New Participant Benefit Statements
All individual
account plans (profit sharing plans, Section 401(k) plans and Section 403(b)
plans of tax-exempt entities) are now required under the Pension Protection Act
of 2006 (“PPA”) to provide participants benefit statements at least
annually, and such plans which permit participant investment direction must do
so on a quarterly basis. For calendar year self-directed plans, this means
that benefit statements must be issued in compliance with the new rules with
respect to the quarter ending March 31, 2007.
Under prior law,
participants were entitled to benefit statements only if they requested them in
writing. The new benefit statements will be required regardless of any
participant request, and must state the participant’s total accrued benefit,
the vested portion of such benefits, an explanation of any “permitted
disparity” affecting benefit allocations, an explanation of any applicable
limitations and restrictions on the right of participants to direct their
investments, an explanation of the importance for retirement planning of
well-balanced and diversified investments, and a notice directing participants
to a Department of Labor web site for sources of investment information.
The Department of
Labor has recently provided the following interim guidance concerning the
requirements that apply to benefit statements issued by sponsors of
self-directed separate account plans:
-
Multiple
documents can be used for now in order to meet the new requirements.
This would allow a plan sponsor to satisfy the new requirements by using
statements provided by a number of service providers, such as financial
institutions, record keepers and third-party administrators.
-
The
required benefit statements are timely if provided not later than 45 days
following the period to which they apply, at least until further guidance is
issued. For statements relating to the first calendar quarter of 2007,
this means that statements for the period ended March 31, 2007 would be due
sometime toward the middle of May, 2007.
-
A
model explanation of the importance of maintaining a well-diversified
investment portfolio is included in the recent Department of Labor release.
That explanation, which must be included in the documents comprising the
benefit statement, reads as follows:
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.
Comment:
All sponsors of plans subject to the above rules and their administrators
should take steps now to assure timely compliance with the PPA and the recent
Department of Labor interim guidance.
Edition Date:
March 1, 2007
Andrew S. Williams
has practiced in the employee benefits and ERISA arena since ERISA was passed
in 1974. He has been recognized by his peers through a survey conducted by
Leading Lawyers Network as among the top 5 percent of employee benefit lawyers
practicing in
Illinois
. He maintains a website at www.benefitslawgroupofchicago.com with
additional updates, commentary and analysis of benefits and employment topics.
The above material is intended for general information and promotional purposes,
and should not be relied on or construed as professional advice.
Andrew
S. Williams
Aronberg Goldgehn Davis & Garmisa
330 North Wabash Avenue, Suite 3000
Chicago
,
Illinois
60611
(312) 755-3145
awilliams@agdglaw.com
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