Section 105 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") contains rules regarding the provision of pension benefit statements to participants and beneficiaries. Section 508(a) of the Pension Protection Act of 2006 (the "Act") amended Section 105 of ERISA to include a number of new benefit statement requirements, including, among other things, the requirement that benefit statements be provided quarterly to participants and beneficiaries in participant directed accounts. Pending the adoption of regulations, on December 20, 2006, the Department of Labor issued Field Assistance Bulletin No. 2006-03, which provides the views of the DOL as to what would constitute good faith compliance with certain of these new requirements.
DOL Field Assistance Bulletin No. 2006-03
Section 508(a) of the Act amended Section 105 of ERISA to require plan administrators to provide pension benefit statements at least once each quarter in the case of individual account plans that permit employees to direct their investments; once each year in the case of individual account plans that do not permit employees to direct their investments; and at least once every three years in the case of defined benefit plans. Section 508(a) of the Act also increases the amount of information required to be included in these pension benefit statements. The amendments to Section 105 of ERISA are generally applicable for plan years beginning after December 31, 2006. Section 508(b) of the Act requires the DOL to develop one or more model pension benefit statements by August 18, 2007.
Good Faith Compliance
Until the DOL issues regulations or guidance concerning compliance with the provisions of Section 105 of ERISA, as amended by Section 508 of the Act, the DOL will treat a plan administrator as satisfying the requirements of Section 105 of ERISA if the plan administrator has acted in good faith with a reasonable interpretation of the requirements. Field Assistance Bulletin No. 2006-03 ("2006-03") provides the DOL's views as to what constitutes good faith compliance with certain requirements of Section 105 of ERISA.
Form of Statements
Since plans often use multiple service providers, it is the DOL's view that good faith compliance with the pension benefit statement requirements does not preclude a plan administrator from using multiple documents or sources for benefit statement information, provided that participants and beneficiaries are given notification that explains how and when the information required by Section 105 of ERISA will be furnished or made available. Any such notification should be written in a manner that is calculated to be understood by the average plan participant.
Manner of Delivery of Statements and Timing of Delivery
The requirement to provide pension benefit statements may be satisfied by providing participants and beneficiaries continuous access to their pension benefit statement information through one or more secure websites, provided that the participants and beneficiaries are furnished with notice that explains the availability of the required pension benefit statement information and how it may be accessed. Any such notification must also appraise participants and beneficiaries of their right to request a paper version of their pension benefit statement, free of charge. Furthermore, the DOL will consider any pension benefit statement delivered to participants and beneficiaries in accordance with certain DOL and IRS regulations (regarding the use of electronic media to provide certain notices and documents to participants) as constituting good faith compliance.1 The DOL also noted, however, that electronic delivery of pension benefit notices is not the exclusive means by which plan administrators could, in the absence of guidance to the contrary, satisfy their obligation to furnish such pension benefit statement information. Plan sponsors who already provide notices or statements to participants electronically will likely be familiar with these procedures.
For participant directed calendar year plans, initial pension benefit statements were required by the new law to be furnished or made available to participants and beneficiaries by March 31, 2007 (for a fiscal year plan that begins its plan year on July 1, 2007, the first statement was required to be furnished for the quarter ending on September 30, 2007). For other individual account plans, the statements were required by the new law to be provided no later than December 31, 2007, regardless of whether the plan operates on a calendar or fiscal year basis. Pending the issuance of further guidance, the DOL has provided plans with relief and will deem the furnishing of pension benefit statement information not later than 45 days following the end of such period (i.e., the applicable calendar quarter or calendar year) to be good faith compliance with the requirements of Section 105 of ERISA.
Defined benefit plans generally are required to provide pension benefit statements at least every three years (with the first due in 2009) unless the plan elects to provide an alternative form of notice. The DOL will treat a plan that provides an alternative form of notice as satisfying the pension benefit statement requirements of Section 105 of ERISA if the plan administrator provides participants and beneficiaries notice of the availability of the pension benefit statement and the ways in which such participants and beneficiaries may obtain such statement. If the defined benefit plan sponsor elects to utilize the alternative form, notification must be furnished to participants and beneficiaries by December 31, 2007.
Pension Benefit Statements - Content
For purposes of Section 105 of ERISA, an individual account plan that does not otherwise permit participant direction of their accounts, but does permit participants to elect to take loans, is not a plan that provides participants the right to direct the investment of assets in their accounts.
Limitations or Restrictions on the Right to Direct Investments
Benefit statements, for participant directed plans, must include an explanation of the limitations and restrictions on participants' or beneficiaries' rights to direct investments imposed by the plan, but need not include limitations and restrictions imposed by investment funds, other investment vehicles, or by state or federal securities laws.
Model language is provided by the DOL in 2006-03 to be used in statements in order to comply with Section 105's requirement that each statement must include a discussion of the importance of diversification, including a statement that holding more than 20 percent of a portfolio in the security of any entity (such as employer securities) may not be adequately diversified.
Notification of Diversification Rights
The DOL will treat a plan administrator's compliance with the periodic benefit statement requirements as satisfying the notice requirements of Section 101(m) of ERISA if, prior to January 1, 2007, the plan provided participants and beneficiaries diversification rights at least equal to those required under Section 204(j) of ERISA (and 401(a)(35) of the Internal Revenue Code of 1986, as amended (the "Code")).2 In this case, plan sponsors will generally not be required to provide the notice required by Section 101(m) of ERISA prior to 45 days after March 31, 2007. This is a significant extension for certain plans that previously had a January 1, 2007 deadline for providing diversification notices to plan participants and beneficiaries.
For plans providing new diversification rights to participants and beneficiaries as of January 1, 2007, in accordance with Notice 2006-107, the DOL indicates that information should be given to participants and beneficiaries as soon as possible following January 1, 2007.
Benefit statements for participant directed plans must include a notice directing participants and beneficiaries to the DOL's website for sources of information on individual investing and diversification. The website that should be used is: www.dol.gov/ebsa/investing.html.
2006-03 provides clarification with respect to the Act's newly enacted periodic pension benefit statement requirements. In this regard, plan sponsors should take the opportunity to review their administrative practices of providing pension benefit statements to plan participants and beneficiaries to ensure that such statements comply with the new requirements. Of course, White & Case would be pleased to assist you in this regard.