404a5 Disclosures to "Non-Participating" Participants

[austin3515]

Article from BL Newsletter today (headliner, actually):

http://www.businessofbenefits.com/2012/08/...+of+Benefits%29

But the preamble to regs, found here, seems to directly contradict Toth's conclusion. Does anyone disagree? Don't get me wrong, I think he is reading the REGS correctly (I made the same case a month or so ago), but it's just not consistent with what the DOL has said in the preamble.

http://www.thefederalregister.com/d.p/2010-10-20-2010-25725

Several commenters suggested that the Department clarify, and in some cases modify, the scope of the proposal as to the specific participants and beneficiaries of covered plans to which the rule applies. The proposed rule required disclosures to each participant and beneficiary of the plan that ``pursuant to the terms of the plan, has the right to direct the investment of assets held in, or contributed to his or her individual account.'' The question presented by the commenters was whether disclosures must be furnished to all eligible employees or only those who actually participate in the plan. Consistent with the definition of ``participant'' under section 3(7) of ERISA, disclosures must be made to all employees that are eligible to participate under the terms of the plan, without regard to whether the participant has actually become enrolled in the plan. One commenter recommended that the proposal be modified to require initial disclosures to all eligible employees, but limit annual disclosures only to those that actually enroll, make contributions, and direct their investments. The Department has not adopted this recommendation. The Department believes that, with regard to employees that have not enrolled in their plan, the annual notice will serve as an important reminder of their eligibility to participate in the plan. With regard to notification of beneficiaries, however, the obligation to disclose extends only to those beneficiaries that, in accordance with the terms of the plan, have the right to direct the investment of assets held in, or contributed to, their accounts. Such rights might arise as a result of the death of a participant or pursuant to a qualified domestic relations order.

(edited font size and added federal register link)

[Belgarath]

Mr. Toth makes an interesting argument. The same preamble appears to show both approaches, and I suspect one might perhaps reasonably conclude to use one or the other. Given the confusion on this, and the lack of clarity from the DOL, as usual I lean towards conservatism. Give the #%#*&&@!! disclosure to everyone who is eligible, and don't wait until they elect to defer.

I can see a valid argument that the decision on whether or not to defer might be based upon the attributes of the various DIA's available, and waiting until a participant actually elects to defer would seem to defeat some of the purpose of the regulation.

Better safe than sorry, IMHO.

Austin, did you happen to see Fidelity's statistics on these stupid things? I saw some blurb last week. They geared up for all this by hiring extra call center staff, etc., and got going on this early due to the volume. Since May, they have sent 17 MILLION (yup, million) participant fee disclosures. As of very recently, they had received 1,200 calls - and most of those were not on the disclosure itself, but questions on whether they needed to do anything with it, etc..

As we all knew it would be, mostly just a giant waste of time/effort/money, albeit with mostly good intentions.

[austin3515]

"The final rule provides in this regard that participants and beneficiaries must be furnished the required information on or before the date on which they can first direct their investments"

This seemed to be in response to an extreme situation. The preamble section I referenced, on the otherhand, would have to be interpreted to be the "winning" interpretation. They said, in no uncertain terms, everyone must get the notice.

[austin3515]

Austin, did you happen to see Fidelity's statistics on these stupid things? I saw some blurb last week. They geared up for all this by hiring extra call center staff, etc., and got going on this early due to the volume. Since May, they have sent 17 MILLION (yup, million) participant fee disclosures. As of very recently, they had received 1,200 calls - and most of those were not on the disclosure itself, but questions on whether they needed to do anything with it, etc..

I hope those big players are going to give an earful to their congressman on this train wreck!! I heard ING had a very similar outcome, though not on that scale.