Disclosure Obligations of Plan Sponsors
Plan sponsors of qualified retirement plans, such as 401(k) plans, are required to provide certain information to plan participants. Although plan sponsors often rely on recordkeepers, third-party administrators or other advisors to help, it is ultimately the responsibility of the plan sponsor to make sure the disclosure requirements are met. These disclosure requirements include:
- Summary Plan Description
The Summary Plan Description (SPD) is the most basic and comprehensive document describing the plan and its operations. Plan sponsors must provide the SPD to new participants within 90 days of the start of plan coverage. The SPD must be written in language that can be understood by the average participant and be current as of no more than 120 days from the date the plan is established. Additionally, plan sponsors must then furnish an updated SPD to all covered participants every five years if there are changes and every ten years if the SPD has not changed.
- Summary of Material Modification
Essentially, the Summary of Material Modification (SMM) is an update to the SPD. Plan sponsors must provide an SMM to plan participants no later than 210 days beyond the end of the plan year in which the plan was materially changed.
- Plan Documents
Plan sponsors have to furnish the plan’s highly detailed governing legal documents on receipt of a request from a participant. Plan sponsors have 30 days from receipt of the request to do so.
- Summary Annual Report
The Summary Annual Report (SAR) is a narrative description of the information on the IRS Form 5500. Participants must receive the SAR within nine months of the end of the plan year, or two months following the extended deadline if the plan sponsor has submitted an extension of time to file the IRS Form 5500.
- Notification of Benefits Determination
This document explains the basis of an adverse determination decision. Plan sponsors must generally provide it within 30 days of that decision. It must reference specific plan document provisions that the decision was based on, as well as explain appeals procedures.
- Periodic Benefit Statement
Plan sponsors must provide a periodic benefit statement at least quarterly for participant-directed individual account plans and annually for all other individual account plans. The statement must cover the participants’ account balances, their ability to change their investment selections and a statement that holding more than 20% of a portfolio “in the security of an entity (such as employer securities) may not be adequately diversified.”
- Participant Plan Investment Options, Investment Fees and Other Expenses
Plan sponsors must furnish this disclosure to participants at least annually, and the disclosure must describe general administrative and investment costs, as well as individual charges to participants for particular services such as plan loans. For each investment option, it must also include a chart showing fees and expenses, investment performance and relevant investment benchmark data.
- Section 404(c) Plan Investment Options
Plan sponsors must provide information about plan investment options both before a participant provides investment instructions and on request. This notice gives sponsors the legal protections from possible participant litigation involving the adequacy of investment options offered by the plan.
- Qualified Default Investment Alternative Notice
Participants must receive an initial Qualified Default Investment Alternative (QDIA) notice within at least 30 days of plan eligibility or 30 days of when any QDIA investment is made on behalf of participants. It must describe the circumstances under which participant contributions will be directed to a QDIA, the investment objectives of the QDIA and what participants need to do if they do not want their contributions invested in that vehicle.
- Automatic Funding Notice
This is essentially equivalent to the QDIA notice; participants must be informed if the plan will be defaulting participants into a deferral pattern.
It should be noted that the above is not a complete list of disclosure requirements. For example, the above list does not include IRS disclosure requirements. Additionally, while disclosures are generally directed to plan participants, a plan beneficiary, in the case of a participant’s death, typically would also be covered by the disclosure rules.
Qualified retirement plan sponsors are subject to many disclosure requirements. Failing to provide required disclosures may result in fines and penalties. The items discussed above will help plan sponsors gain a general understanding of those requirements.
If you have any questions, please contact Ken Kobiernicki or your ORBA advisor at 312.670.7444. Visit ORBA.com to learn more about our Employee Benefit Plans Services.