EBSA issues notice on benefit
statements and diversification notices
There was much in the Pension Protection Act to garner
plan sponsor Âattention but, as year-end neared, perhaps no
upcoming change drew as much concern as a new requirement
to provide annual individual benefit statements, as well as
new notices to participants regarding Âdiversification
rights, effective for plan years beginning after December
31, 2006. In addition, according to the PPA, this new
affirmative obligation to furnish pension benefit
statements automatically—at least once each quarter in the
case of individual account plans that permit participants
to direct their investments, and at least annually for
those that do not, as well as at least once every three
years in the case of defined benefit plans—was to be
supported by guidance from the Department of Labor within a
year of the signing into law of the PPA.
With time running out on 2006, the Department of
Labor's Employee Benefits Security Administration
(EBSA) issued Field Assistance Bulletin 2006-03 (FAB)
providing the views of the department as to what would
constitute good faith compliance with these new
requirements until formal guidance is issued.
The FAB dealt with several specific areas: the form of
furnishing statements; the manner of doing so; the dates
for doing so; whether being able to take out a loan, in and
of itself, constituted the right to direct investments;
what kinds of restrictions on the right to direct
investments were covered in the communication requirements;
what types of investment principles needed to be included;
and transition information for plans that already were
providing information about diversification rights
sufficient to meet the new standards.
Form
According to the FAB, it appears that, in the case of
individual account plans that provide for participant
direction, the information required to be included in
pension benefit statements will, in many instances, involve
multiple service providers, each of whom is a source for
some, but not all, of the required information—and that, at
least in the short term, compiling all the required
information for disclosure in a single document may be
impractical for plans.
Consequently, pending the issuance of further guidance, the
DoL said that good faith compliance with the pension
benefit statement provisions does not preclude the use of
multiple documents or sources for benefit statement
information, as long as participants and beneficiaries have
been furnished notification that explains how and when the
information required will be made available.
Manner
The FAB specifically spoke to the use of electronic
media for these cÂommunications, noting not only that the
new law Âspecifically contemplated that media, but also
that, with regard to pension plans that provide
participants continuous access to benefit statement
information through one or more secure Web sites, the DoL
would view the availability of pension benefit Âstatement
information through such media as good faith compliance—if
participants and Âbeneficiaries have been furnishedÂ
Ânotification that explains the availability of the
required pension benefit statement information and how such
information can be accessed by the participants and
beneficiaries. The FAB went on to note that participants
and beneficiaries will have to be notified of their right
to request and obtain, free of charge, a paper version of
the pension benefit statement information required. As is
the case with the notice itself, the notification must be
written in a manner calculated to be understood by the
average plan Âparticipant, furnished in any manner that a
pension benefit Âstatement could be furnished under this
Bulletin, and furnished both in advance of the date on
which a plan is required to furnish the first pension
benefit statement pursuant to sections 105(a)(1)(A)(i) and
(ii) of ERISA (the provision that sets forth the
requirements applicable to the furnishing of pension
benefit statements to plan Âparticipants and beneficiaries)
and annually thereafter.
When
The FAB notes that, for calendar-year plans subject to
the notice requirement, the first pension benefit statement
would be required for the quarter ending March 31, 2007.
(If a plan operated on a fiscal-year basis, with the first
plan year—after December 31, 2006—beginning on July 1,
2007, the first pension benefit statement would be required
to be furnished for the quarter ending September 30, 2007.)
Plans that do not provide participants or beneficiaries
a right to direct their Âinvestments are required to
furnish those statements at least once each calendar
year—and, according to the FAB, whether on a calendar-year
or fiscal-year basis, the first pension benefit statement
for such plans would be required to be furnished for the
calendar year ending December 31, 2007.
Pending the issuance of further Âguidance, the DoL said
that the statement must be provided not later than 45 days
following the end of the period (calendar quarter or
calendar year) to constitute good
faith compliance.
As for defined benefit plans, the first pension benefit
statement complying with the new requirements (at least
once every three years) would be due for the 2009 plan
year, provided that the plan does not elect to comply with
the alternative notice requirement in section 105(a)(3)(A),
according to the FAB (the alternative notice requirement
says that the notice is met if, at least once each year,
the administrator provides the participant notice of the
Âavailability of the pension benefit statement and the ways
in which the participant may obtain such statement).
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