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Date: December 20, 2006
Memorandum For: Virginia C. Smith
Director of Enforcement, Regional Directors
From: Robert J. Doyle
Director of Regulations and Interpretations
Subject: Periodic Pension Benefit Statements - Pension Protection Act of 2006
Section 105 of the Employee Retirement Income Security Act (ERISA) sets
forth the requirements applicable to the furnishing of pension benefit
statements to plan participants and beneficiaries. Section 508(a) of the
Pension Protection Act of 2006 (PPA)(1) amended section 105, making a number
of significant changes to the pension benefit statement requirements for
both individual account plans and defined benefit plans. Among other
things, the amendments to section 105 establish an affirmative obligation
to automatically furnish pension benefit statements – at least once each
quarter, in the case of individual account plans that permit participants
to direct their investments; at least once each year, in the case of
individual account plans that do not permit participants to direct their
investments; and at least once every three years in the case of defined
benefit plans. The amendments also increase the amount of information
required to be contained in pension benefit statements for both individual
account and defined benefit plans.
The amendments to section 105 are generally applicable to plan years
beginning after December 31, 2006, with special rules for plans maintained
pursuant to collective bargaining agreements.(2) Section 508(b) of the PPA
requires the Department to develop one or more model pension benefit
statements within one year of the date of enactment of the PPA (i.e., by
August 18, 2007).
Since the enactment of the PPA, representatives of plan sponsors,
service providers and others in the employee benefits community have
raised a number of interpretive and compliance issues concerning the new
pension benefit statement provisions. In particular, concerns have been
expressed about the imminent effective date, the absence of guidance, and
the cost and burdens attendant to pension benefit statement compliance
efforts prior to the adoption of pension benefit statement regulations and
the issuance of model pension benefit statements by the Department.
In recognition of the foregoing concerns, including the fact that major
changes in what, how, and when pension benefit statement information is
furnished to participants and beneficiaries may, in the absence of
regulatory guidance from the Department, result in plan sponsors, plans,
or participants and beneficiaries (in the case of individual account
plans) incurring excessive or unnecessary compliance costs, the Department
is providing general guidance in this Bulletin for EBSA’s national and
regional offices, as well as plan sponsors and administrators, concerning
good faith compliance with the pension benefit statement provisions
pending the issuance of regulations.
The Department has not yet issued regulations or other
guidance concerning compliance with the pension benefit statement
provisions of section 105 of ERISA, as amended by section 508(a) of the
PPA. Until such regulations or guidance is issued, the Department will, as
an enforcement matter, treat a plan administrator as satisfying the
requirements of section 105 if the administrator has acted in good faith
with a reasonable interpretation of those requirements. This Bulletin
provides the Department’s views as to what constitutes good faith
compliance with certain requirements of section 105.
1. Form of furnishing statements. In the case of
individual account plans that provide for participant direction of
investments, to what extent can the benefit statement requirements be
satisfied by using multiple documents or sources for the required
information?
It appears that, in the case of individual account
plans that provide for participant direction, the information required to
be included in pension benefit statements will, in many instances, involve
multiple service providers, each of whom is a source for some, but not
all, of the required information. For example, the plan administrator may
be the source for information on vesting, whereas the plan’s
recordkeeper or brokerage firm may be the source for investment-related
account information. We understand that, in the short term, compiling all
the required information for disclosure in a single document may be
impractical for plans.
Pending the issuance of further guidance, it is the
view of the Department that good faith compliance with the pension benefit
statement provisions does not preclude the use of multiple documents or
sources for benefit statement information, provided that participants and
beneficiaries have been furnished notification that explains how and when
the information required by section 105 will be furnished or made
available to participants and beneficiaries. Such notification should be
written in a manner calculated to be understood by the average plan
participant, furnished in any manner that a pension benefit statement
could be furnished under this Bulletin (see issue two, below), and
furnished in advance of the date on which a plan is required to furnish
the first pension benefit statement pursuant to section 105(a)(1)(A)(i) of
ERISA.
2. Manner of furnishing statements. To what extent
can the pension benefit statement requirements be satisfied using
electronic media?
