Automatic Rollover Regulations

[Randy Watson]

I've seen some articles indicating that the written agreement required under the new regulations must be entered into prior to the issuance of an updated SPD or SMM due to the specific information required to be disclosed to the participants. I've reviewed the disclosure portion of the regulations and found nothing that would suggest or require the written agreement to be executed prior to the issuance of the SPD or SMM (or even require the IRA provider to be selected at that point in time).

In general, the regs state that the SPD or SMM must include an explanation that the rollover will be invested in an investment product designed to preserve principal (etc...); include a statement on how the fees will be allocated; provide the name and address of a contact so that more information regarding the automatic rollover rules, the IRA provider and the fees can be obtained.

Does anyone know why these articles are stating that the written agreement must be executed prior to providing the SPD or SMM? Granted, having the agreement in place prior to the disclosure would make things easier.

Does anyone have an opinion on this?

[Guest hyper]

Randy:

As you say, you must provide the participant with the individual retirement plan provider and the fees and expenses attendant to the individual retirement plan. How will you know who the provider will be and what the fees will be unless you have an agreement in place ?

[Randy Watson]

I'm not so sure an agreement needs to be in place prior to issuing the SPD or SMM.

If you read closely, the regulations only require that you provide pretty general information in the SPD or SMM. For example, the SPD or SMM must inform the participant that amounts will be "invested in an investment product designed to preserve principal..." or "the extent to which expenses will be borne by the account holder alone or shared with the distributing plan or plan sponsor."

The specific information is not required to be disclosed unless the participant requests it from the contact listed in the SPD. So theoretically, I can furnish the SPD or SMM with the general information prior to executing an agreement because I do not have to provide any detailed information until an automatic rollover is made.

Here are a couple of my concerns. If I need to put detailed information in the SPD then I'll need to issue an new SPD or SMM everytime we use a new IRA provider. Also, would we really have one agreement in place that is enforceable by every single participant involved in an automatic rollover? It seems to me like we would execute an agreement for each participant.

[Guest hyper]

Randy:

I interpret 2550.404a-2©(4) to require that the fees be in the SPD. This section begins by stating - Participants have been furnished a SPD or SMM that describes ... The very last portion of this section says - the individual retirement plan provider and the fees and expenses attendant to the individual retirement plan.

If revising the SPD is a big problem maybe you could but the IRA provider language in an attachment to the SPD. This way only the attachment would need updated if you change IRA providers or the fees change.

I do not invision plans having more than one IRA provider agreement. The automatic rollover will only come into play if the participant does not contact you and request a distribution. If the participant provides instructions for the distribution, regardless of the amount of his/her account, the plan would follow the instructions provided.