It’s important to disclose information through ERISA-required documents properly: it can be a plan administrator’s last line of defense if participants allege that they suffered losses because they didn’t know their rights or important plan terms. That obligation has grown in response to the financial scandals of the last decade (Enron, WorldCom, mortgage-leveraged bonds, etc.).
ERISA-required disclosures must be made through measures “reasonably calculated to ensure actual receipt” of the material by the intended participant or beneficiary. On Oct. 20, 2010, the Department of Labor (DOL) published a final rule regarding fiduciary requirements for disclosure in participant-directed individual account plans.
The rule clarifies what ERISA fiduciaries must tell participants about how to manage their retirement fund accounts. Fee and expense
information, fund performance and investment options — not surprisingly — are among the required disclosures.
These days, disclosures are increasingly provided in electronic form. So, on Sept. 13, 2011, DOL posted Technical Release (TR) 2011-03, in response to (1) the new fee disclosures required under Section 2550.404a-5, and (2) the need for confirmation that these disclosures may be furnished to participants through electronic media. Following is a summary of the guidance the DOL’s technical release provides.
TR 2011-03 was published in response to requests from industry groups to extend the guidance in Field Assistance Bulletin (FAB) 2006-03 to all participant disclosures.
FAB 2006-03 states that pension plans that provide participants with continuous access to benefit statement information through a secure website will be viewed as being in good faith compliance with the requirement to furnish benefit statement information.
TR 2011-03 concludes that plan-related information, and administrative and individual expenses, (as required in Sections 2550.404a-5) may be furnished in the same manner as other information included in the same pension benefit statement.
Conditions of TR 2011-03
According to Arris R. Murphy, Esq., contributing editor for Thompson Publishing Group’s 401(k) Handbook, the guidance in TR 2011-03 gives plan sponsors an alternative to the safe harbor requirements in Section 2520.104b-1. As it relates to the newly required fee disclosures, all of the following conditions must take place.
1) Voluntary e-mail address. A participant must voluntarily provide the plan sponsor or its designee with an e-mail address for the purpose of receiving disclosures required by Section 2550.404a-5, and the e-mail address provided must be in response to a request accompanied by an initial notice (as described in Item 2 below).
2) Initial Notice. The notice must be clear and conspicuous, provided at the same time and in the same medium as the request for the e-mail address, and contain a five-pronged statement of participant rights.
3) Annual Notice. The plan administrator is required to furnish an annual notice to each participant who voluntarily provided his or her e-mail address, commencing with each 12-month period following the initial notice. The annual notice is to contain the same information as the initial notice and must be provided on paper. For this limited purpose, if the participant has used electronic access to perform certain transactions (for example, update beneficiary, update e-mail or other information, open e-mail sent by the plan), then the notice may be sent electronically.
4) Delivery. The plan administrator has to take appropriate steps to ensure that the electronic delivery system results in actual receipt of the transmitted information by the intended participant. This may be accomplished by use of return receipt, notice of undelivered mail, periodic reviews or surveys to confirm receipt of transmitted information.
5) Confidentiality. The plan sponsor takes appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system protects the confidentiality of personal information.
6) Understandable. Similar to other participant disclosures, notices furnished to participants have to be written in a manner calculated to be understood by the average participant.