DOL Issues Good Faith Compliance Guidelines for Individual Benefit Statements

On December 20, 2006, the Department of Labor ("DOL") issued Field Assistance Bulletin 2006-03 , which sets out its views of what constitutes good faith compliance with the new benefit statement requirements under ERISA Section 105, as amended by the Pension Protection Act of 2006 ("PPA").  Although these new benefit statement requirements are not directly applicable to governmental plans, sponsors and administrators of governmental plans may find this guidance interesting and useful when deciding on appropriate ways to communicate the value of plan benefits to participants.  Compliance with these rules is not required for governmental plans.

Under the PPA, a private sector plan administrator is now obligated, for plan years beginning after December 31, 2006, to furnish pension benefit statements.  Those statements must be furnished:

         ==>  at least once each calendar quarter for a defined contribution plan that permits participants to direct their investments;

         ==>  at least once each calendar year for a defined contribution plan that does not permit participants to direct their investments; and

         ==>  at least once every three years for a defined benefit plan.

The PPA also expands the amount of information required to be contained in private sector pension benefit statements. For example, a benefit statement for any plan must now provide information about the participant's total accrued and vested benefits, and must also include an explanation of any permitted disparity under Section 401(l) of the Internal Revenue Code or any floor-offset arrangement that may be applied in determining a participant's accrued benefits.  For defined contribution plans, the benefit statement must include a statement about the value of each investment in the participant's account, and include an explanation of the importance of a well-balanced and diversified investment portfolio.

Until the DOL issues regulations or further guidance, the Field Assistance Bulletin offers guidance on the following specific issues that may be interesting to governmental plan administrators:

Form of Furnishing Statements .  The DOL recognizes that, for plans that permit participant-directed investments, the information required to be included in benefit statements will often involve multiple sources of information and that combining all that information into one document may be difficult or cost-prohibitive.  Therefore, good faith compliance will not preclude a plan administrator from using multiple documents or sources for benefit statement information, provided that participants have been furnished with an advance notice that explains how and when the multiple information statements are being made available.

Manner of Furnishing Statements .  The PPA permits benefit statements to be provided in written, electronic, or other appropriate form that is reasonably accessible to participants .  The DOL will view use of electronic media that satisfies either the DOL safe harbor for electronic delivery (found at 29 C.F.R. § 2520.104b-1(c)) or the new IRS regulation for electronic delivery (found at 26 C.F.R. § 1.401(a)-21) as good faith compliance.  In addition, if a plan provides participants with continuous access to benefit statement information through one or more secure websites, the DOL will view that as good faith compliance, so long as participants have been furnished with an advance notice that explains the availability of the information, how it can be accessed, and the right to obtain a paper version at no charge.

Dates for Furnishing Statements.  The DOL will view a pension benefit statement as being timely provided if the plan administrator provides the notice not later than 45 days following the end of the relevant period (calendar quarter or calendar year).

Right to Direct Investments.  The DOL clarifies that, for purposes of determining whether a plan is subject to quarterly or annual benefit statements, a participant loan feature, standing alone, does not constitute the right to direct investments.

Limitations or Restrictions on Right to Direct Investments.  The DOL clarifies that benefit statements must include an explanation of any limitations or restrictions on a participant's right to direct investments that are imposed under the plan itself, but need not include limitations or restrictions imposed by investment funds, other investment vehicles, or by state or federal securities laws.

Investment Principles.  The DOL provides model language for use in satisfying the requirement that a benefit statement explain the importance of a well-balanced and diversified investment portfolio.

For additional information regarding the Field Assistance Bulletin, please contact Mary Beth Braitman, Terry Mumford, or Cynthia Purvis.  For assistance in creating communications materials, please contact Julie Williams.