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Guest Article
(From the February 6, 2012 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.) ERISA Investment Disclosures to Participants Will Satisfy NASD RulesAs anticipated, the Financial Industry Regulatory Authority (FINRA) issued a regulatory notice stating that the new investment-related disclosures required to be provided under ERISA § 404(a) to participants in self-directed individual-account plans will be deemed to satisfy applicable NASD Rules. The FINRA relief is narrow, like the earlier relief carved out by the SEC. Plan administrators are cautioned to provide only investment-related information that complies with, and is required by, the ERISA rule. New ERISA Disclosures Trigger Concerns about Securities Law Compliance By August 30, 2012, ERISA § 404(a) regulations require plan administrators of self-directed individual account plans (e.g., 401(k) plans) to provide the participants with certain plan- and investment-related information. Among other items, information must be provided regarding the plan's designated investment alternatives. A chart or other comparative format must be distributed that sets forth the performance data, benchmarks, fees and expenses of each alternative. This type of information potentially falls within the definition of "advertisement," "sales information," "communication," etc. that is subject to regulation under securities laws. For example, Rule 482 under the Securities Act of 1933 allows an open-end investment company registered under the Investment Company Act of 1940 to provide performance information only if it satisfies certain timeliness requirements. The National Association of Securities Dealers (NASD) — now FINRA — similarly has restrictions on communications with the public regarding investment companies. NASD Rule 2210 requires advertisement or sales literature regarding registered investment companies to be filed within 10 business days of first use or publication. It also requires certain performance and expense information to be presented in a prescribed manner. NASD Rule 2211 imposes similar content and approval restrictions on institutional sales material and correspondence. Plan administrators, bound by ERISA to provide the prescribed disclosures under the ERISA § 404(a) regulations, questioned whether additional obligations would ensue under securities laws. FINRA Carve-Out Aligns Precisely with ERISA Requirements FINRA provided relief in Regulatory Notice 12-02 which states that, to the extent the information disseminated to plan participants "is required by and complies with" the disclosure requirements under ERISA § 404(a), it will be deemed to satisfy the content and filing requirements of NASD Rules 2010 and 2011. Confirming the narrow scope of the relief, the notice warns against including items that go beyond the ERISA requirements:
The notice goes on to explain that the caveat applies only to additional content that promotes a product or service of the firm. Including the blended return of more than one index, for example, would not trigger the NASD filing and content requirements. Limited Relief Encourages Limited Disclosure The FINRA relief is similar to that issued earlier by the SEC. In an October 2011 No-Action letter, the SEC agreed to treat information provided by a plan administrator to participants that is "required by and complies with" the ERISA § 404(a) disclosure requirements as satisfying the requirements of Rule 482 under the 1933 Act. The ERISA § 404(a) regulations include an optional Model Comparative Chart for making the required financial disclosures to plan participants.
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