Participant Statements

[Mr B.]

Do participant statements have to be mailed direct to participant address or can they be mailed to the plan sponsor or to the plan's advisor for distribution? We have a few sponsors and advisors who receive the participant statements for distribution but recently ran accross some information from a compliance answer team that states that the delivery must be direct to participant homes. Is this true?

Thank you!

MR B

[austin3515]

Sure you can send them to the sponsor to hand out.

But then you need to satisfy the small plan audit waivers differently by providing additional disclosures in the SAR. The only way to get out of the additional disclosures is if the registered investment company is sending statements directly to the participants. So that is where you compliance department is coming from.

[BG5150]

Austin, what other disclosures in the SAR might be needed?

[austin3515]

REally just a disclosure that says who is holding the money (i.e., John Hancock) and how much that company is holding.

[12AX7]

If you are using Relius Goverment Forms, the SAR module makes this easy by clicking the Small Plan Audit Waiver tab and entering the vendor holding the assets and the amount. For other vendors, I would imagine something similar accomodates this task.

[Peter Gulia]

Here’s another reason why a recordkeeper might prefer to send participant statements directly to the participants rather than through the employer: business owners sometimes steal participant contributions.

If the statements are a participant’s only or primary source of information about his or her plan account, routing statements through the employer allows a thief to send false statements or take other steps that slow down how participants uncover the theft.

See, for example, CSA 401(k) Plan v. Pension Professionals, Inc., 195 F.3d 1135, 1137–38 (9th Cir. 1999).

That recordkeeper ultimately succeeded in getting an appeals court to find an absence of an extra duty but paid attorneys’ fees to get to that point.

Would it have taken two levels of Federal court litigation if the recordkeeper’s statements mailed directly to participants had informed them that the money taken from their paychecks had not been invested?

We’d like to believe that a non-fiduciary recordkeeper shouldn’t have to be the one to police the plan fiduciary, but service arrangements that reduce the controls against a plan fiduciary can harm the recordkeeper too.

As with any evaluation of risks, one wants to consider the particular facts and circumstances, and get its lawyer's advice.

[Bird]

REally just a disclosure that says who is holding the money (i.e., John Hancock) and how much that company is holding.

Are you saying that if an investment company-prepared form goes through the sponsor's hands it needs the additional disclosure?

[austin3515]

My recollection is that the reg says "received directlly from a regulated financial institution..." But it's been a long time since I looked into it.