ErisaALERT 2007-01 DOL Issues Guidance on Periodic Benefit Statements

January, 2007

DOL Issues Guidance on Periodic Benefit Statements

WHAT IS IT?: – In December 2006, the DOL issued Field Assistance Bulletin (FAB) No. 2006-03 regarding the periodic benefit statement requirement contained in the Pension Protection Act of 2006 (PPA). Plan sponsors should act in good faith compliance until regulations are issued concerning the pension benefit statement provisions. This FAB provides the DOL’s views as to what constitutes good faith compliance.

WHY IS IT IMPORTANT? – The PPA requires the distribution of periodic pension benefit statements for plan years beginning after December 31, 2006. The statements must be provided as follows:

PPA requires the DOL to develop one or more model pension benefit statements within one year of enactment or by August 18, 2007. Most employers will be required to comply with the PPA provisions before the issuance of regulations.

This FAB provides guidance concerning good faith compliance with the PPA periodic benefit statement provisions until regulations or other guidance is issued.

HIGHLIGHTS OF THE FAB:

The guidance is issued in the form of eight issues. A summary of the issues is presented below. To read the FAB in its entirety go to http://www.dol.gov/ebsa/regs/fab_2006-3.html.

Form of furnishing statements: The DOL recognizes that individual account plans that provide for participant investment direction often involve multiple vendors each of which is a source of some of the required information. The DOL believes that good faith compliance does not preclude the use of multiple documents or sources for benefit statement information provided that participants and beneficiaries receive notification that explains how and when the information required by PPA will be furnished or made available. The notice should be provided in advance of the first pension benefit statement and written in a manner calculated to be understood by the average plan participant. The notice could be provided in any manner that a pension benefit statement could be provided.

Manner of furnishing statements. PPA provides that a pension benefit statement may be delivered in written, electronic, or other appropriate form to the extent that such form is reasonably accessible to the participant or beneficiary. Providing the statements in accordance with the DOL regarding electronic media (see our Compliance Cue Card) would constitute good faith compliance. However, the DOL indicates that that the DOL regulations are not the exclusive means by which plan administrators could, in the absence of guidance to the contrary, meet their obligation regarding pension benefit statements. The DOL indicates that the recently issued IRS guidance , pending further guidance, would also constitute good faith compliance.

In addition, for pension plans that provide participants with continuous access to benefit statement information through one or more secure websites, the DOL will view the availability of pension benefit statement information through such media as good faith compliances provided participants and beneficiaries have been provided notice that explains the availability of the required information and how participants can access the information. The notice must inform participants and beneficiaries of their right to request and obtain, free of charge, a paper version of the pension benefit information required by PPA.

Dates for furnishing statements. Pending the issuance of further guidance, the DOL believes that providing the benefit statement information not later than 45 days following the end of the period (calendar quarter or calendar year) will constitute good faith compliance.

This translates to May 15, 2007 for calendar year individual account plans with participant investment direction; February 14, 2008 for calendar year individual account plans without participant investment direction and February 14, 2010 for defined benefit plans (or February 14, 2008 for defined benefit plans electing the alternative annual notice, i.e., at least once a year the plan administrator provides a notice to participants regarding the availability of the benefit statement and how to obtain it.)

It is important to note that if the 2007 employer contribution must be included on the 2007 benefit statement and it is reasonable to assume that this will be the case, these dates could be problematic for those plans which do not determine the employer contribution amount until close to the due date for filing the employer’s tax return. Also, compilation of participant account information, delivery of such data to the recordkeeper, and processing of such data with all of the necessary data integrity reviews as well as the issuance of benefit statements by the required due date could be a tall order for plans which do not permit participant investment direction and are valued on other than a daily basis!

Right to direct investments. The DOL indicates that an individual account plan that does not permit participant investment direction but that does provide for participant loans will not cause a plan to be considered a plan that provides participants the right to direct investments.

Limitation or restrictions on right to direct investment direction. PPA requires that the pension benefit statement for an individual account plan that permits participant investment direction provide an explanation of any limitations or restrictions on any right of the participant or beneficiary to direct an investment. The FAB indicates that in the absence of guidance to the contrary, the benefit statement must describe “plan” limitations but need not include limitations or restrictions imposed by the mutual funds, other investment vehicles or by state or federal securities laws.

Investment principles. PPA requires that the pension benefit statement of an individual account plan that permits participant investment direction include an explanation regarding the importance of diversification. The FAB provides model language in this regard.

Notification of Diversification rights. PPA required that plans which provided investments in employer securities provide a diversification notice to plan participants before January 1, 2007. The FAB indicated that compliance with the periodic pension benefit statement requirements will satisfy the diversification notice requirement if, prior to January 1, 2007, the individual account plan provided participants and beneficiaries diversification rights at least as those required by PPA.

Department of Labor website. PPA provides that the pension benefit statement for an individual account plan that provides for investment direction include a notice directing participants and beneficiaries to the DOL website for information on investing and diversification.

WHAT SHOULD YOU DO NOW?

Plan Sponsors of calendar year individual account plans which permit participant investment direction should review the PPA requirements, the FAB and their current benefit statements. Discussions should be held with plan providers to ensure that the information provided will comply with the requirements.

Plan Sponsors of individual account plans which do not permit participant investment direction should monitor any further guidance regarding the due date for providing the pension benefit statement as well as the content (especially important for those plans who will not know the employer contribution by February 14^th).

Plan Sponsors of defined benefit plans should decide if they are going to use the alternative annual notice and plan accordingly.

Note: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plans. For more information on this ErisaALERT, contact us by phone at 610-524-5351 and ask for Mary Andersen or 973-994-7539 and ask for Theresa Borzelli.

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