prospectus delivery

[Scuba 401]

The Regs for 404© say that a current prospectus must be furnished to a participant after he makes an ivestment in a fund. is it sufficient to give them to the Plan Administrator and have the participants get one from the Plan Administrator whent they make the investment?

[MWeddell]

By comparing the two lists of information in the 404© regulations, it's clear that the prospectus must be "provided" not "provided upon request." Hence, as long as it's provided to the participant (regardless of whether it's by the trustee, the recordkeeper or the plan administrator), that condition is met. Telling the participant that he or she can get it from the plan administrator doesn't meet the plain language of the regulations (in my opinion).

[Scuba 401]

what do you think about giving it to the participant in the enrollment materials. thus, they have it when they make the investment at some point in the future. have you have met the requirement of the reg.

[MWeddell]

Generally speaking, including prospectuses in the enrollment kits doesn't suffice if the plan is intended to comply with ERISA 404©. Most plans allow participants to transfer their money into an investment fund in which they haven't previously invested at any time during the year, not just during an annual or semi-annual enrollment campaign. Hence, the plan will not have provided prospectuses to participants immediately before or immediately after the participant invests in a SEC-registered investment vehicle for the first time if the only time participants are provided prospectuses is in the enrollment kits.

I don't have any special knowledge regarding these questions. This is just based on a straightforward reading of the 404© regulations. Lots of service providers claim their programs comply with ERISA 404© but don't provide prospectuses when needed (or clearly tell employers that they need to do this if the provider isn't doing so).

[JWK]

I'm in agreement with MWeddell based on my reading of the regs. I wonder whether anyone has dealt with electronic delivery of prospectuses? Is there any guidance out there?

[MoJo]

Part of the problem here, is that the DOL regs don't recognize the difference between individuals investing and a plan investing in a mutual fund. Most service providers do omnibus trading with mutual fund companies, and most recordkeeping systems (all that I am familiar with) aren't robust enough to "know" when a participant is investing in a fund for the first time. The burden of providing a prospectus to participant each time they invest in a fund is so great, that I know of no service provider that is actually doing. I'd also be interested in hearing about alternate (electronic) delivery of prospectuses. Currently they are available on-line. Would it be sufficient for 404© purposes to direct an electronic transaction user to the site to retrieve the prospectus - or would the prospectus actually have to be "delivered" via email. Any one have any other experience with service providers in this matter?

[MWeddell]

I'd say somewhere between 1/3 and 1/2 of the larger 401(k) service providers send prospectuses to participants immediately after they move money into investment funds. We ask a specific question on this point in most of our requests for proposals for vendor search clients, because if one only asks "does your program comply with ERISA 404©?" one doesn't get to this information.

I think you're right, that at least most providers don't distinguish between moving money into a fund for the first time ever versus moving money into a fund on a subsequent occasion, but I'm less sure of this point.

[Guest halka]

I found this old thread and want to reintroduce the subject. Hopefully, in the past couple of years, there has been some hands-on experience w/ electronic access/delivery of prospectuses. If we can "deliver" an SPD electronically, why not a prospectus? I'm hoping that providing a link to the MF website would work. More realistically, how about installing electronic copies of prospectus on plan sponsor's computers or a requiring participant to click to prospectus website to complete a plan trade?? Anyone??

Thanks