Participant in savings plan asks for prospectus of the plan but is den

[Guest WildWest1]

I have a friend who is having money deducted for a savings plan. She has asked for a prospectus of the plan and has been denied. What are her options?

[LCARUSI]

What do you mean by prospectus? A summary plan description or a prospectus for one of the investment options?

[Alf]

The "What's New of Benefits Link" page has the following link to a Chicago Tribune article that is on point.

Trying to dig up the documents

[This message has been edited by Alf (edited 11-06-1999).]

[GBurns]

I disagree with much of the article. I think it is a case of the right answers but the wrong questions. In fact we dont really know what questions were asked by the writer. From my perspective as a Registered Rep and a licensed ins agent, most 401k plans that I see are participant directed. A lot are also not SEC registered. The non SEC products fall under State DOI or Finance & Securities jurisdiction, which in most states, dictate that a prospectus must be given with solicitation of the participant, since there is ongoing solicitation to keep the person active in contributions and account selection, a prospectus is required at any time of request. This request is to be made to the Rep or directly to subscriber services of the investment company. I have never seen an employer who even knew how to get one.

The article mentioned that the employer was seen as the contributor. That is incorrect. The amount of the salary reduction is "treated as employer contribution" but the law then state "for the purposes of" and that it shall "be used to purchase the benefit selected" and contributed by the employer "on behalf of the participant". The person who signs investment selection form etc. is the employee and any changes can only be made by that employee. The beneficiary designation etc etc is done by the employee. It is the employee who has the control. We should not allow untrained journalists to be giving out info in complex matter such as these. I wish there was more space and time to really cover the matter properly.

[Guest Off_the_record]

GBURNS, I felt exactly the same way when I read that horrible article. I even scanned for an email reply address! I would strongly urge you to cut your statements and add them to an email, or send the link to the newspaper.

[Jon Chambers]

A couple of clarifications:

1) Almost all participant directed plans are exempt from the SEC prospectus distribution requirement. Generally, the only plans that are subject to the requirement are plans where the employee controls investment in employer securities (e.g. a 401(k) plan offering company stock as an investment option). Plans offering insurance products (such as were cited by GBURNS) are not subject to the prospectus requirement by virtue of the SEC class exemption, not by virtue of the insurance offering. Thus, pursuing a prospectus equivalent through the State DOI would be a waste of time.

2) Despite the absence of a requirement to provide prospectuses, most well-run plans make prospectuses available, because it's almost impossible to comply with 404© without this type of disclosure. Most plans offering insurance products should be able to offer prospectus type disclosure (including information on expenses, returns, investment approach, etc.) If they can't, I'd suggest seeking out a different set of investments.

Jon Chambers

[Dowist]

Let me put in my 2 cents.

From an SEC perspective, the owner of the mutual funds is the trust, not the participant, so technically the prospectus/disclosure requirements are met when the prospectus/disclusure is given to the trustee or other responsible fiduciary. (Gross generalizations here!)

There are situations when the participant's interest in the Plan is itself a "security" but not generally unless employer stock is an investment - and that security interest is generally registered and the disclosure obligations are met with an SPD. (Gross generalizations here!)

I don't think state insurance statutes would require that the participant receive prospectuses - again the owner of the "policy" is the trustee.

ERISA does not require the distribution of prospectuses, unless the Plan is a 404© plan. Plans electing 404© treatment must distribute prospectuses to participants when they initially elect to invest their accounts in the fund, and on request from the participant.

As a practical matter, I can't imagine a plan not handing over a prospectus when asked.

Just guessing, but is it possible the participant has asked for a prospectus for an investment vehicle that doesn't have one? A bank's collective investment fund, or an insurance company account wouldn't have a prospectus. Maybe the problem is that she's asking for the wrong thing?

[Guest ptpnthr]

What type of plan is it? If the "savings plan" is an ERISA Section 404© plan, and if the investements are subject to the '33 Act, then your friend should call the DOL's Pension and Welfare Benefits Administration for assistance.

[GBurns]

The NASD and SEC requires a prospectus to the investor/participant and the party signing the application or participation agreement.

The prospectus is part of the SPD as per DOL and some state Dept of Banking & Securities.

Florida, Texas, and NJ are states that reuire a prospectus, so I guess there must be many others.

If I couldnt get a prospectus I would call in the State, DOL, NASD etc.

[Guest]

I am not sure this is directly on point, but here goes.

We recently researched ERISA, SEC, DOL, etc. regulations regarding the notion of supplying all plan participants with an investment prospectus. We found no laws or directives that indicate a prospectus must be supplied to plan participants.

Practically speaking, participant election is not a right, but a priviledge that a plan sponsor could revoke at any time. The trustee does need to receive a prospectus as a representative of the trust.