Concerns with Benefit Statement Good Faith Guidance
January 6, 2007

I previously discussed the participant statement good faith compliance provided by FAB 2006-03. ASPPA asap No. 06-44 discussed the FAB in detail and also expressed some of their concerns, including concerns about the safe harbor timing requirements (45 days):

The new requirements for benefit statements are effective for plan years beginning after December 31, 2006 (for non collectively bargained plans). The DOL guidance provides a safe harbor of 45 days after the end of the period to provide the statements. Thus, the first statement for calendar year plans will be due no later than May 15, 2007, for participant-directed plans, February 14, 2008, for other defined contribution plans, and February 14, 2010, for defined benefit plans… Meeting the 45-day time frame for providing statements will be a serious problem, if not a virtual impossibility, for large numbers of plans. As one example, plans that use the 1,000 hours of service method may not have the necessary information to determine vesting status prior to the end of the 45-day period. Perhaps a bigger problem is for those administrators who prepare statements on an accrual basis. The employer may not have decided on the amount of the contribution for the relevant plan year before the statements are required to be distributed, and may defer that decision to as late as the due date for its tax return, September 15 (corporate) or October 15 (self-employed) for calendar year taxpayers with extensions. Even if every employer actually made its contribution decision by year-end (and only a small percentage do), it does not seem feasible for service providers to get all of their year-end work done in time to distribute benefit statements by February 14 following the year-end. It is unclear from the FAB whether the DOL actually contemplated these issues in issuing the FAB.

The vesting and accrual basis concerns discussed above will certainly affect ESOPs. In addition, ESOPs with privately held employer securities also have appraisal concerns. The appraisal concerns are very similar to the accrual basis ones discussed above. The final appraisal will most likely not be available at the end of the 45-day period. Even if it is available, it will not be feasible to complete the allocation, perform the necessary compliance testing, and distribute benefit statements within the 45-day safe harbor period.

While the safe harbor standard is not a requirement, it is nonetheless something that you will want to comply with if at all possible. We will keep you posted as more guidance is provided.

In addition to the post referenced above, you can find more information about FAB 2006-03 in this post or in the following summary:

EBSA provides guidance on periodic pension benefit statements