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Peter Gulia

Which notices should we send in the same envelope?

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Given the many regular communications that a retirement plan must send to participants, administrators are looking for opportunities to reduce the number of mailings - to get efficiences on the number of assemblies, and sometimes about incremental postage. (My query is about plans that can't meet the conditions for using e-mail as the exclusive or dominant form for sending a communication.)

Do you think it makes sense to combine some communications for mailing efficiency?

Would you combine ERISA 404a-5 information with some other notice so that both can go in the same envelope?

If so, what other notices or communications are the logical candidates for that efficiency?

In what ways do you manage cycles and timelines to make it feasible to combine communications for mailing efficiency?

Does it make sense to delay a change in a plan's investment alternatives so that the announcement of the change can be related to a regularly scheduled 404a-5 mailing?

In what situation would putting different communications into one mailing introduce a diseffeciency?

In what situation would putting different communications into one mailing result in confusing participants and incurring expenses of responding to them that exceed the expense-savings of the mailing efficiency?

Other practical suggestions?

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The first suggestion I would make is to look at the DOL rules on electronic communication. If you can get employees to buy into receiving plan communications electronically, you are looking at significant cost savings.

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Yes, e-mail allows better targeting at lower expense. And I've even talked with some employers about changing a business so that every employee is required to use e-mail regularly in his or her essential job duties.

But there remain some retirement plans with participants who aren't required to use e-mail on the job, and from whom it's difficult to get consent to e-mail for employee-benefits communications.

For them, what mailing efficiencies should we consider?

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Can you think of anything that would make it improper for an employer/plan administrator (for a calendar-year plan that routinely files its Form 5500 report in the second week of October) to combine ALL of the following notices to be sent in mid- to late November?

Summary annual report + 404a-5 information + qualified default investment alternative + notice of safe-harbor matching or nonelective contribution / QACA EACA + notice of a change in investment alternatives + restated summary plan description

Does any of these communications involve a requirement that it be separate and not "buried" with other communications?

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I think you could do them all together. I don't know that you'd want to - I don't. It sounds like it's more trouble than it's worth...

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Guest cbclark

With regard to delaying a change in investments to avoid a separate disclosure notice, I would tread lightly. If the change is necessary because of a fund being on a watch list or needing to be dumped because of poor performance, there is a fiduciary obligation to do it as quickly as possible. If the fiduciary decision is not implemented because of a plan sponsor's need for convenience or cost control, there could be a mess. We have gone around and around on the same sort of issue. We have also gone around and around about what can go with what, and when. These are tough questions/decisions!

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cbclark, thank you for your helpful thinking.

It makes sense to do an investment change quickly if it has become obviously imprudent to continue the to-be-replaced fund.

But what if the recently selected fund is better, but only somewhat better, than the to-be-replaced fund? What if the plan has 25,000 participants, and the plan’s expenses to do an off-cycle mailing is about $30,000. Could a fiduciary consider that the anticipated investment performance improvement between the to-be-replaced fund and the recently selected fund might not get to $30,000 in the few months between a quick implementation and waiting for an on-cycle implementation? And would it matter if the investment category of these funds is one that only a minority of participants use, while the expenses are charged (proportionately by account balances) against all participants’ accounts. (For my hypothetical plan, the employer pays none of the plan-administration expenses.)

ERISA’s exclusive-purpose command has two clauses: (i) “providing benefits”; (ii) “reasonable expenses”. [ERISA § 404(a)(1)(A)(i)-(ii)] Can a fiduciary properly balance a “providing benefits” goal of seeking an opportunity for better investment performance with a goal of not incurring expenses that burden participants’ accounts in the opposite direction?

If, so what methods should a fiduciary use to evaluate how quickly the anticipated investment performance outweighs the incremental expense of announcing the new investment alternative?

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I get letters from 2 fortune 500 co that includes information on several different reporting provisions of a qualfied plan well as information on welfare plans that I do not participate in. Disclosure information that is subject to a time sensitive deadline should not be delayed.

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Let me ask my fiduciary question, once more, using an example:

Before the end of February, the plan mails every participant a notice that on April 1 the XYZ Foreign Stock Fund will replace the ABC Foreign Stock Fund. When Sue receives her first-quarter account statement, she sees a $1.20 charge for receiving a mailing about a fund she has no interest in. On August 31, the plan sends every participant an annual redo of ERISA 404a-5 information. Again, the third-quarter statements show that every participant was charged (this time $1.80) for the expenses of assembling and mailing that communication. After this, Sue ($3 poorer) wonders whether the plan's fiduciary could have made the slight change in managers for a foreign stock fund effective on October 1 (so that it could be announced in the 404a-5 mailing) instead of April 1. Does six-months'-worth of investment improvement in a fund in which only 2% of the plan's assets is invested outweigh the incremental $1.20 multiplied by the number of participants? Or expressed in terms of fiduciary responsibility: When the fiduciary decided that XYZ is a better manager ABC is, could the fiduciary properly have considered that XYZ isn't so obviously better that the improvement must be implemented right away?

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All right, I'll bite on this one. I'd say of course the fiduciary may take this into account when making a judgment on if and when to make such a change. In fact, I'd say that the fiduciary is obligated to take such factors into consideration. Taking a perhaps ridiculously extreme example, the fiduciary might decide to change a fund every two weeks, and if so, must certainly consider the cost to participants of such changes. I think it is particularly a potential issue when it is a flat fee for the administrative expense, rather than proportionate.

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When the fiduciary decided that XYZ is a better manager ABC is, could the fiduciary properly have considered that XYZ isn't so obviously better that the improvement must be implemented right away?

Yes, of course. But this is a little bit of an apples and oranges thing.

Selecting or changing funds is a decision for long term results, not a process of jumping in today to get an extra 0.6% return from the latest hot fund this year. Fund selection is also based in part on the needs and desires of particular mix of participants in the plan.

You don't decide whether or when to change funds based on how much it costs to send the notice (the tail wagging the dog). But if it generally doesn't matter in the long term, then time your doing of things to minimize plan costs.

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In my experience, fund changes occur after a period of time tracking the fund to be changed. Typically the decision to change will be after quarterly results have been reviewed, communicated to the appropriate plan fiduciary and communicated to an appropriate plan committee. The date of the change would then be some time in the future. The only time I can remember a particular urgency in change is when a manager or sub-advisor is changed with a totally different investment objective than had been the case. I also wonder at the pass-through of mailing costs to the participants.

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