Benefit Statement Good Faith Guidance
December 27, 2006

The Pension Protection Act of 2006 (PPA) requires benefit statements to be provided to participants on an annual basis (or a quarterly basis if the plan is self-directed). The DOL has not issued guidance as to the details of the requirements. Until the guidance is issued, they will treat a plan administrator as satisfying the requirements if they have acted in good faith. They released Field Assistance Bulletin No. 2006-03 to provide good faith guidance and it addresses the following issues:

1. Form of furnishing statements –multiple documents or sources may be used to satisfy the requirements (if certain requirements are met).
2. Manner of furnishing statements – information can be provided in written, electronic, or continuous (via secure website) format (if certain requirements are met).
3. Dates for furnishing statements – the requirements are effective for plan years beginning after December 31, 2006 (12/31 plans must begin providing quarterly statements as of 3/31/07 or annual statements as of 12/31/07), and statements must be provided no later than 45 days following the end of the period.
4. Right to direct investments – a plan is not automatically considered self-directed (and subject to quarterly statements) if they have a participant loan provision.
5. Limitations or restrictions on right to direct investments – benefit statements must include certain disclosures, including the limitations imposed by the plan (but not limitations imposed by investment funds, other investment vehicles, or state or federal laws).
6. Investment principles – benefit statements must include certain disclosures, including an explanation of the importance of a “well-balanced and diversified investment portfolio”, and must include “a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) may not be adequately diversified”.
7. Notification of diversification rights – plans that previously satisfied the new diversification requirements can satisfy their first notice requirement with their first quarterly benefit statement. A Morgan Lewis Employee Benefit LawFlash has more details.
8. Department of Labor Web site – benefit statements must direct participants and beneficiaries to the DOL website for more information on individual investing and diversification.

The EBIA also summarizes FAB 2006-03.