not-for-profit institutions.

Frequency of Response: On occasion.

Total Respondents: 2,027,293 (1998); 888,393 (1999); 2,641,818

(2000).

Total Responses: 83,332,000 (1998); 52,115,000 (1999); 160,703,000

(2000).

Estimated Burden Hours: 842,586 (1998); 815,850 total, 815,029 for

existing ICR and Proposed Amendments (1999); 2,101,624 total, 2,099,405

for

[[Page 48384]]

existing ICR and Proposed Amendments (2000).

Estimated Annual Costs (Operating and Maintenance): $95,265,366

(1998); $101,465,306 total, $101,255,399 for existing ICR and Proposed

Amendments (1999); $218,395,191 total, $218,118,450 for existing ICR

and Proposed Amendments (2000).

Comments submitted in response to this notice will be summarized

and/or included in the request for OMB approval of the information

collection request; they will also become a matter of public record.

Analysis of Cost

The Department performed a comprehensive, unified analysis to

estimate the costs of the proposed regulation for purposes of

compliance with Executive Order 12866, the Regulatory Flexibility Act,

and the Paperwork Reduction Act. The methods and results of that

analysis are summarized below.

To estimate the cost of the proposed regulation, it was necessary

to estimate the number of SPDs in the ERISA-covered employee benefit

plan universe, the frequency with which those SPDs are updated and

distributed, and the number of participants to whom they must be

distributed. It was also necessary to make certain assumptions about

the cost of preparing and distributing SPDs, in particular the cost of

bringing SPDs into compliance with the proposed regulation's

provisions. The Department separately estimated the baseline cost of

its current SPD regulation and the incremental cost of the proposed

regulation. As noted earlier, the incremental cost is based on a

conservative assumption, which results in an estimate of the maximum

impact the proposal may be expected to have.

The Department estimated the number of SPDs and the number of

participants based on Form 5500 Series data and other sources. Each

pension plan is estimated to maintain one SPD. With respect to welfare

plans, the number of SPDs is estimated to be smaller than the number of

plans because small plans typically buy standard products from vendors.

In addition, individual plan sponsors often sponsor more than one

plan and/or offer more then one kind of benefit (such as retirement and

disability) under a single plan, but describe two or more of their

plans or benefit types in a single SPD. The Department assumes that

pension plans and health plans (or products) maintain separate SPDs,

but that non-health welfare benefits are either offered together with

health benefits as part of unified welfare plans or are maintained as

separate plans but described along with accompanying health plans in a

single combined SPD.

Pursuant to these assumptions, the Department estimates that the

universe includes a total of 690,000 unique pension plan SPDs and

51,000 unique health plan SPDs, which together encompass all other

welfare plan SPDs.

With respect to the frequency of updating and distributing SPDs,

plans filing the Form 5500 indicate whether they amended and

distributed their SPDs in the preceding year. About 27 percent of plans

so report. This figure is interpreted to represent a baseline level of

SPD modification and distribution activity. In an exception to this

general assumption, the Department estimates that a larger proportion

of health plans have modified or will modify their SPDs in 1998 in

order to comply with the Department's interim final regulation

implementing the disclosure provisions of HIPAA and the NMHPA.

The Department generally assumes that preparing a revised SPD

requires four hours of combined professional and clerical time, priced

at $50 per hour (a blended professional and clerical rate). In

connection with the interim final regulation implementing the

disclosure provisions of HIPAA and the NMHPA, the Department assumed a

burden of one hour at $50. The time required was assumed to be less

than for a typical SPD revision because HIPAA requires only that

certain brief and specific disclosures be added to SPDs or provided in

SMMs. The Department assumes that distributing an SPD consumes two

minutes of clerical labor at $11 per hour, plus $0.50 for materials and

mailing or electronic dissemination. This amounts to $0.87 per SPD

distributed.

