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ERISA Disclosure Requirements

 

One of the major goals of the Employee Retirement Income Security Act (ERISA) was to make sure employers provide participants with plan language explanations of the provisions in their qualified retirement plans.

 

The preapproved defined contribution EGTRRA plan document restatement process for master, prototype, and volume submitter plans that begins in 2008 (and will run until April 30, 2010) requires that employee disclosures be updated.  This article is a review of the basic ERISA disclosure requirements.

 

Summary Plan Description.  The Summary Plan Description (SPD) is a plain language of the retirement plan provisions that must be disclosed to participants according to ERISA.  The specifics of the disclosures are elucidated in the Department of Labor (DOL) regulations.  The SPD must be written so it can be understood by the average plan participant (generally at no more than an eighth grade reading level).  An SPD must generally be furnished no later than 90 days after an employee becomes a participant in the plan, or, for a beneficiary receiving benefits under the plan, within 90 days after the beneficiary first receives benefits.

 

Every five years, participants must be provided with an updated SPD that incorporates new plan amendments made during the five-year period, even if a Summary of Material Modifications (SMM) was provided.  The updated SPD must be distributed no later than 210 days after the end of the fifth year after the previous SPD was issued.  If there have been no plan amendments, then the SPD must be updated and redistributed every 10 years.  Note that there has never been a 10-year period without amendments.  And it is not likely to occur in the future due to ongoing required interim requirements.

 

Once a plan is restated onto the new EGTRRA plan document, an SPD must be provided by the 210^th day after the close of the plan year during which the plan was restated.  For example, the new SPD for an EGTRRA restatement of a prototype plan in 2008 is not required until 210 days after the close of the 2008 plan year.  Employers will most likely want to provide an updated SPD sooner.

 

Potential Foreign Language Requirement.  If a plan has participants who are literate only in a particular foreign language, the plan administrator may be required to provide a notice written in that language, along with the SPD, stating that assistance in understanding the SPD is available.  (The employer need not provide an SPD written in that language).  The notice must include plan administrator’s phone number and information about where and when the assistance will be made available.

 

The foreign language requirement applies in the following instances.  For plans with fewer than 100 participants as of the beginning of the plan year, the requirement applies if 25% or more of participants are literate only in a particular foreign language.  For plans with 100 or more participants as of the beginning of the plan year, the requirement applies if the lesser of 500 participants or 10% of the total number of participants are literate only in a particular language.

 

Summary of Material Modifications.  If an amendment is not a major modification that creates a new SPD, then participants must receive a Summary of Material Modifications.  An SMM reports a change in any of the information that is provided in the SPD and is generally due within 210 days after the close of the plan year in which the change became effective.

 

If a new participant is to receive an SPD that has been modified by an SMM, the SMM also must be provided.  Once the information in an SMM is incorporated into an updated SPD, the SMM is no longer required.

 

Two changes have occurred after the start of the EGTRRA document process, and each will require an SMM:  the final 415 regulation plan amendment and the Pension Protection Act of 2006 plan amendment slated for 2009.

 

Summary Annual Report.  The Summary Annual Report (SAR) is a summary of financial transactions, number of participants, and other plan-related information.  An SAR is to be provided within 60 days after the filing deadline of a plan’s Form 5500.

 

Effective with the 2008 plan year, defined benefit plans are exempt from the SAR requirement, but are now subject to an annual funding notice disclosure requirement.  (Both changes are mandated by the Pension Protection Act of 2006).

 

Participant Requests for Plan Documents.  ERISA requires employers to make documents available for participant review, including the plan document, the SPD, the participant’s beneficiary designation, Form 5500 and schedules, etc.  Information about other participants may not be provided.  When a participant of the beneficiary of a deceased participant submits a written request for copies of plan documents, the copies must be provided within 30 days.  A reasonable fee may be charged to cover the cost of copying and providing the documents.

 

Note:  There have been a number  of court cases involving participant requests for plan document that were not met within a reasonable time (such as within 30 days).  Employers in these cases have been subject to a per-day late fee for violating ERISA.  Such fees can quickly multiply into substantial penalties.

 

DOL Rules for Electronic Disclosures.  The DOL permits employers to use electronic media to provide qualified plan disclosure materials, including SPDs, SMMs, SARs, and all other notices required under Title I of ERISA.  In addition, the IRS has disseminated electronic delivery rules for certain notices, consents, and elections.  To use electronic media to distribute plan-related materials, DOL regulations state that the plan administrator must:

 

Ensure that participants actually receive the transmitted information by using a return-receipt electronic mail feature or by conducting periodic surveys designed to confirm the integrity of the electronic mail delivery system;

Prepare the electronic disclosures in a manner that is consistent with the style, format, and content of the written documents;

Notify each plan participant (including retirees, terminated employees with vested benefits, and beneficiaries) electronically or in writing which documents are provided electronically, and;

Inform participants and beneficiaries that they have the right to receive paper copies of each document free of charge.

 

In general, ERISA requires that those parties who are required to provide reports or disclosures must retain records of such reports.