Valuation Date for Quarterly Benefit Statements

[J Simmons]

Does anyone know if a plan that uses annual valuation can simply issue the same quarterly benefits statement prepared for a plan participant four times during the year, until the next annual valuation changes the values of each investment in which the participant's benefits are invested?

Or is the IRS interpreting this new requirement in a way that makes annual valuation incompatible with plans that permit participant direction (i.e., in essence requiring at least quarterly valuations)? If so, are values of any date within the calendar quarter okay?

[Bird]

Your approach seems to comply with the narrow definition of using the "latest available" information, and I know I've heard this suggested more than once - just (re)give old statements until the new ones are done.

I don't think that's what Congress or the DOL intended, but then again they probably didn't know what they intended so we're left with silly results such as this.

[Peter Gulia]

Does the plan provide participant-directed investment?

If it doesn't, ERISA 205(a)(1)(A)(ii) requires only annual statements.

If a plan provides participant-directed investment but restricts directions to less often than quarterly, or allows quarterly or more frequent directions but shows a participant the change to his or her individual account less often than quarterly, a plan fiduciary might have liability exposures that are more serious than meeting the statements rule. Cf. 29 C.F.R. 2550.404c-1(b).

[J Simmons]

Thanks for the replies and input.

[mwyatt]

Has anyone actually contemplated the DOL guidance to date, namely that statements on an annual basis have to be issued by 45 days after plan year end? Not quite sure what world the DOL lives in, but how many of your clients can deliver final data AND decision on contributions to you in order for statements to be issued by Valentine's Day?

[Bird]

Not quite sure what world the DOL lives in

A vacuum, apparently. Or maybe it's the other way around where everything goes out but nothing comes in.

Anyway, yes, ASPPA and others are fighting this. But keep in mind that it's a safe harbor and not binding. We will NOT go through some silly exercise of re-issuing prior year's statements, or pushing through a val with gains only and no accrued contributions, just to meet this safe harbor.

[JanetM]

Issue cash basis statements ............. if account is participant directed chances are they can go online and see the same thing.

[Bird]

Issue cash basis statements ............. if account is participant directed chances are they can go online and see the same thing.

We're talking about, or at least I think we're talking about, trustee-directed, aka pooled accounts that are valued once per year. Those accounts are virtually all valued on an accrual basis (that is, including accrued contributions). I'm not doing a cash basis report by Feb 15 and another accrual basis report later. Even if I wanted to I couldn't.

[J Simmons]

Bird,

I think the new rules (annual or quarterly individual benefit statements) only apply if there are separate trust accounts eartagged for specific employees. If self-direction is permitted in those accounts, then the new quarterlies are required; if no self-direction but eartagged accounts, then the new annuals are required. My understanding is that is you do not have eartagged accounts, i.e. you have pooled accounts, then the old statement requirements (upon request and only if not provided in previous 12 months, and simply setting forth the accrued total, the vesting percentage, and thus the vested benefits) would yet apply.

[Bird]

J Simmons,

I don't think others have interpreted the new PPA language as you have but you might have a point. Here's the language:

(1) REQUIREMENTS.—

(A) INDIVIDUAL ACCOUNT PLAN.—The administrator of an individual account plan (other than a one-participant retirement plan described in section 101(i)(8)(B)) shall furnish a pension benefit statement—

(i) at least once each calendar quar8

er to a participant or beneficiary who has the right to direct the investment of assets

in his or her account under the plan,

(ii) at least once each calendar year to a participant or beneficiary who has his

or her own account under the plan but does not have the right to direct the invest

ment of assets in that account, and

(iii) upon written request to a plan beneficiary not described in clause (i) or (ii).

If "account" means a physical account that is segregated but not self-directed, then you're right. But I'm not familiar with any such accounts, except for a handful of accounts that might be segregated for beneficiaries. And then you have to wonder why they used "beneficiary" in clause (iii) and not "participant or beneficiary" but then again, you have to wonder who clause (iii) covers if (ii) covers everyone not in (i).

The DOL in their FAB 2006-03 flat-out states that annual statements are required for non-self directed investments:

"Plans that do not provide participants or beneficiaries a right to direct their investments are required, pursuant to section 105(a)(1)(A)(ii), to furnish pension benefit statements at least once each calendar year. Whether on a calendar year or fiscal year basis, the first pension benefit statement for such plans that is required to comply with the new requirements would be required to be furnished for the calendar year ending December 31, 2007."

