Snapshot
In October 2010, the DOL issued regulations regarding disclosures (referred to as “participant disclosures” in this ErisaALERT) in participant directed accounts. The participant disclosures are plan related and investment related with each category requiring certain expense related disclosures. Certain participant disclosures can be provided in the summary plan description and/or the pension benefit statement and certain investment related participant disclosures must be provided separately. The amended effective date of the initial participant disclosure is generally May 31, 2012. Technical Release 2011-03 is an interim enforcement policy regarding electronic delivery of the required participant disclosures until further guidance becomes available.
The required participant disclosures which are permitted to be provided in a pension benefit statement (e.g., plan administrative fees, QDRO fees, and loan fees) may be furnished in the same manner as the participant benefit statement as provided under FAB 2006-03.
The required participant disclosures which are not permitted to be provided in a pension benefit statement (e.g., performance data, investment category, certain fee and expense information, glossary of investment terms) may be provided under the existing DOL safe harbor for electronic disclosure or in accordance with the requirements of the Technical Release.
Background
The IRS and the DOL require a myriad of plan related disclosures to participants and beneficiaries with the IRS and the DOL each having their own electronic disclosure rules.
In December 2006, the DOL issued FAB 2006-03 in response to the Pension Protection Act (PPA) requirement for periodic pension benefit statements. In the FAB, the DOL indicated that the DOL electronic communication guidance was a safe harbor and not the exclusive method for electronic communication. In addition, the FAB noted that using the IRS electronic communication guidelines for distributing the pension benefit statements would constitute good faith compliance.
The FAB further provided that continuous access to benefit statement information through one or more secure websites as good faith compliances provided participants and beneficiaries have been provided notice that explains the availability of the required information and how to 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.
In October 2010, the DOL issued regulations regarding disclosures in participant directed accounts. The participant disclosures requirements are effective for plan years beginning on or after November 1, 2011 and the initial effective date was subsequently extended to May 31, 2012. The DOL reserved the section regarding furnishing the statements pending review of a soon to be published request for information seeking input regarding electronic communication.
Earlier this year, the DOL requested information regarding electronic disclosure and received 80 comments.
Plan sponsors, services providers and others in the employee benefit community expressed concern regarding the lack of guidance given the impending participant disclosure due date. The DOL issued Technical Release 2011-03 in response.
A quick review of what information must be disclosed to participants and beneficiaries in a participant directed individual account plan
Plan related
Plan related information requires the disclosure of information some of which is already provided either in the summary plan description or in information provided by the plan’s investment providers, such as:
- Information regarding when a participant/beneficiary can provide investment direction
- An explanation of any limitations
- A description of voting, tender and similar rights
- Identification of the various investment alternatives including brokerage windows
- Fees or expenses charged against the individual participant’s account ( e.g., QDROs, loans)
- The total operating expense of investment fund.
The plan information disclosures can be included in the summary plan description or pension benefit statement provided they satisfy the timing requirements. Generally, information must be provided to plan participants on or before the date on which they can first direct their investments and annually thereafter. Any changes to plan information must be provided to participants at least 30 days before but not more than 90 days in advance of the change unless due to events that were unforeseeable or circumstances beyond the control of the plan administrator.
Disclosures related to fees charged to the plan that are not included in the total operating expense must be included together with information related to actual plan administrative fees and expenses must be provided quarterly.
Investment related
Investment related information which must be disclosed includes:
- Identifying information, e.g., the name of the investment fund and the category of investment (e.g., money market, balanced fund etc.)
- Performance data and benchmarks
- Fee and expense information
- Internet website for participants to obtain specific information
- A glossary of investment terms or a web site which will provide a glossary
- A chart which compares the various investment options. The regulations provide a Model Comparative Chart which, if used and accurately completed, will be deemed to satisfy the comparative chart requirement.
There are special rules for disclosures related to employer securities and annuity options.
Investment related information must be disclosed annually and provided separately from the summary plan description and pension benefit statement.
Relief provided by Technical Release 2011-03
The Technical Release establishes a temporary enforcement policy until the DOL issues further guidance. The DOL will not take any enforcement actions against a plan administrator who complies with the conditions of the Technical Release. The relief is specifically limited to the participant disclosures required in the October 2010 regulations regarding participant directed accounts.
Disclosures provided in a pension benefit statement
Required disclosures that are in included in a pension benefit statement as allowed by the regulations may be furnished in the same manner that other information included in the same pension statement are furnished. For example, if the pension benefit statement is provided through a secure continuous access website in accordance with FAB 2006-03, then certain plan related participant disclosures (e.g., general information, general plan administrative expenses charged to participant accounts and any individual participant expenses/fees) may be provided electronically in the same manner as the pension benefit statement.
Disclosures that are not provided in a pension benefit statement
Disclosures that the government never intended to be disclosed in a pension benefit statement or summary plan description (e.g., certain investment related information such as performance data, benchmarks, identifying information) may be provided electronically under the current DOL electronic communication safe harbor guidance or pending additional guidance, in accordance with the following conditions:
- Participants and beneficiaries entitled to receive the required disclosure must voluntarily provide an email address for purposes of receiving the disclosures. The Technical Release provides examples of the meaning of “voluntary”. The email address must be provided in response to a request accompanied by an Initial Notice.
- The Initial Notice must contain specific information including the purpose of the email, the information that will be provided electronically if an email address is voluntarily provided, the right to request a paper copy, the right to opt out of electronic delivery at any time and instructions related to changing an email address.
- An Annual Notice must be provided beginning with the year after the year of the participant or beneficiary supplying their email address in response to the Initial Notice. The Annual Notice contains basically the same information as the Initial Notice.
- The plan administrator must take the appropriate steps to ensure that the electronic delivery results in actual receipt, e.g., return receipt, periodic surveys.
- The electronic delivery system must protect the confidentiality of personal information.
- The Notices must be written in a manner calculated to be understood by the average plan participant.
- A Special Transition Provision applies for email addresses already on file referred to as the “Transition Group”. The Special Transition Provision is not available for emails assigned by the employer, plan sponsor or their designee unless there is evidence that the email address was used within the 12 month period preceding the date the Transition Group Initial Notice was furnished. The conditions of 1 and 2 above will be deemed to be satisfied if a Transition Group Initial Notice is furnished to the Transition Group as follows:
- Contain basically the same information as the Initial Notice
- The Transition Group Initial Notice must be furnished no earlier than 90 nor later than 30 days prior to the date initial disclosures are provided to the Transition Group
- The Transition Group Initial Notice must be furnished on paper or electronically to an email address on file if there is evidence of electronic interaction with the plan (e.g., updating, resubmitting, confirming email; sending an email to the plan; logging in to a secure continuous access website housing plan information; receipt and opening of an electronic message sent by the plan.
What should plan sponsors do?
- Understand the participant disclosure rules and what can be disclosed where, i.e. summary plan description, pension benefit statement or separate disclosure.
- Understand how and what information you currently disclose and perform a gap analysis.
- Talk to your service providers regarding what information they will provide and how.
You may want to check our new blog periodically for quick updates on compliance issues.
Note: all links are active as of the date of issuance of this ErisaALERT.
Disclaimer: 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 plan. 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.
