Benefit Statements - PPA

[PMC]

The PPA states a participant directed DC plan must provide quarterly benefit statements and the statement now must provide for the vested accrued benefit (among other things).

The PPA (Sec. 508) also states the requirement that the benefit statement show the vested accured amount can be satisfied if the plan provides an annual "alternative notice."

Question - I understand the new rules for the benefit statement are effective for plan years beginning in 2007. Does that mean for the first benefit statement for the 2007 plan year?

What if a plan is going to use the alternative notice to satisfy the requirement to disclose the vested accrued benefit. Am I correct in assuming that using this alternative notice will essentially give plans until the end of 2007 (or whatever the plan year is) to tell participants what their vested accrued benefit is since it will satisfy the "annual" requirement?

[Bird]

I think the vesting notice could be done at the end of the year. But there are other things that have to be on or with the quarterly statements, at least as I understand it:

an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment,

an explanation, written in a manner calculated to be understood by the average plan participant, of the importance, for the long-term retirement security of participants and beneficiaries, of a well-balanced and diversified investment portfolio, including a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) may not be adequately diversified, and

a notice directing the participant or beneficiary to the Internet website of the Department of Labor for sources of information on individual investing and diversification.

[Guest GordyK]

Bird: I read the annual alternative disclosure to be an update of information provided in the benefit statement. I think you will have to provide vested percentage on the first quarterly benefit statement.

Regarding disclosure of the value of each investment in which assets in the account have been allocated. Will this requirement be satisfied in non participant directed accounts by making a copy of the brokerage statements available for review by the participants? (I'm looking at Sal's eRISA Update #16 1.a and 1.d on page 1171).

[Bird]

I read the annual alternative disclosure to be an update of information provided in the benefit statement. I think you will have to provide vested percentage on the first quarterly benefit statement.

The second option, giving participants enough info to do their own calcs, doesn't say anything about an "update," so I think that option at least is safe. But I have to say that I think you're reading it way too literally. Assuming you do a 12/31/06 statement, I think it's adequate to "update" that one.

____________________

© ALTERNATIVE NOTICE.—The requirements of subparagraph (A)(i)(II) are met if, at least annually and in accordance with requirements of the Secretary, the plan—

(i) updates the information described in such paragraph which is provided in the pension benefit statement, or

(ii) provides in a separate statement such information as is necessary to enable a participant or beneficiary to determine their nonforfeitable vested benefits.

____________________

I don't think we know the answer as to what this means for brokerage statements.

[Guest GordyK]

PMC didn't indicate there was a 12/31/06 statement that meets PPA disclosure requirements. If there is I agree with you. You have to start somewhere to be able to update it.

Under alternative (ii) what exactly is the information to be disclosed? I think it would be more informative to tell them they are 20% vested at 12/31/06 instead of explaining the hours requirement, what years are excluded and whatever else may be required. All this has to be written to be understood by the average participant.

[Bird]

PMC didn't indicate there was a 12/31/06 statement that meets PPA disclosure requirements. If there is I agree with you. You have to start somewhere to be able to update it.

Understood and agreed.

I think it would be more informative to tell them they are 20% vested at 12/31/06 instead of explaining the hours requirement, what years are excluded and whatever else may be required.

I absolutely agree that it would be more informative and will continue to provide annual statements with vesting information where we have done that before. But we have to balance that against the costs of providing that information, and the possibility of confusing participants (I guarantee that at least one person who gets a quarterly statement from an investment provider, and a (new) annual statement prepared by us, will think they have twice as much money as they actually do). So for certain plans that get quarterly statements already, but without vesting info, we will likely be providing some bland, generic statement that has a lot of information that's already in the SPD, knowing that noone will understand or even read it.