I think you're on thin ice arguing that "account" litererally means "segregated account." Any other thoughts?

[Guest asb]

Has anyone actually contemplated the DOL guidance to date, namely that statements on an annual basis have to be issued by 45 days after plan year end? Not quite sure what world the DOL lives in, but how many of your clients can deliver final data AND decision on contributions to you in order for statements to be issued by Valentine's Day?

I am not sure that it is physically possible to provide benefit statements by 45 days after year end for pooled account plans. Most investment companies do not issue financial statements until close to the end of January. Most clients are doing year end tax planning (or on vaction) this time of the year and it is impossible to get their attention. Even if I had all of the client data, all of the financial statements, and client decisions on contributions, I could not physically produce statements for more than a few of my clients in two weeks. That would be in a perfect world and we do not live in a perfect world.

As other responders have noted, decisions as to contribution amounts are not made by most clients at the beginning of the year following year end. My experience is that a number of them make the decision about a week before the company tax return (with extensions are due). I have ESOP clients who cannot produce a valuation of company shares until months after the year is over. One 03/31/06 year end client just finished the financials and had the appraisal completed on 01/11/07. It was fun getting the 5500s done on time.

I also have clients who have mixed daily and pooled plans. Employee money is daily and employer money is invested (with different investment companies) on a pool basis. What the heck do I do there?

Like other posters, I do not want to produce meaningless statements or recycle year old statements as the latest available information. I also do not want to put my clients at risk if audited by the DOL.

My question is, am I looking at this the wrong way and misunderstanding the DOL field guidance (I don't think the PPA had the timing deadlines)? If not what approaches are other practioners taking?

This whole thing seems crazy and I would appreciate any responses or ideas.

Thanks to all

Alan

[Bird]

Alan.

You have the same understanding that I do and it is crazy. As noted, we're just not going to try to comply with the safe harbor...it's a safe harbor, not a law.

[J Simmons]

Bird,

Again, thanks for your analysis and post. It is the (iii) reference to other DC plan beneficiaries, and the upon-request language there that seems to dispel (i) and (ii) encompassing all DC situations. Part (i) talks about the participant's or beneficiary's self-direct "account" and part (ii) talks about the participant's or beneficiary's "own account" under the DC plan that is not self-directed. For (iii), that leaves only situations under a DC plan where the participant or beneficiary doesn't have an 'account' or 'his or her own account', although DC plans are generally distinguished from DB plans, as an 'individual account plans'.

The Committee Report has the same structure and three parts, and relevant language.

The FAB 2006-3 passage that you points out appears to be a DoL interpretation that nullifies part (iii) of both the statute as enacted into law and the Committee Report explanation backing it.

On a related question, ERISA 105(a)(2)(B)(i) provides "the value of each investment to which assets in the individual account have been allocated, determined as of the most recent valuation date under the plan,... ." This explicit reference to the plan's most recent valuation date is echoed in the Committee Report. Granted it would seem foolish to require a plan that only has annual valuation to issue individual benefits statements with the same information 4 times before that info is updated, but perhaps that is because the individual under a 404c plan is to have at least quaterly the opportunity to re-direct investments--and Congress supposes that employees cannot be expected to keep the statement from one calendar quarter to the next so the plan ought have to provide it each quarter.

The day after the DoL issued FAB 2006-3, I wrote to the two listed contacts asking about the valuation dates for use in the quarterly statements, and no reply (nor further published guidance) has yet been provided.

[Bird]

J Simmons,

Thanks for the feedback. As noted earlier, you have a good point and I hope it stands up. I am still skeptical that "account" means "segregated account" (understanding that clause (iii) becomes moot if it doesn't).

I'm trying some alternate avenues for clarification and will share anything I learn.

[Guest Pennysaver]

It is the (iii) reference to other DC plan beneficiaries, and the upon-request language there that seems to dispel (i) and (ii) encompassing all DC situations. Part (i) talks about the participant's or beneficiary's self-direct "account" and part (ii) talks about the participant's or beneficiary's "own account" under the DC plan that is not self-directed. For (iii), that leaves only situations under a DC plan where the participant or beneficiary doesn't have an 'account' or 'his or her own account', although DC plans are generally distinguished from DB plans, as an 'individual account plans'.

The Committee Report has the same structure and three parts, and relevant language.

In the five years since this discussion took place, has any guidance/clarification been issued on what must be included in participant benefit statements for trustee-directed plans where the participants do not have their own accounts?