Distribution Notices

[Guest Boilerburm1]

PPA says that as of 1/1/07 we must make a reasonable attempt to comply with the new rules. The safe harbor for the "description of the consequences" statement must include a description of plan investment options available and fees applicable if the distribution is deferred.

How are people addressing this in advance of the final regs on this topic?

[JanetM]

For DC plans we are simply listing the investment options, fees and expenses. Adding bit about diversification. The notice we send terminated folks explains all distribution options as well as their right to leave money in plan. Adding they are still responisible for managing the account.

Until model language comes out we are trying to comply.

[Guest Boilerburm1]

Thanks for the reply, JanetM. Are you customizing the Notice for each of your plans?

Our issue is that we have some clients that have investments with providers that offer just a few investments, but others that offer open architecture, and could therefore invest in an enormous number of different funds. Giving a list of investment options and fees for these arrangements is certainly not feasible.

Any thoughts would be appreciated!

[J Simmons]

The requirement to disclose fees with regards to different investment choices available to a former employee that has the option to and does choose to leave his or her benefits in the plan could be read to mean that what information about such fees that is provided to active employees be provided to former employees facing the choice to leave their benefits in the plan.

Alternatively, the requirement could be read to require the plan administrator to cull all the fee information about all investment choices. However, that would render open architecture impractical, without such a policy debate or pronouncement. It would also back door into requiring more fee disclosure than any announced policy has required--though the DoL has been contemplating possibly requiring new fee disclosure rules for the past 10 years without doing so.

In open architecture environment, the investment fees are no different for a former employee that would leave the benefits in the plan and make the investment via the plan than the former employee could make via an IRA or private account (which differs from the discounted fees that often accompany certain fund investments by large plans in limited menu situations, due to the large dollars that the plan on the whole then puts into the fund). So in the open architecture situation, the fee issue is neutral in the former employee's making the decision to leave the benefits in the plan or withdraw them.

I think, therefore, it is reasonable compliance (until further guidance is provided) to provide and make available such former employees all the same information about investment options and associated fees as is respectively provided or made available to active employees. If the plan has open architecture, then refering in the distribution notices to the same sources of information about fees that are available to active participants ought to suffice.