News & Information

 

FEATURED PRODUCT

5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.

Learn More »

CCH® PENSION — 5/27/08

ERISA Advisory Council Issues Reports On Benefit Statements, Fiduciary Duties, Financial Literacy

From Spencer's Benefits Reports: In a series of recently released reports, three working groups of the ERISA Advisory Council presented their recommendations on participant benefit statements, fiduciary responsibilities and revenue-sharing practices, and financial literacy of pension plan participants.

Pension Benefit Statements

The Pension Protection Act of 2006 (PPA) made significant changes to the reporting and disclosure requirements applicable to all pension plans, specifically by requiring benefit statements be furnished to participants in all defined benefit and defined contribution plans. Those requirements were effective for plan years beginning in 2007. The PPA also directed the Department of Labor to design model benefit statements for plan administrators, and the DOL issued interim guidance in the form of Field Assistance Bulletin (FAB) 2006-03 and FAB 2007-03, relating to the timing of benefit statements for non-participant directed plans.

As added by the PPA, ERISA Sec. 105(a) specifies that the administrator of an individual account defined contribution plan (that is, a 401(k) plan) must furnish a pension benefit statement at least once each calendar quarter to each participant who has the right to direct the investment of assets in his or her account. In the case of other types of defined contribution plans, the administrator must furnish a pension benefit statement at least once each calendar year. The administrator of a defined benefit plan must furnish a pension benefit statement at least once every three years to each participant with a nonforfeitable accrued benefit and who is employed by the employer maintaining the plan at the time the statement is required to be furnished.

The 2007 ERISA Advisory Council formed a working group on participant benefit statements to study these legislative requirements and to make recommendations to the DOL regarding the required content, form, and timing of the benefit statements. After holding hearings and analyzing the issues, the working group submitted the following recommendations to the DOL:

• The DOL should provide longer due dates for defined benefit plan benefit statements, dates that recognize the time it takes to accumulate details of participant data necessary to calculate all participants’ accrued benefits, and that recognize differences in accumulating data. Furthermore, the agency should provide a means for obtaining relief from the due dates for those defined contribution plans with nonparticipant directed assets that cause delays in obtaining complete data because of the timing of determination of plan assets, such as contributions and asset valuation, participant compensation, and other matters inherent in the plan.
• The DOL should convene a task force of benefit statement stakeholders to develop the content of a model statement. According to the working group, the content should be minimized, including only that required by the statute. The model statement should be crafted in a way to inspire sponsors to add information and education.
• The DOL should promulgate regulations that preserve the multidocument option for the benefit statement. Furthermore, the agency should update its regulations regarding electronic communications to a “reasonable access” standard in recognition of the continued advancement in Web-based communications and the increase in its use by participants.

Revenue-Sharing Practices

The council’s working group on fiduciary responsibilities and revenue-sharing practices studied numerous issues regarding fiduciary responsibilities arising from the enactment of the PPA, as well as issues relating to the practice of revenue-sharing that has become a common practice used to offset plan expenses with respect to 401(k) plans. The aim of this working group was to discover and present matters that would enhance the ability of fiduciaries to fulfill their responsibilities under ERISA and to develop criteria in the area of disclosure to participants.

This working group made the following recommendations:

• The DOL should propose regulations that permit the payment from multiemployer plan assets for professional services rendered to the multiemployer plan trustees that generally would be deemed settlor functions—e.g., plan design, merger, amendment, and termination—without requiring that such activities be artificially characterized as fiduciary functions, regardless of whether there is a perceived incidental benefit to plan settlors or the bargaining parties.
• The DOL should issue guidance with respect to what procedures should be followed by trustees in the development of funding improvement or rehabilitation plans to provide some degree of protection or “safe harbor” from breach of fiduciary duty challenges, including litigation from groups that might be disadvantaged by such decisions.
• The DOL should issue suggested best practices to assist multiemployer plan trustees and other multiemployer plan fiduciaries in considering the use and monitoring of various asset allocation strategies to meet the funding requirements of the PPA.
• The DOL should develop definitions of revenue-sharing-related terms designed to assist benefit plan sponsors, fiduciaries, service providers, and participants. According to the working group, such an undertaking should take into account definitions/terminology followed by other agencies (such as the Securities and Exchange Commission) and consider ongoing and anticipated changes in capital markets.
• The DOL should issue guidance clarifying that revenue-sharing is not a plan asset under ERISA unless and until it is credited to the plan in accordance with the documents governing the revenue-sharing.
• The DOL should issue guidance regarding the treatment of revenue-sharing received by a plan. Specifically, there should be guidance patterned after FABs 2003-03 and 2006-01 regarding the allocation of revenue-sharing received by a plan. Such guidance should confirm that there is not a single permissible method of allocation because cost, efficiency and other factors might enter into the fiduciary’s allocation decision.

Financial Literacy

Finally, the council’s working group on financial literacy of plan participants studied a variety of issues involved in increasing the financial decision-making skills of plan participants. This working group made the following recommendations:

• According to the working group, for plan sponsors that wish to craft their own program, a best practices grid would point to the core literacy skills needed for a successful retirement. The working group recommended that the DOL determine and publish best practices for the plan sponsor and fiduciaries to consider for use in educating plan participants with a focus toward increasing financial literacy.
• For plan sponsors that wish to incorporate generic material to accomplish literacy, heightened awareness of existing material is needed. The working group recommended that the DOL publish and continue to publish materials that provide information regarding the unique needs and requirements for managing finances in retirement.
• The working group recommended that the DOL expand the reach of the investment guidance provided in Interpretive Bulletin (IB) 96-1 by changing and updating that guidance. According to the working group, as innovation continues in the financial marketplace, educational initiatives will need to address items heretofore not addressed in IB 96-1. Furthermore, as innovation continues in this area, IB 96-1 needs to be continually updated.
• The working group recommended that the DOL initiate, engage, and facilitate interaction with regulatory agencies, self-regulatory organizations, industry trade groups, and academic institutions to create partnerships of common understanding, materials, and resources that employers, plan sponsors, and fiduciaries can draw upon to increase financial literacy of employees and plan participants.
• The working group recommended that the DOL encourage, allow, and facilitate plan communications that use retirement income replacement formulas and final-pay multiples in employee benefit statements on a personal participant basis. According to the working group, plan communications should encourage participants to have a numerical goal, whether as a result of a sophisticated or elementary formula, and repeat that message. At the very least, participants should be able to determine and have access to an estimated plan account balance necessary for retirement.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

Visit our News Library to read more news stories.