Plan Sponsor Obligations for ERISA Disclosure 101
By Alex Baker, Manager, CPA
ERISA Disclosure 101
A Synopsis of Plan Sponsor Obligations
Qualified retirement plan sponsors are subject to many disclosure requirements. Let’s take a look at a “top ten” (non all-inclusive) list of key required, defined contribution plan disclosure documents from the Department of Labor (DOL), intended to reinforce a general understanding of those requirements. A note of caution: This list doesn’t include IRS disclosure requirements. Also, while disclosures are generally directed to plan participants, a plan beneficiary, in the case of a participant’s death, would typically be covered by the disclosure rules.
The top 10
- Summary plan description (SPD). The SPD must be provided to new participants within 90 days of the start of their coverage. It’s the most basic and comprehensive document describing the plan and its operations. The SPD must be written in language that can be understood by the average participant, and be current as of no more than 120 days from the date the plan is established. In the occurrence of any changes to the plan, an updated SPD must be furnished to all covered participants, every five years. In the absence of any changes, an update is only required every ten years.
- Summary of material modification (SMM). Plans must provide an SMM to participants no later than 210 days beyond the end of the plan year in which the content was “materially” changed. In effect, this is an update to the SPD.
- Summary annual report (SAR). Participants must receive the SAR within nine months of the end of the plan year, or, if an extension to file the IRS Form 5500 is made, two months following the extended deadline. This report is a narrative description of the information on the Form 5500.
- Plan documents. Plan sponsors have to furnish the plan’s highly detailed governing legal documents on receipt of a request from a participant. You have 30 days from receipt of the request to do so. These include your trust agreement, Form 5500 and the documents listed above.
- Notification of benefits determination. This document explains the basis of an adverse determination decision. Generally, the notification must be provided within 30 days of that decision. It must reference specific plan document provisions that the decision was based on, and explain appeals procedures.
- Periodic benefit statement. A periodic benefit statement must be provided quarterly, at a minimum, for participant-directed individual account plans and annually for all other individual account plans. Among other things, the statement must cover the participants’ account balances, their ability to change their investment selections, and a statement that holding more than 20% of a portfolio “in the security of an entity (such as employer securities) may not be adequately diversified.”
- Participant plan investment options, investment fees and other expenses. Plans must furnish this disclosure to participants annually, at a minimum. It must describe general administrative and investment costs, as well as individual charges to participants for particular services such as plan loans. For each investment option, it must also include a chart showing fees and expenses, investment performance, and relevant investment benchmark data.
- Section 404(c) plan investment options. Information regarding plan investment options must be provided both before a participant provides investment instructions and on request. This notice gives sponsors the legal protections from possible participant litigation involving the adequacy of investment options offered by the plan.
- Qualified default investment alternative (QDIA) notice. Participants must receive an initial QDIA notice within at least 30 days of plan eligibility or within 30 days of a participant’s submission of any QDIA investment. It must describe the circumstances under which participant contributions will be directed to a QDIA, the investment objectives of the QDIA, and what participants need to do if they don’t want their contributions invested in that vehicle.
- Automatic funding notice. Similar to the QDIA notice; participants must be informed if the plan will be defaulting participants into a deferral pattern.
Just the beginning
Although not all-inclusive, this list should provide ample context to prepare you for a more comprehensive education with your plan administrator regarding ERISA’s disclosure requirements for defined contribution plans. Much of the information in this article also applies to defined benefit pension plans, but those plans have many additional disclosure requirements. Failing to provide required disclosures may result in fines and penalties.
VonLehman professionals work closely with clients, providing the education and consultation required to ensure full ERISA compliance. Contact us today at 800.887.0437 to speak with one of our Employee Benefit Plan specialists.