Defined Contrib. Participant Education & Prospectus Delivery

[Guest DCool]

I'm looking for information regarding Defined Contribution (specifically 401k) participant education and what's required for educating and enrolling participants who speak languages other than english (let's use Spanish as an example). My understanding is that if enrollment/marketing materials (including fund fact/sizzle sheets) are translated into "Spanish", then you also need to have a Spanish prospectus available. Is this understanding correct for 401k plans? What about other DC plans, 403b? If it is correct, is there any way to educate Spanish speaking individuals and get around the prospectus issue? Because as you know most mutual fund companies do not print prospectuses in other languages (it's way too expensive). Can anyone provide the regs that deal with this (code numbers/names)? Thanks.

[Guest rmeigs]

You are in a very gray area on this topic and you're not going to find much guidance in the literature or regulations. Use common sense, be proactive (not passive in your approach at helping them), provide reasonable interpretation help, and document all that you have done.

[Guest OscarD]

The SEC and NASD have made their view clear on this matter... in a letter to a mutual fund company dated 10/26/1989, they opinioned that if the firm "distributes sales literature, or advertisements in a language other than English, a prospectus in the same language should be readily available."

We interpret sales literature as consisting of any literature that refers, summarizes, highlights, or makes any reference to the funds. In that case, the literature must contain a statement which reads (1) "a prospectus in the same language is available upon request, and (2) prospective investors should review a prospectus carefully before investing."

This would apply to both 401(k), 403(B) plans, and generally, to any plan that offers a registered investment as an investment option.

To ensure that your Spanish communications will be able to pass the scrutiny of SEC and NASD audit, sales literature should also include the recordkeeper's voice response system, internet and any other support system that voices/explains the funds in a non-English language.

Lacking a Spanish prospectus, you cannot get around the prospectus issue and educate employees with respect to the specific funds. However, you can create investment models that take into account investment horizons and classes of investments and illustrate how each of these would act over time. The transition from the generic models to the registered fund selection becomes a gray area and that's were you need to offer reasonable interpretation.

My firm has been offering Spanish prospectuses for many years and I'd be glad to speak with you further.

Oscar Destruge Sandoval

www.divinvest.com

[Kirk Maldonado]

Oscar:

Thank you for your informative reply. Do you have a cite to that letter that you can share with us?

[Guest OscarD]

Kirk, Yes. Give me a call at 914-697-8847 with your fax number and I'll send a copy. It may be worth scanning and attaching the letter to this bulleting board for future readers. I would do it but haven't learned how to attach documents yet (my second day on this site). Oscar