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Employers are required to provide their retirement plan participants with a host of disclosures throughout the year and a deadline for one of those disclosures is fast approaching.
The summary annual report for defined contribution plans—mostly 401(k) plans—is required to be sent out to participants by Sept. 30 each year, but lately employers are questioning what value it provides their workers. During meetings of the Labor Department’s ERISA Advisory Council this year, representatives from the financial services industry and employer groups all advocated for the elimination of the requirement, calling it ineffective.
The report gives participants a view of the plan’s financial status and summarizes information from the plan’s Form 5500, which is used by most private employers to report to the government data on their pension and health benefit plans. Much of this information is now available online, or duplicated in other disclosures that provide participants information that’s more specific to their plan account.
There are over 94 million participants in about 640,000 defined contribution plans in the U.S., according to the Labor Department. All of these plans are required to send out summary annual reports to participants each year.
The information that’s on the summary annual report isn’t necessarily the information participants want. The report only provides information on a plan’s level, not an individual’s investments, David R. Godofsky, a partner with Alston & Bird in Washington, told Bloomberg BNA. Godofsky is fellow with the Society of Actuaries and the chairman of Alston & Bird’s retirement and insurance committee.
“These days defined contribution plans are invested at the direction of participants,” which means the overall investment results of the plan aren’t relevant, Godofsky said.
What participants really want to know is how the specific funds they’re invested in are doing and how the funds they’re not invested in are doing, something 401(k) plans already provide in quarterly statements to participants.
The summary annual report is duplicative of other disclosures required of employers, such as the annual funding notice for pension plans and investment fee disclosures. Those statements give information participants actually want, Jan Jacobson, senior counsel for retirement policy with the employer advocate group the American Benefits Council, told Bloomberg BNA.
The summary annual report is an old requirement “that most people agree could just be gotten rid of,” Jacobson said.
ABC testified last month at the ERISA Advisory Council meeting that the summary annual report should be eliminated. The council is examining the issue of mandated disclosures for retirement and health plans in an effort to streamline them for plan sponsors and participants.
Because the report summarizes what’s on a plan’s Form 5500, it was probably more useful before the Labor Department made the filings available online, Godofsky said. Now, anyone who wants to see their plan’s 5500 can find it on the DOL’s website.
Participant advocate groups aren’t so quick to discount the value of the summary annual report, even if there is a question of its usefulness to 401(k) participants who receive quarterly statements from their plans.
The summary annual report was most important for pension plan participants because it would alert them to the possible mismanagement of the plans, but that was replaced by the annual funding notice, Karen Ferguson of the Pension Rights Center in Washington told Bloomberg BNA in an email.
The disclosures are still very important for participants in other defined contribution plans like the employee stock ownership plans, she said.
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