One of the more difficult questions that has arisen under the 404a-5 participant disclosure rules is related to those pesky "old" 403(b) contracts. In the multiple vendor ERISA world, where a number of vendors have been in and out of the plan over decades, the question becomes whether-and to what extent-the 404a-5 disclosures have to be made under those contracts into which deposits could no longer be made.  I had heard of a number of practitioners and consultants who had hoped that these disclosures would not have to be made for such contracts.

The DOL’s FAB 2012-2 answered this question in two parts. The first is in Q2, where the DOL exempted from coverage those "old" contracts which are also excluded from 408b-2 and Form 5500 treatment (that is, those contracts issued before Jan 1 2009,and into which no deposits were made after 12/31/2008; the rights under the contracts run solely to the participant without any involvement by the employer; and the amounts in the contract are fully vested).

The second part is in Q15. Here’s what Q15 says:

"Q-15: Must a plan administrator furnish the disclosures required under paragraph (d) for a designated investment alternative that is closed to new investments, but that allows participants and beneficiaries to maintain prior investments in the alternative and to transfer their interests to other plan investment alternatives?

A-15: Yes. A plan administrator must furnish the disclosures required by paragraph (d) of this regulation to participants and beneficiaries for each designated investment alternative on the plan’s investment platform even if the alternative is closed to new money. In the Department’s view, the required disclosures are as important for deciding whether to transfer out of a designated investment alternative as they are for deciding whether to invest in a designated investment alternative. Consequently, participants and beneficiaries are entitled to, and have the same need for, information about a designated investment alternative that is closed to the inflow of new money as a designated investment alternative that is accepting new money. The plan administrator is not required, but may choose, to provide the disclosures required by paragraph (d) about the closed alternative as part of a comparative document furnished only to those participants or beneficiaries that remain invested in that alternative."

This means that, for those "old" 403(b) contracts not excluded under Q2, the 404a-5 disclosures will still need to be made, even though the only act participants can take is to move money from those contracts. This Q15 also makes it clear that the disclosure only needs to be made to those who hold those contracts, if the plan administrator so elects to do so.

What really comes into play here is 408(b)(2). 403(b) plan sponsors have all, by now, been told by vendors which of these "old" contracts are not excluded from the plan for these purposes. This means that, unless the plan sponsor disagrees with the vendor, they now have a list of contracts for which 404a-5 disclosures will need to be made. Often times the employer will not have the contact information for former employees holding these contracts, but these former employees are still considered plan participants. Sponsors will need to work with their old vendors to get the data they need in order to make the participant disclosure, which those old vendors seem to be required to give.

And there really isn’t an easy answer for these sorts of circumstances, given Q21:


"Q-21: Must a plan administrator furnish a single, unified comparative chart or may multiple charts, supplied by the plan’s various service providers or investment issuers, be furnished to participants and beneficiaries?

A-21: Plan administrators may furnish multiple comparative charts or documents that are supplied by the plan’s various service providers or investment issuers, provided all of the comparative charts or documents are furnished to participants and beneficiaries at the same time in a single mailing or transmission and the comparative charts or documents are designed to facilitate a comparison among designated investment alternatives available under the plan. However, as stated in the preamble, permitting individual investment issuers, or others, to separately distribute comparative documents reflecting their particular investment alternatives would not facilitate a comparison of the core investment information and therefore would not satisfy the plan administrator’s obligations under paragraph (d)(2)."


For all the noise which arose under 408(b)(2), these kinds of issues demonstrate that the more difficult challenge for 403(b) plan sponsors swill be 404a-5.




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