Here is your latest FYI: Employee Benefits
Update from Cindy Van Bogaert, Partner and Chair of the Employee
Benefits Practice Group at Boardman Law Firm LLP.
This FYI discusses new requirements for the content of benefit statements created
by the Pension Protection Act of 2006 ("PPA"). The Department of Labor
has issued interim guidance to help employers comply.
First, it helps to know that different rules apply to different
plans:
- Individual account plans, like 401(k) plans, generally must
issue quarterly benefit statements if participants direct the
investment of assets in their accounts. For calendar year plans,
the first new benefit statement is required for the quarter ending
March 31, 2007. The statement must be issued not later than 45
days following the end of the calendar quarter. E.g., for the
first quarter of 2007, the statement must be issued by May 15,
2007.
- Other individual account plans generally must issue a statement
annually.
- Defined benefit plans are subject to special rules not discussed
in this FYI.
- Certain "one-participant" individual account
plans are not covered. (A caution in this confusing area: the "one
participant" plans,
at least as defined by the Internal Revenue Code, might have
more than one participant.)
Under pre-PPA law, a benefit statement generally had to include:
- The amount of accrued benefits; and
- The amount of vested benefits, or the earliest date on which
benefits will become vested.
The new law adds to the requirements:
New disclosures applicable to all benefit statements:
- An explanation of permitted disparity (e.g., Social Security
integrated plans) or floor-offset arrangement, if any.
New disclosure applicable to quarterly and annual individual account
statements:
- The value of each investment into which assets have been allocated,
including any employer securities.
New disclosures applicable to quarterly statements:
- An explanation of any limitations or restrictions on any right
of the participant or beneficiary to direct an investment. The
Department of Labor has indicated that benefits statements must
include limitations and restrictions on participants' or beneficiaries'
rights imposed “under the plan,” but need not include
limitations and restrictions imposed by investment funds, other
investment vehicles, or by state or federal securities laws.
Knowing whether a particular limitation is one imposed "under
the plan" may not be straightforward.
- This is an issue that you should discuss with your attorney
before issuing your new statements. In any event, participants
should be alerted to the fact that these other limitations exist
and, if possible, where to find more information on them. Be
sure that you understand trading limitations that apply to your
participants.
- An explanation of the importance of a well-balanced and diversified
investment portfolio for long-term retirement security. The Department
of Labor has issued model language.
- A statement that there is a risk that the investments may not
be adequately diversified if more than 20% of a portfolio is
held in the security of one entity (like employer securities).
Again, the Department of Labor has issued model language.
- A notice directing the participant or beneficiary to the Internet
website of the Department of Labor for sources of information
on individual investing and diversification. The Department of
Labor has issued a web address.
The new law is applicable to plan years beginning in 2007, except
that collectively bargained plans may have a different effective
date. There is a $110 per day penalty for failure to provide statements.
There are other requirements not addressed here, such as delivery
and understandability.
There also are pre-PPA proposed regulations that contain other
recommended information for benefit statements. The Department
of Labor interim guidance addresses other issues, including limitations
on electronic delivery and delivery of the information from multiple
sources.
What should employers do?
- Determine which requirements apply to your plan.
- Ask your recordkeeper for a draft of the new statement and
have your counsel review it for you.
- Consider adding a notice about correction of errors.
- Discuss the pre-PPA proposed regulations and the Department
of Labor interim guidance with your counsel to determine other
information that should be included for your plan.
- Watch for further updates from the government. The Department
of Labor is supposed to issue a model statement by August 16,
2007.
This FYI is not legal advice. Individuals should seek advice based
on their particular circumstances from their own counsel. Nothing
in this FYI is intended to be used, and no information can be used,
for the purpose of avoiding penalties under the Internal Revenue
Code, or promoting, marketing, or recommending to another party
any transaction or matter addressed in this FYI.
If you have any questions or need assistance, please contact Cindy
Van Bogaert at (608) 281-7543 or cvanbog@boardmanlawfirm.com.
Would you like to have FYI: Employee Benefits Update sent
directly to your e-mail inbox? If so, please send your request,
with e-mail address, to Cindy Van Bogaert at cvanbog@boardmanlawfirm.com. |
