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DOL, SEC Issue Coordinated No-Action Letter Relief Regarding 401(k) Plan Disclosure Rules

Tuesday, November 1, 2011
Peter O'Hara | Bloomberg LawResponse of the Office of Chief Counsel, Division of Investment Management, Department of Labor File No. 132-3 (Oct. 26, 2011) Following a request for no-action relief from the U.S. Department of Labor (DOL), the SEC staff (Staff) agreed that information provided by plan administrators to plan participants or beneficiaries pursuant to Rule 404a-5 (DOL Rule) under ERISA, will be treated as a communication that satisfies the requirements of Securities Act Rule 482. As the Staff explained, the DOL Rule requires certain disclosures of "plan and investment-related information" in a comparative format so that participants and beneficiaries can "make informed decisions" when managing participant-directed individual account plans. In particular, the DOL Rule specifies disclosures for variable rate investment options, including money market funds. While plan administrators must disclose average total returns for these types of investments, they are not required to disclose current yields or whether the fund is insured by FDIC or another government agency. Rule 482, the Staff continued, allows open-end investment companies to include uniformly calculated performance information in sales materials, including advertisements. Like the DOL Rule, Rule 482 compels disclosure of total returns; however, it also requires a money market fund to disclose its current yield. The Staff further observed that the two rules differ in the timeliness of disclosures and in specific legends and presentations of information. Despite these differences, the Staff explained that, "[i]n light of the purposes and policies behind the DOL Rule," disclosures in compliance with the DOL Rule "should not be viewed as inconsistent" with Rule 482. Moreover, the Staff stated that information disclosed under the DOL Rule does not need to filed, pursuant to Securities Act Rule 497 and Investment Company Act Section 24(b), with the SEC or other national securities associations. Finally, the Staff noted that FINRA intends to interpret its own rules applicable to disclosures by plan administrators to participants and beneficiaries "in a manner that is consistent with our positions. . . ." DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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