Disclosure (benefit amounts/calculations) requirements

[Belgarath]

The questions that came up are with regard to a small, frozen, DB plan. There are terminated former employees who have elected not to receive their benefits yet. How often is the plan required to provide benefit statements, both automatically and on request?

It appears that under ERISA 105(a)(1), the automatic "every three year" EBS is required only for EMPLOYEES who are participants. It also appears that this requirement may be satisfied by proper notification, at least once per year, of the AVAILABILITY of an EBS.

But specifically with regard to a terminated participant, although it appears they must receive an annual funding notice, it does not appear that they must automatically receive an EBS. However, under ERISA 105,it appears that a participant or beneficiary may request, in writing, an EBS, and that they are entitled to only ONE per year under ERISA 105(b). Furthermore, under proposed regulation 2520.105-2©(2), it appears that IF the benefit information has not changed since the last statement furnished upon termination or break in service, no additional statement is required to be provided.

Agree/disagree?

Assuming you agree with the above, what is the required content, and IF a Plan Administrator agrees to provide a benefit calculation more than once per year, may the participant be charged for the extra calculation?

With regards to the charge, although 2520.104b-30 prohibits charges for disclosures REQUIRED under 105(a), since only one statement on request is REQUIRED, then I would conclude that charging the participant for any extra calculations would be permissible. Thoughts?

As to the content - I'm not sure on this. For example, if the plan permits lump sum, life annuity (normal form of benefit), Jt. & 100, 75, and 50%, must the mandatory annual statement furnished upon request provide payments under all these options? Under ERISA 105, it must provide "total benefits accrued." Under proposed regulation 2520.105-2(d)(5), it does not appear that the statement must provide the benefit amounts for alternative forms, but must contain a statement referencing this and referring them to the SPD. And must any extra statements provide them as well? As a practical matter, if you are going to charge the participant for the extra statement(s)m there shouldn't be a problem with providing the additional option payment amounts, but I don't know that it is required.

However, if a participant is actually electing to take a distribution, then clearly the distribution amounts under the various options must be provided.

I'd appreciate any thoughts or comments. Thanks!

P.S. - one final question: Suppose a participant comes in and says, "I want to take a distribution." So the Plan provides, at no charge, the various payments under the options available. Once having received this, the participant says, "I've changed my mind." How could this be handled? Could the Plan Administrator say, when the initial request is made, "There is no charge for you to receive quotes on the payment option for your distribution, but if you then decide not to take your distribution, we will bill you $250.00?" Alternative solutions?

[Andy the Actuary]

Your (P.S.): A toughie. The answer may be different if the Plan has 50 participants versus 50,000. If you have 50, you might just absorb the cost. If you have 50,000, the request process could get costly and it would be appropriate to provide one quote annually, and then charge for additional quotes within the year. You would need to define quote. Have seen requests run from what's my pension at age 60 versus what is my pension at age 55, 58, 61, 63, 64, and 65. Your suggestion might influence the participant's decision of when to retire and you may wish to shy away from that position.

[Belgarath]

Thanks Andy - so, in your situation where quotes for multiple retirement dates are being requested, would you say the plan sponsor must provide these for free, once a year? Or would you say that you get one per year at one age, and fee charged for all others? (We are fortunately not encountering this extreme situation, but might in the future, so I'd appreciate any thoughts)

I'm not sure there is a realy good answer to this - seems a little gray...

[rcline46]

There is a point where the work is of a 'consulting' nature and should be charged. our position is that only one calculation is provided. Relative factors can also be provided so that the participant can estimate other answers. Otherwise, there is a charge for detailed calculations which are paid by the sponsor, participant, or general plan assets (which means the employer pays anyway). Free and easy does not get you the respect you deserve.

[Belgarath]

Rcline - thanks for the response. I completely support that the actuary must charge. The question there is what can be charged to the participant. And my inclination, for someone who wants a quote at 8 different ages is to think that the Plan Administrator can say, " You get one quote per year, based upon age X. If you want quotes for additional ages, there will be a charge."

While that seems reasonable to me, and doesn't appear to be explicitly prohibited under the regs, I'd love to hear anyone's opinions.

[david rigby]

Many participants receive an annual statement, showing the accrued benefit. Many plan sponsors provide more detailed estimates (including optional forms) only when the participant applies for retirement benefits.

[Belgarath]

Thanks David - yes, that's one of the questions I'm trying to get at. The participant says they are applying for a benefit - asks for quote on a bunch of options, then says, "oops, I don't want to take my benefit now after all." Then comes in 6 months later and asks for the same thing.

I feel like the plan needs to provide, free of charge, all distribution amounts for all options available when requesting a distribution. However, beyond that is where it gets murky - if they ask for quotes at various ages, or multiple quotes in the same year, then it seems like some charges may be justified, and I'm just wondering what people think about this.