Participant Benefit Statements May Be Changing

By Craig Hoffman • November 18, 2014 • 0 Comments
Just when plan administrators were beginning to feel comfortable with their procedures for participant benefit statements, changes are in the offing. The Department of Labor’s most recent guidance plan includes a listing for a proposed regulation due out in January 2015. This proposal is expected to significantly impact the way plan sponsors draft and distribute these important participant notices.

Participant benefit statements were mandated by Congress as part of the Pension Protection Act of 2006 (PPA ’06). This new requirement generally became effective for the 2007 plan year. (Sponsors of collectively bargained plans potentially had a later effective date based upon the expiration date of their existing collective bargaining agreements.)

Under the new law, plans subject to ERISA have been required to provide statements to participants on a periodic basis:

  • Defined benefit plans generally have to provide a statement once every three years (provided the statement is also available upon written request).
  • Defined contribution plans must provide statements on a quarterly basis to participants who have the right to direct the investment of their account and annually to those that don’t.
PPA ’06 was enacted more than eight years ago. Since then, the only DOL guidance interpreting the new law’s mandate for benefit statements has come in the form of two Field Assistance Bulletins (FABs). A field assistance bulletin is what is referred to as “sub-regulatory” guidance. It is a more informal way for the DOL to advise plan sponsors on the how to comply with federal law. In the case of participant benefit statements, FAB 06-03 and FAB 07-03 have provided a number of special rules that may be relied on and followed as a “good faith” approach to compliance.

Under federal administrative law, however, there is a preference for actual regulations rather than sub-regulatory guidance. This is because the regulatory process requires consideration of comments from the public as well as the regulation’s potential economic impact.

It had always been expected that at some point the DOL would supplant the benefit statement guidance in the two FABs with actual regulations. The concern is that the new proposal slated for release in 2015 is likely to start from scratch rather than incorporate the rules that have been developed under the FABs. This could lead to a need for plan sponsors and their service providers to make significant changes in their existing processes.
For example, the good faith approach permitted by FAB 06-03 allows the plan administrator to distribute the statements electronically using either the IRS or DOL electronic distribution rules. In addition, there is a special rule that allows dissemination to participants using a website approach if certain requirements are met with respect to website accessibility, notice to participants and the ability to elect paper distribution.

There have been rumors that the proposed regulation would retreat from these special rules and only allow electronic distribution of benefit statements in accordance with the existing DOL guidance. This would mean that most participants would be required to consent in advance to electronic distribution of ERISA notices. This is because the DOL electronic disclosure rules require consent beforehand unless accessing the electronic communication system (e.g. email) is an integral part of the participant’s job duties and, in addition, the participant must be able to access the document electronically at any work location the participant is reasonably expected to perform his or her job duties.

In addition to rewriting the existing rules, the proposed regulation is also expected to incorporate some new provisions. On May 8, 2013, the DOL issued an “Advanced Notice of Proposed Rulemaking” with regard to a regulation that would require inclusion of a calculation that would convert the participant’s existing account balance into an estimated annuity payment beginning at normal retirement age. Comments were requested and many were received, including ASPPA GAC’s comment letter. It is expected that the new benefit statement proposal will incorporate this idea as well.

Needless to say, ASPPA GAC will be watching with great interest when the DOL proposed regulation is released. A comment letter will almost certainly be filed reflecting the views of ASPPA’s members on this important regulatory project.

Craig P. Hoffman, APM, is ASPPA’s General Counsel and Director of Regulatory Affairs.