Statement Guidance Recap at This Time
Rev. 11/16/07, E-mail Alert 2007-15

Other than awaiting for final guidance and model benefit statements, where do we stand at this point?

PPA Benefit Statements: A Recap of Where We Are Today. Before PPA, employers were only obligated to give an active participant an account or accrued benefit statement once a year, and then only if the participant made a written request for it. The only other statement requirement applied to a terminated participant with an account balance or accrued benefit under the plan or one who had a “break-in-service” during the year. Under PPA, a defined contribution plan, such as a 401(k), profit sharing or money purchase plan, must provide a quarterly statement to participants who may select their own investments. Otherwise, an annual statement is required to be provided to those participants for whom the fiduciary directs investments. For defined benefit plans, active participants having a nonforfeitable accrued benefit must receive a benefit statement at least once every three years or annually, upon written request. Generally, these requirements go into effect for plan years beginning after 2006. The DOL was been instructed to issue model benefit statements within 12 months after August 17, 2006.

FAB 2006-3, December 20, 2006

DOL Benefit Statement Guidance
The Pension Protection Act (PPA) requires individual account plans that permit participant direction of investments to issue account statements at least quarterly. If participants do not direct investments, an annual statement is required instead. The PPA also increases the amount of information that must be provided in pension benefit statements. The DOL's just released guidance, FAB 2006-3, provides a method of good faith compliance pending issuance of final regulations.

Good Faith Compliance
Until further guidance is issued, the use of multiple documents or sources to supply benefit statement information is permitted. However, participants and beneficiaries must be provided with an easily understandable explanation of how and when all the information will be provided in advance of the first PPA statement.

Pension benefit statements may be provided electronically if “measures reasonably calculated to ensure actual receipt” are used. This means that the IRS electronic notice rules must be followed. Alternatively, statements may be provided continuously via a web site. The participants also must be informed that a paper copy of their statement will be provided at no charge upon request.

Quarterly statements must be provided within 45 days after the end of each quarter, starting with March 31, 2007. The first annual statement for employer investment directed plans must be provided by calendar year plans not later than 45 days after December 31, 2007. The deadline is not later than 45 days after the end of the plan year for an off-calendar year plan.

Benefit statements of participant directed plans must include “an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment.” The DOL interprets this to mean limitations and restrictions on participants' or beneficiaries' rights imposed "under the plan," but not limitations and restrictions imposed by investment funds, other investment vehicles, or by state or federal securities laws.

Investment Principles Disclosure
Benefit statements of participant directed plans also must include “an explanation . . . of the importance, for the long-term retirement security of participants and beneficiaries, of a well-balanced and diversified investment portfolio, including a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) may not be adequately diversified[.]”

The DOL has provided model language for this disclosure and that includes a link to the new DOL web site on investment principles: http://www.dol.gov/ebsa/investing.html.

DB Statements
Under PPA, defined benefit plans are generally required to furnish participants with a pension benefit statement at least once every three years. The first pension benefit statement complying with the new requirements would be due for the 2009 plan year, provided that the plan does not elect to comply with the alternative notice requirement. The alternative notice requirement provides that the statement requirements are met if, at least once, each year, the administrator provides the participant with a notice of the availability of the pension benefit statement, and the ways in which the participant may obtain such statement. The first such notice must be furnished not later than December 31, 2007.

Divestiture and Diversification Notice
If an individual account plan with company stock provided participants and beneficiaries divestiture and diversification rights at least equal to the new PPA requirements prior to January 1, 2007, the divestiture/diversification notice requirement may now be satisfied when the first quarterly statement is provided. Because these plans already permitted PPA-like divestiture/diversification, the DOL took the position that a stand-alone disclosure may only cause confusion for participants and result in additional costs that may be passed on to the plan’s participants and beneficiaries.

MHC Comment: The new guidance appears to be problematic for annually valued plans maintained with “balance forward” record keeping, since it is likely that they have not previously been valued within 45 days after the close of the plan year. Issues have also arisen for plans where the majority of participants are in a “pooled fund” professionally managed arrangement, but one or more participants have elected to self-direct their accounts. In this case, it would appear that all participants must receive quarterly statements, since the guidance does not provide for splitting out those who have stayed in the managed pool. Stay tuned, the fun will be in the details!

FAB 2007-3, October 12, 2007

The various statement providers have been working hard to comply as best as possible with the good-faith compliance rules of FAB 2006-3 while awaiting the release of the final statement guidance and the DOL’s model benefit statements. In the meantime, plans with only employer directed investments, many of which are balance forward plans, were provided with needed relief.

In FAB 2007-3, the DOL provided that individual account plans that do not permit participant direction of investments may furnish the annual statements to participants by the deadline for providing the Form 5500, including extensions. Thus, instead of 45 days after the close of the calendar year, the new deadline is potentially the 15th day of the 10th month after the close of the plan year. It is important to note that when the guidance was first issued, we commented on what we thought was an error of tying the statements to the calendar year even for off-calendar year plans. The DOL apparently heard us, because the FAB reflects the plan year as we suggested it should. We will continue to keep you posted as additional guidance is issued.

We await the DOL Model Statements and final benefit statement guidance.

Good-Faith Statement Conceptualized

Name of plan, Name of participant
Date of statement information

Value of Your Accrued Benefits as of the Date of this Statement
Employee contributions on that date was: $__________.
Employer contributions on that date was: $__________.

Your account was invested on that date in the following manner:

• Investment description,
  
• Amount of your account balance attributable to your contributions,
  
• Amount of your account balance attributable to employer contributions.

Vested value of benefits must be provided at least once each year.

The plan may provide its vesting schedule and the number of years of vesting service or the plan may provide each participant the vested balance.

E.g. As of the date of this statement, you are ____% vested in your Employer Contributions. [(Note: Use the following if not 100% vested) Assuming that you continue as an employee of this company, it is anticipated that you will become 100% vested in Employer contributions as of [enter date here].]

Optional Plan Provisions (As applicable):

Permitted Disparity
If the employer contribution integrates Social Security benefits with its benefit formula an explanation of that should be provided.

Floor Offset
If the employer maintains both a DC and DB plan, if DB benefits are offset by benefits accruals provided under the DC, a disclosure explaining floor offset arrangements must be provided. Note: Floor offset arrangements are not allowed under prototype plans.

Plan Investment Restrictions
If there are any restrictions or limitations on the ability of the participant to direct the investment in or divest of any class of investments offered under the plan including Employer securities, the limitations are to be explained by a summary of the applicable restrictions by specific investment options made available to participants and beneficiaries with investment rights under the Plan.

EBSA Importance of Diversification Disclosure and EBSA Web page (ALL PLANS):

The Importance of Diversifying Your Retirement Savings. To help achieve long-term retirement security, you should give careful consideration to the benefits of a well-balanced and diversified investment portfolio. Allocating 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.

For More Information (ALL PLANS). If you have any questions about your rights under this Plan, including your rights to direct investments, you may either refer to the Summary Plan Description or you may contact your Plan Administrator, [enter name and contact information]. If you want to obtain more information about personal investing and diversification, you may obtain this information from the U.S. Department of Labor, Employee Benefits Security Administration web site at http://www.dol.gov/ebsa/investing.html.