The Department estimates the baseline cost to prepare and

distribute SPDs under the current regulation at $113 million in 1998,

falling to $86 million in 1999, and thereafter growing in tandem with

plan participation to reach $89 million in 2001. The higher cost in

1998 reflects HIPAA requirements that health plans revise and

distribute their SPDs or prepare and distribute SMMs by the end of that

year. Focusing on 1999, a more typical baseline year, the $86 million

total cost includes $41 million to prepare 206,000 unique SPDs, and $45

million to distribute copies to 52 million participants.

The Department separately estimated the cost of revisions to SPDs

that plan administrators may undertake to address ambiguities and

update their SPDs following adoption of final amendments of the SPD

content requirements. This cost is separate from the baseline cost

attributable to normal SPD revisions, such as those made pursuant to

plan amendments. Plans preparing SPDs solely to comply with the

clarifications of the proposed regulation would incur only the costs

attributable to those revisions deemed necessary to comply with the

clarifications, while plans simultaneously revising their SPDs for

other reasons would incur this additional cost plus the baseline unit

cost.

With respect to pension plans, the Department assumes that

preparing an SPD to comply with the proposal requires 30 minutes of

combined professional and clerical labor, at a blended rate of $50 per

hour. The time and expense associated with distributing each SPD is

assumed to be unchanged from the baseline.

To estimate the per-unit cost to prepare revised health plan SPDs,

the Department drew on two studies of the cost to health plans to

comply with the Consumer Bill of Rights, one by The Lewin Group for the

President's Commission, and one by Coopers and Lybrand for the Kaiser

Family Foundation.18 Excerpting and adjusting these studies'

estimates to reflect proposed regulation's provisions, the Department

essentially adopted the midpoint of these two studies' findings. With

the addition of the small burden attributable to other provisions, the

cost to prepare a health plan SPD to bring it into conformity with the

clarifications of the proposed regulation amounts to approximately 18

hours at $50 per hour.

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\18\ Estimated Costs of Selected Consumer Protection Proposals--

A Cost Analysis of the President's Advisory Commission's Consumer

Bill of Rights and Responsibilities and the Patient Access to

Responsible Care Act, Coopers & Lybrand, LLP for the Kaiser Family

Foundation, April, 1998.

---------------------------------------------------------------------------

The Department assumed that the cost to distribute a health plan

SPD will rise, consuming an additional one minute of clerical time at

$11 per hour and an additional $0.50 for materials and mailing or

electronic distribution, for a total for $1.55 per SPD.

The Department estimates the added cost attributable to this

proposed regulation to be $37 million in 1999 and $176 million in 2000,

falling to $15 million in 2001 and subsequent years, growing only in

proportion to plan participation. The peak costs in 2000 reflect $41

million to prepare 535,000 different SPDs describing 2.4 million

pension and welfare plans, and $135 million to distribute those SPDs to

107 million participants.

[[Page 48385]]

Combining this added cost with the baseline cost attributable to

the current regulation, the total cost to prepare and distribute SPDs

under the proposed regulation amounts to $123 million in 1999, $264

million in 2000, and $104 million in 2001 and beyond. The peak costs in

2000 include $82 million to prepare 597,000 SPDs describing 2.6 million

plans, and $182 million to distribute those SPDs to 161 million

participants.

The baseline, additional, and total costs associated with this

proposed SPD regulation are summarized in the table below.

Cost of the Proposed SPD Regulation

[$ millions]

------------------------------------------------------------------------

Year Baseline Additional Total

------------------------------------------------------------------------

1998*............................ $113 $0 $113

1999............................. 86 37 123

2000............................. 88 176 264

2001............................. 89 15 104

------------------------------------------------------------------------

* Includes the cost of certain SPD revisions necessitated by HIPAA.

Plans that are assumed for purposes of this analysis to prepare and

distribute SPDs in 2000 for the sole purpose of complying with the

proposed regulation would have the option of complying by preparing and

distributing SMMs instead. The content of such SMMs would essentially

duplicate the content that would otherwise be added to or substituted

into SPDs. Plans presumably would elect to prepare and distribute SMMs

only if doing so lessened their overall cost to comply. Therefore, as a

means to comply with the proposed regulation, preparing and

distributing SMMs should be no more costly than revising and

distributing SPDs. The Department's estimates of the costs to revise

and distribute SPDs in response to this proposed regulation can

therefore be interpreted to account for the likelihood that some plans

will elect to prepare and distribute SMMs instead.

Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.

104-4), as well as Executive Order 12875, this proposed rule does not

include any Federal mandate that may result in expenditures by State,

local, or tribal governments, but does include mandates which may

impose an annual burden of $100 million or more on the private sector.

The basis for this statement is described in the analysis of costs for

purposes of Executive Order 12866 and the Regulatory Flexibility Act.

Small Business Regulatory Enforcement Fairness Act

The rule proposed in this action is subject to the provisions of

the Small Business Regulatory Enforcement Fairness Act of 1996 (5

U.S.C. 801 et seq.) (SBREFA) and is a major rule under SBREFA. The

rule, if finalized, will be transmitted to Congress and the Comptroller

General for review.

Statutory Authority

These regulations are proposed pursuant to authority contained in

section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894, 29 U.S.C. 1135) and

sections 104(b) of ERISA, as amended, and under Secretary of Labor's

Order No. 1-87, 52 FR 13139, April 21, 1987.

List of Subjects in 29 CFR Part 2520

Employee benefit plans, Employee Retirement Income Security Act,

Group health plans, Pension plans, Welfare benefit plans.

For the reasons set forth above, Part 2520 of Title 29 of the Code

of Federal Regulations is amended as follows:

PART 2520--[AMENDED]

1. The authority for Part 2520 continues to read as follows:

Authority: Secs. 101, 102, 103, 104, 105, 109, 110, 111(b)(2),

111(c), and 505, Pub. L. 93-406, 88 Stat. 840-52 and 894 (29 U.S.C.

1021-1025, 1029-31, and 1135); Secretary of Labor's Order No. 27-74,

13-76, 1-87, and Labor Management Services Administration Order 2-6.

2. Section 2520.102-3 is amended by revising paragraphs (d), (j),

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

Sec. 2520.102-3 Contents of summary plan description.

* * * * *

(d) The type of pension or welfare plan, e.g., for pension plans--

defined benefit, money purchase, profit sharing, ERISA section 404(c)

plans, etc., and for welfare plans--group health plans, disability,

pre-paid legal services, etc.,

* * * * *

(j) The plan's requirements respecting eligibility for

participation and for benefits. The summary plan description shall

describe the plan's provisions relating to eligibility to participate

in the plan and the information identified in paragraphs (j)(1), (2)

and (3), as appropriate.

(1) For employee pension benefit plans, it shall also include a

statement describing the plan's normal retirement age, as that term is

defined in sec. 3(24) of the Act, and a statement describing any other

conditions which must be met before a participant will be eligible to

receive benefits. Such plan benefits shall be described or summarized.

In addition, the summary plan description shall include a description

of the procedures governing qualified domestic relations order (QDRO)

determinations or a statement indicating that participants and

beneficiaries can obtain, without charge, a copy of such procedures

from the plan administrator.

(2) For employee welfare benefit plans, it shall also include a

statement of the conditions pertaining to eligibility to receive

benefits, and a description or summary of the benefits. In the case of

a welfare plan providing extensive schedules of benefits (a group

health plan, for example) only a general description of such benefits

is required if reference is made to detailed schedules of benefits

which are available, without cost to any participant or beneficiary who

so requests. In addition, the summary plan description shall include a

description of the procedures governing qualified medical child support

order (QMCSO) determinations or a statement indicating that

participants and beneficiaries can obtain, without charge, a copy of

such procedures from the plan administrator.

(3) For employee welfare benefit plans that are group health plans,

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

description shall include a description of: any cost-sharing

provisions, including premiums, deductibles, coinsurance, and copayment

amounts for which the participant or beneficiary will be responsible;

any annual or lifetime caps or other limits on benefits under the plan;

the extent to which preventive

[[Page 48386]]

services are covered under the plan; whether, and under what