The Challenge of Employee Benefit Plan Disclosure

Employee Benefit Plan Audit | October 21, 2015 | Holtzman Partners

Disclosure obligations are an integral part of a plan administrator’s ERISA fiduciary duties. Participants must be provided with an array of communications throughout the year — from plan summaries and regular benefit statements to other, more specialized disclosures.

Failure to comply can trigger monetary penalties. For example, under Section 502(c)(1) of ERISA, a penalty of up to $110 per day can be levied when a plan administrator fails to respond to a participant’s request for certain plan materials within 30 days.

Even though a plan’s third party administrator may sometimes alert the plan sponsor when participant communications are required, the ultimate responsibility for alerting participants lies with the plan sponsor. Here, it helps to understand that disclosure obligations are generally triggered by one or more of the following events:

  • When certain events occur — For example, if a plan amendment results in a significant reduction in the rate of future benefit accrual, automatic disclosure is required.
  • When a participant requests information — For example, a copy of plan documents must be furnished no later than 30 days after a written request.
  • At stated times — For example, account statements must be provided at least once each quarter for individual account plans that permit participant-directed investments.

Understanding the “Big Four”

The rules regarding these required communications are wide-ranging. Yet there are four general areas in which plan administrators need to be especially vigilant:

  1. Changes to the overall plan — Plan changes must be communicated by either providing an updated Summary Plan Description (SPD) or a Summary Of Material Modification (SMM), which is a stand-alone document that alerts participants to the change. The documents must be furnished to participants within a certain number of days after a change in the plan is made.
  1. Change in contribution amounts – Participant notification is required whenever the plan sponsor makes a change to the amount of contributions it will provide (e.g., decreasing the matching contribution percentage). This notification must allow participants adequate time to update their contribution amount accordingly.
  1. Blackout periods — A major change in the plan (for example, a change in third party administrators or a change in investment options) may trigger a blackout period in which the participants’ right to direct investments, take loans or take distributions is suspended. The plan sponsor is required to provide advance notice that a blackout period is about to occur.
  1. Participant-directed accounts — Plan sponsors must take steps to regularly provide the information that participants need to make informed decisions about the management of their individual accounts. According to the Department of Labor, “the investment-related information needs to be presented in a format, such as a chart, that allows for a comparison among the plan’s investment options.” A model chart is available on the DOL’s website at

Is Electronic Delivery the Answer?

Under DOL regulations, employers are allowed to distribute SPDs, SMMs, Summary Annual Reports and a number of other employee benefit documents in an electronic format.  Yet, the rules are incredibly complex, and the plan administrator must meet certain specific requirements.

At the core is the requirement that the employer or plan administrator must be able to prove that the employee actually received the electronic notification. There must also be a method for distributing printed copies when requested by employees.

The Buck Stops with You

As with so many other areas of fiduciary responsibility, plan administrators cannot outsource responsibility for required participant communications. In the end, you are ultimately responsible for ensuring that participants have the information they need to make informed choices about their plan, their investments and their benefits.


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