Employment & Benefits Law Update

March 2007

Summary Of New Requirements For Participant Statements Provided By Retirement Plans
Effective January 1, 2007, the Pension Protection Act requires 401(k) and other defined contribution retirement plans to provide periodic statements to participants. Statements must be provided at least once each calendar quarter for participants who have the right to direct the investment of their plan accounts and at least once each calendar year for participants who do not direct their own investments. The Department of Labor has issued guidance stating that plan administrators who provide required notices within 45 days after the end of each calendar quarter or calendar year will be deemed to comply.

The required statements must include the following content, based on the latest information available:
  • The total benefits accrued (i.e., the value of the participant's account);
  • The vested amount (or the earliest date benefits will vest if not vested);
  • An explanation of any permitted disparity (integration with Social Security) or floor-offset arrangement that may apply; and
  • The value of each investment held in a participant's account (including employer stock, if any).
For participants with the right to direct investments, the statement must also include:
    1. An explanation of any limitations or restrictions on any right to direct investments (the DOL has stated that this extends only to limitations or restrictions set forth in the plan and not to limitations or restrictions imposed by mutual funds, state or federal securities laws, etc.); and
    2. An explanation of the importance of diversifying investments in a balanced portfolio (the DOL has provided model language for this statement).

The required statements must be written in a manner calculated to be understood by an average participant and may be delivered in written form or by electronic means (provided certain requirements are met).

Employers should check with plan service providers to assure that all plans timely comply with the new rules. Employers may be liable for penalties of up to $110 per day per participant for failure to comply. Please call us if you have questions or would like additional information.

 

Please note that the information contained in this newsletter is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.