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Your Summary Plan Description (SPD) is a Treasure Trove of InformationAlso see this article, "Summary Plan Description - An Overview." Do you know what your 401k summary plan description says? Do you even know where it is? If you're like most 401k-plan participants, you received this copy of your plan rules when you enrolled. And, like most participants, you skimmed it and tossed it out, or stuck it in a pile of papers never to be found again. "For most employees, the summary plan description looks pretty unappetizing. The employers say 'look at this' and the employees throw it away," said David Wray, president of the Plan Sponsor Council of America, a trade group representing 401k plan sponsors. Yet, this is one of the most critical pieces of paperwork that you have about your 401k plan. Here's why you shouldn't casually toss it aside. What It Is As the name says, a summary plan description (SPD) is a summary of the key features of your 401k plan. The plan's full rules are laid out in a longer report called the plan document, but that is too unwieldy for companies to automatically distribute to all employees. All SPDs lay out plan rules such as:
The document typically runs anywhere from 12 to 20 pages long. Say you want to take a loan or make a hardship withdrawal. The SPD will tell you what documentation you will need, and might also give you an idea how long it may take to receive your check. This is the document to refer to when you are about to retire or leave your job. It spells out the rules for getting your money. Another reason to keep this document handy: if you die, your beneficiary or relatives will need it to make a claim on your benefits. Legalese, but Readable The prose contained in the average SPD is not likely to win a Pulitzer Prize, because it's often pretty legalistic. The intent, though, is for the document to be understandable by the average employee. Most employers use common SPD "templates" provided by their 401k providers. This saves costs and typically ensures that all the legal fine points are covered. Your SPD isn't likely to be to be scintillating reading, but it's an important reference document, observed Ted Benna, one of the first to create a 401k. "Should you read it cover-to-cover? Nah! Look at it when you have things that are relevant," he suggested. Some employers have taken the time to make their SPDs more readable by having staff writers turn them into glossy, attractive documents with charts, photos and more interesting text. Required by Law Federal law requires employers to give you a copy of the SPD when you enroll in the plan. Your employer is also required to hand out new copies after five years if there are changes to the plan or after 10 years if there is no change. But, changes to the federal laws are made frequently enough that many employers hand out updated copies more often than every five years, said Cindy McCabe, owner of CGM Communications, an employee communications consulting firm in Corte Madera, Calif. Your employer is also required to let you see a copy of your SPD any time you ask. Some companies post it on their corporate intranet so it's always available for employees to read. According to anecdotal evidence collected by the American Benefits Council, about one-third of large employers currently offer their SPDs via a corporate intranet or Internet site, about one-third are thinking of doing so, and the last third don't plan to offer the SPD electronically at all. Still, just posting it on an intranet may not be enough. The Department of Labor is still deciding whether this is an acceptable substitute for delivering a paper copy, said John Scott, director of retirement policy with the American Benefits Council. "It is a bit of a gray area," he said. Handing out an "SPD is a legal requirement of the plan sponsor, because the government believes that someone has to tell you your benefits and your rights and the employer's obligations," said Ann Plank, manager of retirement plan product services with Franklin Templeton, in San Mateo, Calif. The SPD outlines the terms of your participation in your 401k plan, so in a sense it is a part of a legally binding contract. "The employer is required to follow the terms laid out in the SPD," Benna said. The only exception is if the plan document, the longer, official set of rules for your plan, says something different from the SPD. This can occasionally happen when plan documents are amended, even though employers and benefits providers try to avoid such conflicts. The plan document is considered the definitive word on your plan, Plank said. If your employer fails to operate the 401k plan according to the rules laid out in the plan document, the plan could be disqualified, she said. Your employer is also required to make the plan document available for you to see at any time. Only Communication If your company has only a bare-bones 401k plan, the SPD may be one of the few pieces of information you get about your plan. So, it's a good idea to hang on to this document. This is for educational purposes only. The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan. |
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