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
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