(b)lines Ask the Experts – Recordkeepers Not Meeting Statement Requirements

“We sponsor an Employee Retirement Income Security Act (ERISA) 403(b) plan with four different recordkeepers.

“Two of the vendors include vested benefit information, as required, on their participant statements, while two are unable to do so. What is the consequence of this failure on the part of two of our recordkeepers? Must we as a plan sponsor furnish such information separately?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:

Good question! First of all your should be aware that the participant’s vested benefit, or the earliest date on which benefits will become fully vested, is not the only requirement for participant statements. The following information is also required to be provided as well:

1) The value of each investment to which the participant’s assets have been allocated; and

2) Presuming you allow participants to direct investments in your plan, (a) an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment; (b) an explanation, written in a manner calculated to be understood by the average plan participant, of the importance, for the long-term retirement security of participants and beneficiaries, of a well-balanced and diversified investment portfolio; and (c) a notice directing the participant or beneficiary to the Internet Web site of the DOL for sources of information on individual investing and diversification.

Though the Department of Labor is also considering a requirement to include retirement income projections on participant statements, there is no current requirement to do so, although some recordkeepers provide such projections on their participant statements as best practice.

To return to your original question, the vesting requirement is a plan-level, as opposed to contract-level, requirement Thus, all of the plan’s recordkeepers must comply with the requirement to provide vested benefit information on participant statements for the plan to be in compliance with this requirement. If the vested benefit information requirement is not satisfied, ERISA 105(a)(2)(C) requires a separate annual statement containing such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits.

This is one of the many difficulties associated with maintaining 403(b) plans with multiple recordkeepers, as detailed in prior Ask the Expert columns.

Thank you for your question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.