Pre-206(g)(3) Notice - Fiduciary Responsibility

[Guest AEA]

In addition to trying to find if ANY regulations or guidance have been issued about when and how (content) a notice alerting participants that distributions will be limited under ERISA sec. 206(g)(3)©, I have been asked whether or not a plan sponsor has a fiduciary duty to warn participants in advance that their ability to get a lump sum under the plan may be unavailable in a few months. So far, I see no guidance, but was wondering if anyone had a take on this....

[Andy the Actuary]

In addition to trying to find if ANY regulations or guidance have been issued about when and how (content) a notice alerting participants that distributions will be limited under ERIS sec. 206(g)(3)©, I have been asked whether or not a plan sponsor has a fiduciary duty to warn participants in advance that their ability to get a lump sum under the plan may be unavailable in a few months. So far, I see no guidance, but was wondering if anyone had a take on this....

You can easily see some labor issues. E.g., Calendar year plan. 2008 AF TAP = 90%. Presumptive AF TAP applies April 1, 2009, and no restrictions through September 30. AF TAP certified on September 30 to be 64% and Plan Sponsor cannot fund enough to get to 80%. In March 2009, employee got lump sum estimate for retirement effective September 30 from an uniformed HR person who looked in his handy dandy table of factors and made an estimate. This would be just enough money after taxes to purchase his friends paper airplane business. No one has told the HR guy about Armageddon. Employee retires and then is told can't have full lump sum. Do any of the litigators out there have a business card?

[Guest AEA]

Luckily, I am dealing with an HR guy who DOES know this might be coming and is asking if he should warn or not.

The law simply seems to require the 30 day notice once the determination funding is below 80%. I have thought about including caveats on any pension statements/estimates about distributions being limited under certain circumstances, but not sure in the plan's (and remaining plan participants') best interests to send a separate notice to a bunch of potential retirees encouraging them to take their money now and make the funding situation even worse....

[Andy the Actuary]

Employers have a natural rational now. When PPA was first implemented, restrictions applied because plans were underfunded, which could be inferred to mean money was mismanaged. Now, it's a matter of the (blue) chips falling on the floor and everyone is aware and feeling it. It's not the employer's fault.

I'd let employees know. If not to large a group, then a meeting with employees. This could be part of a bigger meeting to explain the plan.