(b)lines Ask the Experts – Should Fund Prospectuses Be Automatically Sent?

“I noticed that the new fee disclosure requirements of Section 404(a)(5) appear to only require distribution of prospectuses to plan participants upon request. Does this mean that we are no longer required to automatically distribute prospectuses to plan participants?”  

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

Excellent question! Indeed, the fee disclosure regulations under 404(a)(5) do NOT require automatic prospectus distribution; instead, prospectuses must be furnished only upon the request of the participant. There used to be a requirement that, if a plan with participant-directed investments desired 404(c) protection from fiduciary liability related to participant investment allocations (and most 403(b) plans do indeed seek this protection), prospectuses were required to be automatically distributed to all plan participants. However, the final regulations under 404(a)(5) essentially replaced the 404(c) requirements, thus eliminating the requirement for automatic prospectus delivery.

However, unlike 401(a)/(k) plans, 403(b) plans are subject to the requirements of the Securities and Exchange Act of 1933 in this regard, which requires that prospectuses be delivered simultaneous to or immediately preceding investment in securities subject to the registration requirement of the Act (e.g. variable annuities and mutual funds). Thus, since you are a 403(b) plan sponsor, prospectuses must continue to be automatically delivered to plan participants. It should be noted that this automatic prospectus delivery requirement exists regardless of whether or not a 403(b) plan is subject to ERISA.

Thank you for your question and, as a reminder to all of our readers, this column cannot exist without your inquiries! Please send all questions to rmoore@assetinternational.com with Subject: Ask the Experts, and hopefully your question will appear in this column!