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Participant-Directed Plan Investment Disclosures Will Satisfy Rule 482 Under the Securities Act
Practical Law Legal Update 0-510-2569 (Approx. 4 pages)
Participant-Directed Plan Investment Disclosures Will Satisfy Rule 482 Under the Securities Act
by PLC Employee Benefits & Executive Compensation
| Published on 01 Nov 2011 • USA (National/Federal) |
On October 27, 2011, the Department of Labor (DOL) released a no-action letter from the SEC. The letter provides that the disclosure of investment-related information to participants and beneficiaries in participant-directed defined contribution plans, as required by the DOL's participant-level fee disclosure regulation, will satisfy the requirements of Rule 482 under the Securities Act of 1933.
Background
On October 20, 2010, the DOL published a participant-level fee disclosure regulation (the DOL regulation ) (29 CFR 2550.404a-5).This regulation requires plan administrators of participant-directed defined contribution plans, including 401(k) plans, to disclose plan and investment information to plan participants and beneficiaries:
- On or before the date on which a participant can first direct his investments.
- At least annually thereafter.
Plans must also make this and other information updated on a quarterly basis and available on an Internet web address.
Under the DOL regulation, the annual disclosure must include:
- Performance, benchmarking and fee information for each investment option under the plan.
- For investment options with varying returns, the average annual total return of each investment for specific time periods.
- Historical return information for money market funds included in the plan.
- Charts or other comparative formats to display performance data. The DOL has released a model chart to disclose the required information in comparative form (for a link to the chart, see Practice Note, Fee and Investment Disclosure Requirements for Participant-Directed Plans: Annual Disclosures: Investment-related Information).
- The contact information of the person who can provide additional information, on request.
Plans that operate on a calendar year basis are required to make their first set of disclosures under the DOL regulation by May 31, 2012. For a comprehensive analysis of these rules, see Practice Note, Fee and Investment Disclosure Requirements for Participant-Directed Plans.
DOL Request for No-action Letter
On October 26, 2011, the DOL made a formal request that a plan's disclosures under the DOL regulation will not result in action by the Securities and Exchange Commission (SEC) related to Rule 482 under the Securities Act of 1933 (Rule 482). Rule 482 allows fund performance information to be included in fund advertisements as long as certain disclosure requirements are met, some of which are similar to the requirements imposed under the DOL regulation. The DOL was concerned that Rule 482 would greatly complicate compliance with the DOL regulation because the disclosure requirements under Rule 482 are different from and, in certain cases, more onerous than, the disclosure requirements under the DOL regulation.
SEC No-action Letter
On October 26, 2011, the SEC responded to the DOL's request with a no-action letter. This letter is the result of ongoing efforts between the SEC and the DOL to coordinate each agency's disclosure requirements for participant-directed defined contribution plans. The SEC agreed that if a plan disclosure provided by a plan administrator to plan participants complies with the DOL regulation, it will be treated as a communication that satisfies the requirements of Rule 482. Furthermore, the information disclosed under the DOL regulation need not be filed with the SEC, the Financial Industry Regulatory Authority (FINRA) or other national securities associations.
Practical Implications
Information provided by plan administrators to plan participants that is required by, and complies with, the DOL regulation will be treated as a communication that satisfies Rule 482. Plans will not have to file information disclosed to the DOL with the SEC or FINRA. The DOL anticipates that, by clarifying what is expected of them under ERISA, the no-action letter will reduce the cost of regulatory compliance for these plans. For more information on the disclosure requirements under the DOL regulation, see Practice Note, Fee and Investment Disclosure Requirements for Participant-Directed Plans.