PD08: Keeping Participants Informed – The Art of Disclosure

Recent legislation and regulatory action is pushing plan sponsors and providers to offer increased disclosure about fees and other issues.

While the focus of late has often been on fees, plan sponsors must also be aware of other necessary disclosures for defined contribution plans that have come out of the Pension Protection Act (PPA).

Robert Higgins, Consulting Manager for Benefit Plans Plus, offered some insight as part of a panel discussion at PLANSPONSOR’s recent Plan Designs Conference in Chicago.

align=”center”> The Panel Audio File

Higgins said that the most significant notice requirements revolve around three forms of automatic contribution arrangements: ACAs, EACAs (eligible automatic contribution arrangements) and QUACAs (qualified ACAs).

Each of these can provide some measure of protection under the Employee Retirement Income Security Act (ERISA), but certain notification requirements concerning the plan’s intended activities and various changes that might be made must also be satisfied.

For information about these notices and how to document disclosures, Higgins recommended searching online, looking into information provided by the IRS ( www.irs.gov ), or the Los Angeles law firm of Fred Reish, Reish Luftman Reicher & Cohen ( http://www.reish.com/ ), which Higgins finds especially valuable.

Higgins believes disclosure will be extensive and comprehensive, as soon as providers have organized the information he listed. Some of the information that would be disclosed include:

  • the amount and description of any shareholder-type fees,
  • sales load,
  • sales charge,
  • deferred sales charge,
  • surrender charges,
  • exchange and account fees,
  • purchase fees and expense fees

Melanie Walker, JD, VP for the Segal Company, added that initial and annual notices should be sent to anyone who has been defaulted into a QDIA or a grandfathered stable value fund and has not moved their money.

For those concerned about the depth of detail that needs to go into fee disclosure, Higgins said most prospectus disclosures should be satisfactory, and as long as the information was covered there or in a fact sheet, the employer would have fulfilled their disclosure requirements as long as it was sent at least 30 days before the new plan year.

Sending information via a company e-mail system makes it easy to verify that all participants received the necessary information and allows employers to show a record of having made the information available to the participants, said Walker. Physical distribution can be more difficult because written confirmation that the information has been received is necessary, said Higgins, and it can be a hassle to get signatures from all participants.

While the benefits of greater transparency are obvious-from an increased understanding by various parties and the ability to make more informed decisions about plan management and selection-there is concern that flooding participants with "too much" information would simply cause inertia to set in, rather than encouraging participants to become more engaged in their plans.

Walker advocated a system in which the bare legal minimum of information would be provided, but further details could be easily accessible to those interested in learning more. It can be hard to tell how much information to provide, she said, and unless providers can be sure, it would be better not to scare participants into a behavioral pattern that will harm them in the future.

Higgins disagreed, saying it would be best to give out as much information as possible in order to allow participants to make an informed decision, even if they concluded they were not equipped to handle those details and opted to place themselves in a target-date investment. "You can't tell them too much," Higgins said.

-Sara Kelly