Section 105(a)(2)(A)(iv) provides that a pension
benefit statement may be delivered in written, electronic, or other
appropriate form to the extent such form is reasonably accessible to the
participant or beneficiary. In the Technical Explanation of the PPA,
prepared by the staff of the Joint Committee on Taxation, the Committee
explains, by way of example, that regulations relating to the furnishing
of pension benefit statements, “could permit current benefit statements
to be provided on a continuous basis through a secure plan web site for a
participant or beneficiary who has access to the web site.”(3)
With regard to the use of electronic media generally,
the Department has issued a regulation, at 29 C.F.R. § 2520.104b-1(c),
setting forth conditions under which a plan administrator will be deemed
to satisfy the requirement, in section 2520.104b-1(b), that certain
disclosures be furnished using “measures reasonably calculated to ensure
actual receipt of the material.” While the furnishing of the required
pension benefit statement information in accordance with the safe harbor
prescribed in paragraph (c) of section 2520.104b-1 would constitute good
faith compliance with section 105, the Department notes that such manner
of furnishing is not the exclusive means by which plan administrators
could, in the absence of guidance to the contrary, satisfy their
obligation to furnish pension benefit statement information. In this
regard, we note that the Department of the Treasury and Internal Revenue
Service recently issued guidance, at 26 C.F.R. § 1.401(a)-21,(4) relating to
the use of electronic media to provide certain notices and documents
required to be furnished to participants by retirement plans under the
Internal Revenue Code. For purposes of section 105 of ERISA, the
Department, pending further guidance and a review of the provisions of
section 2520.104b-1(c), will view the furnishing of pension benefit
statements in accordance with the provisions of section 1.401(a)-21, as
good faith compliance with the requirement to furnish pension benefit
statements to participants and beneficiaries.
With regard to pension plans that provide participants
continuous access to benefit statement information through one or more
secure web sites, the Department will view the availability of pension
benefit statement information through such media as good faith compliance
with the requirement to furnish benefit statement information, provided
that participants and beneficiaries have been furnished notification that
explains the availability of the required pension benefit statement
information and how such information can be accessed by the participants
and beneficiaries In addition, the notification must apprise participants
and beneficiaries of their right to request and obtain, free of charge, a
paper version of the pension benefit statement information required under
section 105. Such notification should be written in a manner calculated to
be understood by the average plan participant, furnished in any manner
that a pension benefit statement could be furnished under this Bulletin,
and furnished both in advance of the date on which a plan is required to
furnish the first pension benefit statement pursuant to section 105(a)(1)(A)(i)
and (ii) of ERISA and annually thereafter.
3. Dates for furnishing statements. Because the new
pension benefit statement provisions are applicable as of the first plan
year beginning after December 31, 2006, what is the earliest date on which
non-collectively bargained pension plans will be required to automatically
furnish benefit statements that comply with the new provisions?
With regard to individual account plans that permit
participants and beneficiaries to direct the investment of assets in their
account, section 105(a)(1)(A)(i) requires that a pension benefit statement
be furnished at least once each calendar quarter. For calendar year plans
subject to this provision, the first pension benefit statement would be
required for the quarter ending March 31, 2007. If a plan operated on a
fiscal year basis, with the first plan year (after December 31, 2006)
beginning on July 1, 2007, the first pension benefit statement required to
comply with the new requirements would be required to be furnished for the
quarter ending September 30, 2007.
Plans that do not provide participants or beneficiaries
a right to direct their investments are required, pursuant to section
105(a)(1)(A)(ii), to furnish pension benefit statements at least once each
calendar year. Whether on a calendar year or fiscal year basis, the first
pension benefit statement for such plans that is required to comply with
the new requirements would be required to be furnished for the calendar
year ending December 31, 2007.
Pending the issuance of further guidance, it is the
view of the Department that the furnishing of pension benefit statement
information not later than 45 days following the end of the period
(calendar quarter or calendar year) will constitute good faith compliance
with the requirement to furnish a pension benefit statements in accordance
with section 105(a)(1)(A)(i) and (ii).
Defined benefit plans generally are required, pursuant
to section 105(a)(1)(B)(i), to furnish participants a pension benefit
statement at least once every three years. The first pension benefit
statement complying with the new requirements, therefore, would be due for
the 2009 plan year, provided that the plan does not elect to comply with
the alternative notice requirement in section 105(a)(3)(A). The
alternative notice requirement for defined benefit plans provides that the
requirements of section 105(a)(1)(B)(i) shall be treated as met with
respect to a participant if at least once each year the administrator
provides the participant notice of the availability of the pension benefit
statement and the ways in which the participant may obtain such statement.
If a plan elects to take advantage of the alternative notice provision in
section 105(a)(3)(A), the required notification must be furnished not
later than December 31, 2007.
It is the view of the Department that, in the absence
of guidance to the contrary, similar principles would apply in determining
good faith compliance by plans maintained pursuant to one or more
collective bargaining agreements, with respect to which PPA section
508(c)(2) provides special rules for determining the date on which the
provisions of section 105 are effective.
4. Right to direct investments. Will an individual
account plan that does not otherwise provide participants the right to
direct the investment of assets in their accounts be subject to the
requirement to furnish statements quarterly (section 105(a)(1)(A)(i))
merely because the plan permits participants to take participant loans
from the plan?
Pending issuance of further guidance, a reasonable
interpretation of section 105(a)(1)(A)(i) would be that a participant loan
feature does not, standing alone, cause a plan to be a plan that provides
participants the right to direct the investment of assets in their
accounts.
5. Limitations or restrictions on right to direct
investments. Section 105(a)(2)(B)(ii)(I) requires that the pension
benefit statement of an individual account plan that permits participant
investment direction include “an explanation of any limitations or
restrictions on any right of the participant or beneficiary under the plan
to direct an investment.” What types of limitations and restrictions, if
any, need not be included in benefit statements?
