DOL Releases Guidance on Pension Benefit Statement Requirements Under the PPA

In Field Assistance Bulletin (FAB) 2006-3, the U.S. Department of Labor provides guidance on the new requirements for benefit statements for both defined benefit and defined contribution plans, which were enacted by the Pension Protection Act of 2006 (PPA). The PPA increases both the frequency of such statements and the amount of information they must contain. Under the act, the DOL must develop one or more model pension benefit statements by August 18, 2007, and the FAB provides interim guidance pending the release of the model statement and other guidance.

Statement Due Dates
Sponsors of defined contribution plans must provide benefit statements at least quarterly to participants who direct their own investments, and annually to other participants. Sponsors of defined benefit plans must provide a benefit statement at least once every three years.

The new benefit statement requirements are effective for plan years after 2006. Benefit statements for defined contribution plans with participant-directed investments are due for the quarter ending March 31, 2007. Statements for defined contribution plans without participant-directed investments are due for the calendar year ending December 31, 2007.

Statements for defined benefit plans must be provided, complying with the new rules, for the 2009 plan year. The DOL indicates that furnishing a benefit statement within 45 days after the period ends will constitute good-faith compliance for now.

Providing Statements Electronically
The FAB clarifies several other outstanding issues. Plan administrators may furnish benefit statements electronically, as long as the plan complies with either the DOL’s electronic media guidance or the IRS guidance on providing employee benefit notices via electronic media (see Watson Wyatt Insider, December 2006). The DOL considers making pension benefit statement information available through ongoing access to a secure web site as good-faith compliance, provided that participants and beneficiaries receive a notice explaining availability and access. The notice must also apprise participants and beneficiaries of their right to obtain a free paper version of the pension benefit statement.

Contents of Benefit Statements
For defined contribution plan statements, the DOL recognizes that input may be required from multiple service providers, and compiling all the information into a single document may be impractical. The FAB clarifies that sponsors may use multiple documents or sources to satisfy the new notice and content requirements, as long as the statement explains how and when the specific information will be furnished or made available.

The PPA’s requirement that benefit statements include “an explanation of any limitations or restrictions on any right of the participant or beneficiary under the plan to direct an investment” applies only to limitations and restrictions imposed “under the plan.” So statements need not include limitations and restrictions imposed by investment funds, other investment vehicles, or state or federal securities laws.

Additionally, the DOL provides model language for inclusion in benefit statements. The model language explains the importance of a well-balanced and diversified investment portfolio, and the risk of holding more than 20 percent of a portfolio in the security of one entity.

The DOL also indicates that plans that already met the PPA’s employer securities diversification rules before January 1, 2007, need not provide the otherwise required separate diversification notice to participants (see Watson Wyatt Insider, January 2007). Those plans can satisfy that notice requirement by complying with the benefit statement rules, including explaining the importance of a diversified portfolio. The DOL noted that in these circumstances, a separate diversification notice could confuse participants and increase plan costs unnecessarily.

Finally, the DOL provides an Internet address with information about individual investing and diversification for plan participants and beneficiaries, which should appear on benefit statements.

February 2007