What Is a 401k Summary Plan Description (SDP)?
A Summary Plan Description is your guide to your 401(k) plan. Often disregarded, it details many of the benefits and limitations to your 401(k) plan. Learn what a Summary Plan Description is, how to get one, and why you need to read yours.
If you've ever participated in an employer's 401(k) plan, then you've come across a Summary Plan Description. The Summary Plan Description is the most important document of a 401(k) plan.
However, most employees never get around to understanding the details included in their 401(k) plan's Summary Plan Description. The truth is, most 401(k) plans are either automatically enrolled or are signed up for on the employee's very first day. Either way, the employee may not be too eager to dive right into their 401(k) plan's literature.
A Summary Plan Description is a document tied to your 401(k) plan that outlines in detail everything pertaining to that plan. An SPD states eligibility requirements, employer matching rates, and what is and isn’t permitting within the 401(k) plan.
Understanding how your employer's 401(k) plan functions is vital in determining whether it's the right fit for you and your retirement goals.
Let's go over Summary Plan Descriptions in more detail and show you why you shouldn't immediately file them in the back of your office drawer.
What is a Summary Plan Description?
As the name suggests, a Summary Plan Description (SPD) summarizes a particular 401(k) plan. Each 401(k) plan that a company provides comes with its unique SPD.
A plan document lays out the full details of a 401(k) plan. Because these documents are pretty dense with legal jargon and every last detail of the 401(k) plan, a Summary Plan Description is provided to employees to highlight the features that pertain to the plan’s participants.
Whenever you have a significant life event, are planning to change your 401(k) or retire, the Summary Plan Description is your go-to resource.
A Summary Plan Description Should Answer Your Questions
Whether you're looking to maximize your employer match, find out if your employer's matching contributions are vested, or are looking to take money out, you should first refer to your Summary Plan Description.
The Employee Retirement Income Security Act (ERISA) requires 401(k) plan administrators to disclose the details of the plan to its participants upon sign up. A Summary Plan Description must provide specific information such as:
- The name and type of plan
- Plan's eligibility requirements like age and time of service
- Source of contributions and the methods used to calculate the amount of contributions
- Employer matching contribution schedule
- Vesting schedule, if applicable
- Whether the plan allows you to rollover your old 401(k)s from former employers
- If 401(k) loans are permitted, and if so, the process to apply for a 401(k) loan
- Any default investment options like Target-Date Funds
- A yearly schedule of document distribution
- Contact information of the plan's administrator and plan identification number
- Where to find copies of the 401(k) plan documents
- How to appeal the denial of benefits
- Provisions governing the termination of the plan
An SPD usually runs several pages and lists many more details required by the Department of Labor.
How Can I Get a Summary Plan Description?
By law, your employer must provide a copy of their 401(k) Summary Plan Description. As mentioned before, these documents tend to get lost in the shuffle when starting a new job.
Luckily, more and more 401(k) plans can be accessed online. You'll likely receive login information to access your 401(k) account online. Your 401(k) plan's documents should all be accessible through your online account, including the Summary Plan Description.
If you cannot locate it in your online account, contact your human resources department or your plan's administrator, they are required to provide you a copy whenever you ask.
Additionally, plan administrators must send out new copies of a Summary Plan Description after five years if there were changes or ten years if there were no changes.
A Summary Plan Description Protects Both the Employer and the Employee
A Summary Plan Description outlines the rules and features of a 401(k) plan, protecting both the employer and the plan's administrator.
If the company doesn't want to provide certain features to their 401(k) plan, they can add them to the Summary Plan Description. As a result, employees must follow these parameters to participate in the plan.
The employer is protected from exposure to activity in their 401(k) plan they haven't authorized.
Additionally, Summary Plan Descriptions protect plan participants. Outlined in the SPD are details on how to file an appeal if the plan isn't followed accordingly or any rules have been broken.
Likewise, having information like vesting schedules, documentation schedules, and rules surrounding withdrawals made before and during retirement helps participants better understand how their plan works.
Can a Summary Plan Description Change?
An employer or plan administrator can change the details of a 401(k) whenever they choose.
However, plan administrators must disclose these changes to plan participants via a new Summary Plan Description.
Furthermore, once you have earned certain benefits like being fully vested or are newly eligible to participate, they can’t be taken away.
Anti-cutback rules state that an employer or plan administrator can decrease a participant's benefits due to an amendment of a plan.
When Should You Read Your Summary Plan Description?
Ideally, you should review your 401(k) Summary Plan Description when you first join your employer's plan.
By doing so, you can fully understand how to maximize the benefits of the plan and whether or not it's the right investment option for you.
You will also want to review the Summary Plan Description if you’re going to make any changes to your 401(k). Knowing the rules surrounding your plan can prevent you from making any mistakes that jeopardize your participation in that plan.
Lastly, suppose you've had any significant life changes such as getting married or become disabled. In that case, the Summary Plan Description can answer how to proceed best.
Remember, when it comes to investing, you want to understand what you're investing in before you sign up. Knowing the rules and limitations can maximize the benefits and prevent you from putting your money in the wrong place.