Benefits Compliance

Summary of Material Modification


ERISA requires that plans provide a Summary of Material Modification (SMM) to plan participants any time there is a material modification to the plan itself or any time there is a change to the information that is required to be provided in the Summary Plan Description (SPD). Generally, the plan administrator is responsible for providing the SMM, and that responsibility cannot be contracted away to a third-party administrator or other entity.

As far as the types of changes that constitute a material modification, material modifications include, among other things, amendment provisions that establish new benefits, take away existing benefits, narrow or expand the circumstances under which benefits are paid, and terminate the plan entirely. If the amendment changes the information required to be disclosed in an SPD, an SMM should be distributed. One court found that an amendment to an insured plan to exclude high-dose chemotherapy for breast cancer has been found to be material. Another court found that a modification of a plan to create two classifications of retirees for purposes of premium contributions was a material modification.

Not all amendments to a plan are material modifications. For example, some courts have held that an amendment that merely clarifies plan language and does not affect substantive changes is not a material modification. Also, a change in how plan administrative expenses were paid did not constitute a material modification triggering the need for an SMM, because plan language already contained provisions permitting the change.

As far as timing of delivery, the SMM must be provided within 210 days after the end of the plan year in which the material modification was adopted. If the material modification is a material reduction in health plan services (see FAQ 3 below), then the SMM must be distributed within 60 days of the plan's adoption of the reduction. Importantly, a separate SMM need not be furnished if the changes or modifications in question are described in an SPD that is distributed within the applicable SMM deadlines.

Practically speaking, however, an SMM should be provided as soon as possible, since plan sponsors, administrators and participants will all want to be on the same page with respect to benefits available under the plan. A timely SMM will ensure that there is no participant confusion, and therefore will reduce the chance of a participant lawsuit in connection with promised benefits.

As far as methods of delivery, an SMM must be furnished in a way that is reasonably calculated to ensure actual receipt using a method that is likely to result in distribution to all intended individuals. In other words, the SMM must be delivered in a manner that will result in actual receipt by the participant or beneficiary. U.S. Department of Labor (DOL) regulations specifically approve of distributing SMMs by first-, second- or third-class mail. If this method is used, however, the plan administrator must use a comprehensive and up-to-date mailing list. Hand-delivering SMMs is also sanctioned by the regulations, but hand delivery may be more difficult to prove should the DOL request documentation (or should the delivery be challenged in court by a participant). Finally, SMMs may also be delivered electronically, so long as the DOL's electronic disclosure rules are satisfied.

Recent Developments

PPACA expands ERISA's disclosure requirements by adding the summary of benefits and coverage (SBC) requirement. Under the SBC requirement, plan sponsors must provide a four-page summary, called the SBC, which describes the benefits and coverage available under the plan. The SBC must be provided to applicants and enrollees before enrollment or re-enrollment.

Importantly, as it relates to SMMs, under PPACA a group health plan or insurer must provide a notice of material modification if it makes a material modification, in any of the terms of the plan, that is not reflected in the most recently provided SBC. That notice of material modification must be provided at least 60 days prior to the date on which such modification will become effective. Thus, if the material modification is one that is required to be included in the SBC, then, per PPACA's SBC requirement, the notice of the modification must be provided 60 days in advance of the modification's effective date (as compared to the SMM requirement that an SMM must be distributed within 210 days after the end of the year in which the modification became effective).

For purposes of satisfying the SBC's 60-day advance notice requirement, in situations where a complete notice is provided in a timely manner under the SBC requirement, an ERISA-covered plan will also satisfy the requirement to provide an SMM under ERISA.

Employer Action Required

Plan sponsors that fail to properly provide an SMM could be subject to a penalty of up to $110 per day. In addition, willful SMM failures could result in criminal penalties, including fines of up to $100,000 for an individual ($500,000 for companies) and imprisonment for up to 10 years.

Penalties for Noncompliance

Employers and plan administrators should review their plan policies and procedures to determine if the plan is in compliance with its SMM obligations. If a plan makes any material modifications, then an SMM will need to be drafted and distributed to plan participants on a timely basis. In addition, if a plan makes any reductions in covered services or benefits, then an SMM must be provided within 60 days of the reduction. Employers should also review their obligations under PPACA's SBC requirements as they relate to SPD and SMM obligations under ERISA.

Frequently Asked Questions

Q1. Must COBRA qualified beneficiaries be provided with an SMM?
A. Generally, plan participants should be provided with an SMM. The regulations make clear, though, that a covered employee, spouse or dependent child who elects COBRA health care continuation coverage should be provided with an SMM while he or she receives COBRA coverage under the plan. Provided that they all reside at the same address, though, it appears that the SMM may be furnished, for example, to the covered employee on behalf of other qualified beneficiaries in the same family unit. In other words, if all qualified beneficiaries reside at the same address, one SMM could be provided to all of the beneficiaries at that address (so long as the SMM is addressed to all of them).

Q2. May an employer use annual open enrollment materials as an SMM?
A. Yes, under certain circumstances. Employers who communicate the material changes to a group health plan for the coming year in open enrollment materials should consider including language to notify participants that the open enrollment materials also constitute an SMM. While this could be a timely and cost-effective way of communicating changes and satisfying the SMM requirement, employers should remember that annual open enrollment may not be timely enough to satisfy the SMM requirement for a material reduction, since an SMM must be provided within 60 days of such a reduction. In addition, once PPACA's SBC requirement is effective, 60 days' advance notice may be required (and therefore an annual SMM would not suffice).

Q3. What is the difference between a material modification and a material reduction in services or benefits?
A. A material modification can include a material reduction in group health plan covered services or benefits. Whether a modification to the plan or change in the information is required in the SPD will depend on whether the change would be considered by the average plan participant to be an important reduction in covered services or benefits, which constitutes a “material reduction.” However, DOL final regulations provide several examples of what qualifies as a group health plan reduction in covered services or benefits. While not inclusive, these examples can be helpful when determining whether a material reduction has occurred:

  • An elimination of benefits payable under the plan;
  • A reduction of 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);
  • An increase in premiums, deductibles, coinsurance, copayments or other amounts to be paid by a participant or beneficiary;
  • A reduction in the service area covered by an HMO; and
  • An imposition of new conditions or requirements (i.e., preauthorization requirements) in obtaining services or benefits under the plan.

If a plan makes a material reduction in group health plan covered services or benefits that is not discussed as part of the SBC requirement, participants and beneficiaries must be notified of the change within 60 days after the material reduction in covered benefits or services is adopted. Conversely, if a plan makes a material reduction in group health plan covered services or benefits that is discussed as part of the SBC requirement, if the plan provides a separate SMM notice or an updated SBC at least 60 days before the change is effective, then the plan has complied with both new and existing ERISA requirements.

Additional Resources


  • ERISA § 104(b)
  • DOL Reg. § 2520.104(b)-3

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