ERISA TIPS: Sufficient Information for Purposes of Section 404(c)

To comply with ERISA Section 404(c), a plan needs to meet some general requirements; one is that plan participants must be allowed to receive information sufficient for them to make informed decisions.

So says Wells Fargo in “Section 404(c) Compliance: Added Protection Makes it Worth the Effort.”

ERISA Section 404(c) says that plan participant must:

• be given reasonable instructions regarding their elections;
• have an opportunity to obtain written confirmation that their instructions were carried out; and
• receive information sufficient for them to make informed decisions.

But what constitutes “sufficient information”? Wells Fargo notes that ERISA Section 404 (c) says that giving participants information sufficient for them to make informed decisions includes fulfilling these requirements:

• Provide participants with a statement that explains that the plan is intended to be an ERISA Section 404(c) plan and that the fiduciaries may be relieved of liability for investment actions that are participant-directed.
• Describe the investment alternatives available under the plan and the characteristics of each for designated options.
• Identify designated investment managers.
• Provide participants with an explanation of the circumstances under which participants may give investment instructions — including limitations and restrictions on transfers and voting rights — and information concerning penalties or adjustments related to funding transfers.
• Describe transaction fees and expenses.
• Provide participants with the name, address and phone number of the plan fiduciary responsible for providing information to them when they ask for it.
• Provide information to plan participants about investments in employer securities, including a description of the procedure to provide for confidentiality, and the name of the fiduciary that monitors compliance with those procedures.
• Provide plan participants with the most recent prospectus provided to the plan, if the investment is subject to the Securities Act of 1933.
• Describe voting, tender or similar rights of an investment to the extent those rights are passed through to participants.

And in addition to the information that must be provided to plan participants, this information must be made available to participants if they ask for it:

• For each designated investment option, a description of the annual operating expenses which reduce the rate of return to participants and beneficiaries expressed as a percentage of the investment’s average net assets.
• Copies of any prospectuses, financial statement, and reports, as well as other materials relating to available investment options, to the extent such information is provided to the plan.
• For designated investment options that constitute plan assets, a list of the assets comprising the portfolio of each investment and the value of each asset or its proportion. For fixed-rate investment contracts that banks, savings and loan associations or insurance companies issue, the contract’s issuer, term and rate of return must also be furnished.
• Information about the value of shares or units of each investment option, as well as the past and current investment performance of each option.
• Information concerning the value of shares or units in the investment options held in the participant or beneficiary’s account.

Editor’s Note: ERISA Tips is a feature provided with you in mind — to make the newsletter more useful to you! If you have any content for ERISA Tips or the 403(b) Advisor that you would like to contribute or suggest, please contact John Iekel, editor of the 403(b) Advisor, at [email protected].