Benefits December 21, 2012

Participant Disclosure Receives Little Attention

December 21, 2012 (PLANSPONSOR.com) - Since the 404(a)(5) disclosure regulation went into effect in August, sources say they have seen little response from participants.
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“It’s been a non-event,” Charlie Nelson, president of Great-West Retirement Services, told PLANSPONSOR, referring to the scarce number of calls his company has received from participants about the fees listed on their defined contribution (DC) plan statements as a result of 404(a)(5) disclosure.

Jason Frain, vice president of 401(k) product management and development at Guardian Life Insurance Co., said that after the November 15 statements were sent to participants—the first statements to reflect the new regulations—his company saw very few participants take action or question their statements. “Honestly, we’ve seen very few participant calls or e-mails coming into our service area,” he said.

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Aside from participant apathy, Frain attributes the lack of questions to the education that took place before participants received their statements, which he said may have helped curb confusion.

Although Nelson said he thinks the Department of Labor’s (DOL’s) “heart was in the right place” in creating the regulation, there is little interest from participants.

Clarence Kehoe, executive partner at Anchin, Block & Anchin LLP Accountants and Advisors, agrees that the idea behind 404(a)(5) was great. “The intent of the new rules I think are wonderful,” he said, but unfortunately they create cost-benefit headaches for plan sponsors. In general, Kehoe thinks the industry’s focus is a bit misguided, valuing lower cost over higher quality.

Frain said 404(a)(5) showed that “no real amount of disclosure is going to change participants’ behavior.” Rather, he noted, participants will change their behavior if actionable steps are easy or taken for them, e.g. automatic enrollment, automatic escalation and managed account solutions.

But all was not lost with 404(a)(5). Frain thinks plan sponsors ultimately benefited from participant disclosure regulation by becoming more aware of fees and services. The regulation also helps plan sponsors with due diligence as they enter into a request for proposal (RFP) or benchmarking process.

In the end, participants do benefit if plan sponsors can make changes that reduce their fees, but it is more of an indirect benefit for participants, Frain said.

Compliance December 21, 2012

SPD Omission Not a Conflict with Plan Terms

December 21, 2012 (PLANSPONSOR.com) – An omission from a retirement plan’s summary plan description (SPD) does not entitle a widow to a greater spousal benefit, a court found.
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Margaret A. Lipker contends that AK Steel’s calculation of her benefit is wrong because its construction and application conflicts with the terms of the governing SPD, according to a 6th U.S. Circuit Court of Appeals opinion. The SPD defines the surviving spouse benefit as “50% of the participant’s pension less 50% of the amount of widow’s (or widower’s) Social Security benefit or, if higher, a minimum benefit of $140 per month,” whereas language in AK Steel’s pension plan document says 50% of the participant’s pension will be reduced by 50% of the amount of the widow’s Social Security benefit “without regard to any offset imposed by law.”   

The court noted that “widow’s insurance benefit,” as used in the Social Security Act, is defined as equal to the primary insurance benefit of the deceased husband (in this case $1,469). However, the Act makes clear that a person who is entitled to an old-age benefit (as Lipker is) and any other monthly Social Security insurance benefit (such as a widow’s benefit), will not receive both benefits in full simultaneously. So, it offset Lipker’s widow’s benefit by the amount of Social Security she was receiving on her own. Lipker perceived a conflict because Social Security only paid her $458 as a widow’s benefit.  

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The 6th Circuit pointed out that because employees rely on SPDs in making decisions about their future benefit needs, it has held that language in an SPD may control over any conflicting language in the employee benefit plan itself. “This does not mean, however, that an omission from the SPD will, by negative implication, be deemed to alter the terms of the plan itself,” the court said.  

The court determined that the omission from the SPD is not misleading, and the discrepancy between the language of the two provisions does not rise to the level of a “conflict.”    

The court’s opinion is at http://www.ca6.uscourts.gov/opinions.pdf/12a0374p-06.pdf.

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