PPA Statements

[MR]

For those TPA's out there, what are you planning in the way of participant statements to comply with PPA? For clients who use individual brokerage accounts or some other platform that does not maintain vesting, what are you going to do? The thought of duplicating account balance information, just for the purpose of adding a vested balance section is too maddening to consider, but I haven't heard a good alternative.

Suppose its not an option to just tell the folks who drafted the PPA to stick it?

[J Simmons]

We're separating out each participant's benefits into different investment brokerage accounts, having the brokerages send duplicate monthly/quarterly statements directly to the participant (or other beneficiary) and then supplementing that information with a statement from the Plan Administrator to each participant explaining the individual's vesting, referencing which brokerage account it applies to and which it does not, the plan's Social Security integration (if applicable), a statement of the importance of diversification of investment portfolio to long-term retirement security, and the link to the DoL's website page that gives more info about investment diversification.

We'll update the vesting years/percentage of the participant once a year, as appears the Plan's supplemental statement each year. Then we'll supply this 4 times (once per quarter) until the vesting again needs updating, etc.

As indicated, we're separating out benefits into at least two investment brokerage accounts per Plan participant, using brokerages that charge as little as $25 annual charge for each investment account from the brokerage, separate and apart from the commissions and asset-based fees. The split out will be along the lines of benefits with different characteristics, vesting/forfeiture re-allocation and distribution restrictions.

This split-out will be primarily between benefits subject to vesting (like employer profit sharing and possibly match if subject to vesting) and those not (like employee deferrals and employer match, if not subject to vesting). With plans we can do so without violating the rule against a cutback of benefit, right or feature, we're making uniform the distribution rules that apply to all immediately vested benefits and those that apply to benefits subject to a vesting schedule.

Rollover benefits received by the Plan are usually placed in a third investment account, because of the employee's ability to withdraw them whenever. Roth deferrals of a Participant will also be placed in a Plan investment account separate from the others, and the Plan would yet need to keep a record of the actual amount of Roth deferrals—to separate that from the investment earnings on that Roth investment accounts, in case they become taxable.

Benefit contributions will in the future be placed into the respective investment accounts.

The IRS has, through interim guidance pending future regulations, explained that the new quarterly statement requirement can be accomplished through separate writings. That means that if the Plan trustees have the investment brokerage send not only the trustees monthly or quarterly investment account statements, but also directly send duplicate investment account statements to the participant, the Plan can then "finish" the quarterly statement requirement by preparing a short (I anticipate 1 or 2 page) statement for the participant that specifies his vesting percentage, that it applies to the balance of acct # XYZ123, and that he is 100% vested in acct #ABC789, for example. This supplemental statement from the employer would also explain the plan's Social Security integration formula (if applicable), the Plan's rules for participants to direct the investment of their benefits, the importance of investment diversification to the employee's long-term retirement security, and the link to the DoL website where more info on investment diversification can be obtained. The individual, supplemental statement prepared individually for the participant would only need to be updated once a year, to update the info about the participant's vesting years and vesting percentage. The employer would provide this individual, supplemental statement to the participant four times during the year—before again needing to have the individual's vesting status updated.

This is our alternative, since we can't just tell the PPA writers to stick it.

[Peanut Butter Man]

With a few plans that use the participant's employment anniversary date to calculate vesting instead of the plan year, we are also struggling with what to charge for the new statements, if anything. Also adding complexity this year is the change in vesting for non-elective contributions made by the Pension Protection Act.