DOL Permits 401(k) Plans to Reschedule Annual Comparisons to Employees to Combine with Other Annual Disclosures

The Department of Labor has announced a temporary enforcement policy that allows 401(k)-type defined contribution plans to reset the timing for the annual distribution of the investment comparative chart that they are required to furnish to plan participants.  Under the enforcement policy contained in Field Assistance Bulletin 2013-02, plan administrators may reset the deadline one time, for either the 2013 or 2014 comparative chart, if the responsible fiduciary determines that doing so will benefit the plan's participants and beneficiaries, and provided that no more than eighteen (18) months may pass before participants receive their next comparative chart.  The DOL was responding to requests from plan administrators and service providers to provide plans more flexibility so that the annual deadline for furnishing comparative charts could be aligned in a cost-effective manner with the furnishing of other participant notices and disclosures. 

The DOL's participant-level fee disclosure regulation (published in 29 CFR section 2550.404a-5), which was implemented last year, requires that administrators of 401(k)-type plans disclose information about plan investment options, such as fee and performance information, to participants and beneficiaries at least annually.  Plans operating on a calendar year had to furnish their first chart no later than August 30, 2012, and their second chart is due no later than August 30, 2013.  Many other plan disclosures, however, such as pension benefit statements, are disclosed later in the calendar year.  Permitting a one-time "re-set" of the deadline will allow plan administrators to align the comparative chart with other participant disclosures. 

This enforcement policy does not alter a plan administrator's obligations under the regulation to timely update the investment information that is available at the plan's internet web address or to notify participants about changes to investment information, such as a new plan investment option.

The Employee Benefits Security Administration (EBSA) acknowledges in the Field Assistance Bulletin that it has not addressed concerns that the current timing requirement may result in a fixed annual deadline for comparative charts.  Accordingly, EBSA stated that it is considering whether to revise the regulation's timing requirement to provide reasonable flexibility to plan administrators on a permanent basis.

The Fid Guru's TakeThis FAB demonstrates that the EBSA under Assistant Secretary for Employee Benefits Security Phyllis C. Borzi is responsive and cares about the concerns of the employee benefits community.  Nevertheless, EBSA is still operating on the premise that disclosures make a difference.  As investment scandals like the recent Madoff ponzi scheme demonstrates, individual investors do not read most, if any, disclosures.  More disclosures will not solve the problem.  Indeed, the regulatory premise of requiring disclosures is likely naive -- many of these disclosures will not even be opened, regardless of when they are sent.

Reporting Penalties -- Notice Deficiency Must be Egregious

A recent growing trend in fiduciary liability claims is the demand for penalties for a Plan's purported failure to provide notices of benefit changes.  ERISA Section 204(h) requires the administrator of a defined benefit plan to provide advance notice of a plan amendment that reduces future benefit accruals, or reduces early retirement benefits on a prospective basis.  Failure to provide the Section 204(h) notices can result in the imposition of a $100 per participant penalty tax for each day until the failure is corrected.  In addition, an "egregious" failure to provide the notice can result in the amendment being nullified, so that the benefits eliminated by the amendment are restored. 

In Jensen v. Solvay Chemicals, Inc., No. 11-8092 (July 2, 2013), the Tenth Circuit Court of Appeals recently affirmed a district court's determination that employees were not entitled to any relief for their employer's violation of ERISA Section 204(h) notice requirements because the employees had failed to establish that the notice deficiency was "egregious."  The Court also held that the employees could not maintain a claim for promissory estoppel under ERISA Section 502(a)(3) because they could not demonstrate that they were influenced by the notice's deficiency.   Solvay dealt only with whether the failure was egregious, and not with the potential implication of the $100 per day penalty tax. 


Solvay converted its defined benefit plan into a cash balance plan and sent a notice to all participants. The lower court ruled that the company properly described all of the benefit changes, but the appellate court held that the company failed to properly describe the elimination of early retirement subsidies, and remanded the case for the lower court to determine whether and what relief was warranted for this single violation.  Following a bench trial, the district court concluded that no relief was warranted because the employees had not proved that the notice failure was "egregious" under ERISA.  ERISA Section 204(h)(6)(B)(i), 29 U.S.C. section 1054(h)(6)(B)(i), provides in part that a company's Section 204(h) notice failure is "egregious" if the failure was "within [its] control" and was "intentional," or if the failure was "within [its] control" and the company failed "to promptly provide the required notice or information after [it] discov[ed] an unintentional failure to meet the requirements of" Section 204(h). 

On appeal, the Tenth Circuit upheld the district court's conclusion that the company wanted to make all required disclosures and the omission about early retirement benefits "was accidental, no more than an oversight in the process of drafting a complex statutorily mandated notice." 

The employees alternatively filed an "Amara" claim under Section 502(a)(3) claim for promissory estoppel.  The court determined that the employees were not able to recover under a promissory estoppel theory because they were admittedly not influenced by the deficient notice in that they were well aware that they were losing certain benefits under the new plan.  In other words, the plaintiff participants could not recover because they did not detrimentally rely on the omission in the company's notice [i.e., no one retired early expecting benefits, only to discover that the plan had been changed].

Fid Guru's Take:  Solvay is useful precedent to combat the growing trend of plaintiff lawyers filing claims based on alleged disclosure violations.  This case demonstrates that inadvertent mistakes -- accidentally leaving out even some material information -- will not justify recovery under ERISA, at least not nullifying the benefit change.  The Court unfortunately did not address whether plaintiffs met the standard for $100/day penalties.  It would have been interesting whether participants can recover penalties even when a notice, albeit with a deficiency, was sent out.  In any event, this case demonstrates how important it is to ensure that your plan has fiduciary liability insurance coverage for reporting penalties under 502(c) and coverage for Amara-type equitable relief -- not all policies provide these coverages.