Plain language prospectuses for 401(k)investments

[Guest Anne V]

Can anyone direct me to some good samples of a "plain language" approach to 401(k) investment options? Employees are often confused by the convoluted nature of these communications -- as well as the level of detail.

We'd like to revise these to give people what they need to know, but in a way that is simple and direct.

Thanks!

[Jon Chambers]

A company called Newkirk (I believe they are in NJ) does a good job with investment descriptions. Note that they are not "prospectuses", but probably meet the basic 404© information dissemination requirements.

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Jon C. Chambers

Principal

Schultz Collins Lawson Chambers, Inc.

(415) 291-3004

[Guest]

Even though you may be able to find "plain language" descriptions, I believe you must still provide the participants with the actual mutual fund prospectus' to meet 404© requirements. The prospectus is the tool (albeit sometimes difficult to understand) that lays out all the ins and outs of the mutual fund.

You might want to ask the mutual funds themselves if they have an investment profile that outlines the information in the prospectus to go along with the prospectus itself. Some mutual funds are trying to make their prospectus' more user friendly, but not all are.

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Carol J. Ringwald

Senior Consultant

Shawmut Consulting Assoc.

[Jon Chambers]

Carol, if you read the 404© regs carefully, they don't mandate prospectus distribution. They define information that must be provided to participants, and information that must merely be made available. Since the prospectus includes both categories of information, distributing the prospectus represents a safe way to meet the 404© information dissemination requirements. But a well-designed fact sheet can satisfy the required information requirement, and as long as the prospectuses are still available, 404© compliance is still achieved. This approach would seem to meet Anne's objective of avoiding confusing employees with the prospectus.

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Jon C. Chambers

Principal

Schultz Collins Lawson Chambers, Inc.

(415) 291-3004

[MWeddell]

I disagree with Jon Chambers' post. I'd be interested in knowing if I'm misreading the regulation.

To comply with ERISA 404©, if an investment alternative is subject to the Securities Act of 1933, a prospectus must be provided (NOT provided upon request) to a participant who moves money into the fund immediately following (or immediately prior to) the participant's initial investment in the fund. Labor Reg. 2550.404c-1(B)(2)(B)(1)(viii). Compare Labor Reg. 2550.404c-1(B)(2)(B)(1)("is provided") with 2550.404c-1(B)(2)(B)(2)("is provided ... either directly or upon request").

[This message has been edited by MWeddell (edited 02-17-2000).]