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DOL auditor and reality check


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According to a DOL auditor, a plan's SPD is deficient if it does not name the investment provider for the plan.

For example, a company officer is the plan's discretionary trustee and that discretionary trustee had chosen an investment platform (example: Principal, Hancock, Nationwide, etc.) as the investment vehicle for the participants to direct the investment of their deferrals and to direct the investment of any employer contributions. The participants receive enrollment kits to direct their investments. The discretionary Trustee choses a fund lineup, but has the authority to change that and to change the investment platform, if they deem it to be necessary/prudent to do so. Assume the plan does not have a corporate trustee nor does it use a separate trust agreement.

The DOL auditor says the SPD must satisfy 29 CFR 2520.102-3(q): "The identity of any funding medium used for the accumulation of assets through which benefits are provided. The summary plan description shall identify any insurance company, trust fund, or any other institution, organization, or entity which maintains a fund on behalf of the plan or through which the plan is funded or benefits are provided."

The DOL auditor then says that if the SPD does not identify where the plans assets are invested, the SPD is deficient. They say:

An example of the language that we would look for is, 'The trust assets are being held in a Trust Account at:

Mutual Fund Company Name

123 Main St.

City, State 12345

(XXX-XXX-XXXX)' "

They then say that any SPD without the above language would need to be amended.

Most SPDs have only the trustee name and address and phone number, nothing about the investment platform.

Are the SPD's for the participant-directed 401(k) plans in this country out of compliance if they do not name the place where the assets are invested? I wouldn't think so.

Comments? Suggestions on a response?

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If it is a deficiency then you have lots of company.

I'd ask the document provider first. I might be over my head but it's possible that the phrase "through which benefits are provided" limits the application to true annuity or insurance contracts that actually provide a benefit rather than hold accumulated assets, although the later thing about "maintains a fund" seems to be a catch-all.

I'd think an enrollment kit with this info might suffice, even if it doesn't explicitly say it is an addendum to or part of an SPD.

Ed Snyder

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We asked SunGard, and Robert said it's a matter of interpretation as there is no guidance other than the regulation. He basically said he's never heard of this being brought up as an issue by the DOL for any of their SPDs, but there's no knowing how many of their SPDs have been reviewed by a DOL auditor.

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The plan’s administrator might consider a possibility that the examiner has a mistaken view simply because the examiner lacks enough knowledge to apply the rule.

One possible way to counteract a mistaken view is to get an employer-benefits lawyer’s carefully written explanation of the right interpretation and application of the rule. (Many EBSA examiners don’t get enough guidance from their supervisors and national office, and a better examiner is open to education if the memo is succinct, clear, and fair-minded.)

Although a fiduciary might be reluctant to spend the plan’s money on legal advice to educate an EBSA examiner, doing so might be less expensive than “giving in” to a wayward examiner.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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The DOL auditor says the SPD must satisfy 29 CFR 2520.102-3(q): "The identity of any funding medium used for the accumulation of assets through which benefits are provided. The summary plan description shall identify any insurance company, trust fund, or any other institution, organization, or entity which maintains a fund on behalf of the plan or through which the plan is funded or benefits are provided."

The agent is making this too hard! The answer is really very simple.

Most of the qualified plans I have worked on utilize a trust fund for the accumulation of assests and the payment of benefits. The SPD names this trust fund, often but not always, the same name as the plan. Note that this parallels the two questions on the 5500 asking about the funding arrangement and benefit payment arrangement. Most of us have automattically checked the 'trust' box for so long, we have forgotten that different types of plans could have different arrangements.

There may be some fully insured plans out there, but not likely in the 401(k) arena these days anyhow.

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  • 2 weeks later...

The auditor talked with their manager they determined the SPD was sufficient and no further action is needed concerning this issue.

Here's generally what we said:

We understand that 29 CFR 2520.102-3(q) states:

"The identity of any funding medium used for the accumulation of assets through which benefits are provided. The summary plan description shall identify any insurance company, trust fund, or any other institution, organization, or entity which maintains a fund on behalf of the plan or through which the plan is funded or benefits are provided."

We believe this issue revolves around the interpretation of the above regulation.

The plan does not utilize the services of a corporate trustee, nor do they invest solely in insurance products. The plan’s funding medium is a trust. In the opening paragraph of the plan’s document, it states the “Employer establishes a plan and Trust . . . by executing an Adoption Agreement.”

Section 1 of the plan defines an account as “the separate Account(s) which the Plan Administrator or the Trustee maintains under the Plan for a Participant.” This means the accounts are maintained not by the mutual fund company, but by the Trustee, who has full control and authority of where such accounts shall be invested (including a plan that allows participant-directed investments - see section 7).

Section 4 states that an “adopting Employer's Adoption Agreement and this basic plan document together constitute a single Plan and Trust of the Employer.”

Section 8 states “By its signature on the Adoption Agreement, the Trustee or Custodian accepts the Trust created under the Plan and agrees to perform the obligations the Plan imposes on the Trustee or Custodian.”

Section 20 explains the investment powers and duties of the trustee of the trust.

Thus, the Summary Plan Description has disclosed the named trust, which is the plan itself, and has also identified its trustees, thus satisfying this regulation.

We would be happy to discuss this with you and your manager, if possible.

A big Thank You to all the replies above here at Benefitslink to help us get this closed out.

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