A number of friends, and other commentators, had suggested to me that I was perhaps “overstating” the position I had discussed on my last blog regarding the delivery of 404a-5 notices to non-electing participants in an elective deferral plan. It was a very kind way of saying that I was wrong. After looking at the way I wrote the blog, I’d have to agree. I have retracted the posting. This is the first time I have had to do this in nearly five years of postings, but I strongly suspect it will not be the last. As one of my early mentors once exclaimed to me: “Toth, this stuff’s hard!” -though he did NOT use the word “stuff….”
And I do apologize for not getting this “errata” piece out sooner than this.
In that blog, I stated that “the mere eligibility to make a deferral into an individual account plan doesn’t trigger the right to the 404a-5 disclosures.” That is the error. The “mere eligibility” does trigger the right to the 404(a)-5 disclosure, without question. The real question I was badly attempting to get at is “when.” Or, more precisely, a question that a number of professionals are asking: did the August 30 deadline for initial disclosure apply to those participants in an elective deferral plan who had not elected to participate?
This is a real question. We know that someone need not be given the notice immediately upon becoming eligible for the plan (though, as a practical matter, I would recommend giving participants that disclosure when required to be given the SPD). The regs in § 2550.404a–5(c)(2)(i)(A) state that the administrative expenses must be given to participants “on or before the date on which a participant or beneficiary can first direct his or her investments and at least annually thereafter.” (c)3(i)(A) states the same for the individual expenses; while (d)(1) contains the exact same language for investment related information.
So, we know there is time, beyond the date first being hired (or otherwise first becoming eligible) to provide the relevant information to any eligible employee, which is to be no later than the date that that person enrolls in the plan. (A related question is how far can you push this out before you actually undermine the rule that all participants are required to be given a notice? It appears that it DOL suggests that this be no later than the annual notice you would otherwise provide to all participants, as the preamble, again, gives a clue, when the DOL states that “The Department believes that, with regard to employees that have not enrolled in their plan, the annual notice will serve as an important reminder of their eligibility to participate in the plan.”).
But what about that initial August 30 notice requirement? The reg at 2550.404-a5(j)(3) states that “the initial disclosures required on or before the date on which a participant or beneficiary can first direct his or her investment must be furnished no later than 60 days after such applicability date to participants or beneficiaries who had the right to direct the investment of assets held in, or contributed to, their individual account on the applicability date.”
Does this suggest that the term “participants and beneficiaries” may be conditioned on whether there is an account under which assets could be directed? Indeed, the Department has made it clear that beneficiaries do not have the right to such a notice unless they can exercise investment control over an account.
This position would be consistent with the well established concept that a claim for a fiduciary breach requires the showing of actual harm (see, for example, CIGNA v. Amara, 131 S.Ct. 1866, 1878-80 (2011). In a regulation which is geared to fee and expense activity (as opposed to general, non-monetary ERISA rights), if there is no account against which to assess fees and expenses, can non-disclosure be a fiduciary breach? If the breach is the lack of knowledge that the deferrals can be made, isn't this is well covered-at least in the 403(b) space-where the responsibility (which is actually under the Tax Code, not Title 1) to notify participants of the availability to make elective deferrals is covered by the annual notification of universal eligibility; and by the rule of current availability for 401(k) plans?
A conversation worth having.....
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