In the absence of guidance to the contrary, a
reasonable interpretation of section 105(a)(2)(B)(ii)(I) would be 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.
6. Investment principles. Section 105(a)(2)(B)(ii)(II)
requires that the pension benefit statement of an individual account plan
that permits participant investment direction include “an explanation .
. . of the importance, for the long-term retirement security of
participants and beneficiaries, of a well-balanced and diversified
investment portfolio, including a statement of the risk that holding more
than 20 percent of a portfolio in the security of one entity (such as
employer securities) may not be adequately diversified[.]” In the
absence of a model benefit statement, is there language that a plan might
use to satisfy this requirement?
It is the view of the Department that, in the absence
of guidance to the contrary, the use of the following language will
constitute good faith compliance with the requirements of section
105(a)(2)(B)(ii)(II):
To help achieve long-term retirement security, you should
give careful consideration to the benefits of a well-balanced and
diversified investment portfolio. Spreading your assets among different
types of investments can help you achieve a favorable rate of return,
while minimizing your overall risk of losing money. This is because market
or other economic conditions that cause one category of assets, or one
particular security, to perform very well often cause another asset
category, or another particular security, to perform poorly. If you invest
more than 20% of your retirement savings in any one company or industry,
your savings may not be properly diversified. Although diversification is
not a guarantee against loss, it is an effective strategy to help you
manage investment risk.
In deciding how to invest your retirement savings, you
should take into account all of your assets, including any retirement
savings outside of the Plan. No single approach is right for everyone
because, among other factors, individuals have different financial goals,
different time horizons for meeting their goals, and different tolerances
for risk.
It is also important to periodically review your
investment portfolio, your investment objectives, and the investment
options under the Plan to help ensure that your retirement savings will
meet your retirement goals.
7. Notification of diversification rights. May an
individual account plan that, prior to January 1, 2007, provides
participants and beneficiaries diversification rights at least equal to
the new rights conferred under section 204(j), satisfy the notice
obligations under section 101(m) of ERISA by providing information
concerning the importance of a diversified portfolio in connection with
the furnishing of the first quarterly pension benefit statement
information required by section 105(a)(1)(A)(i)?
Yes. The Department believes that the information
required to be disclosed to participants and beneficiaries pursuant to
section 101(m) is most significant for those participants and
beneficiaries acquiring new diversification rights under section 204(j).
For this reason the Department continues to believe that participants and
beneficiaries in plans conferring new diversification rights as of January
1, 2007, should be furnished information concerning such rights and the
importance of maintaining a diversified portfolio as soon as possible
following January 1, 2007.(5)
With regard to individual account plans that, prior to
January 1, 2007, provide participants and beneficiaries diversification
rights at least equal to those conferred under section 204(j), the
Department is persuaded that the furnishing of the 101(m) notice as a
stand-alone disclosure may result both in confusion to participants and
beneficiaries and distribution costs that, in many instances, will be
passed on to the plan’s participants and beneficiaries. In view of the
fact that the periodic pension benefit statement required to be furnished
pursuant to section 105(a)(1)(A)(i) is required, pursuant to section
105(a)(2)(B)(ii)(II), to contain information similar to that required by
section 101(m)(2) concerning the importance of maintaining a diversified
portfolio, and the fact that the pension benefit statement required to be
furnished pursuant to section 105(a)(1)(A)(i) is required to be furnished
within a few months of the furnishing of the 101(m) notice, the Department
will treat a plan administrator’s compliance with the periodic benefit
statement requirements of section 105(a)(1)(A)(i) as satisfying the notice
requirements of section 101(m) if, prior to January 1, 2007, the
individual account plan provided participants and beneficiaries
diversification rights at least equal to those conferred under section
204(j).
8. Department of Labor Web site. Section 105(a)(2)(B)(ii)(III)
requires that the pension benefit statement of an individual account plan
that permits participant direction of investment include a notice
directing participants and beneficiaries to the Internet web site of the
Department of Labor for sources of information on individual investing and
diversification. What Internet address should plan administrators use for
this requirement?
For purposes of section 105(a)(2)(B)(ii)(III), plan
administrators may use the following Internet address for pension benefit
statements: www.dol.gov/ebsa/investing.html.
Questions concerning this matter may be directed to
Jeff Turner or Suzanne Adelman, at 202.693.8523.
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Pub. L. No. 109-280, 120 Stat. 780
(2006).
-
See § 508(c) of the Pension
Protection Act of 2006.
-
See Joint Committee on Taxation, Technical
Explanation of H.R. 4, the “Pension Protection Act of 2006,” as
Passed by the House on July 28, 2006, and as Considered by the Senate
on August 3, 2006 (JCX-38-06), August 3, 2006.
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71 FR 61877 (Oct. 20, 2006).
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I.R.S. Notice 2006-107.
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