Communications With Plan Participants

Posted on March 15 2011 by admin

Participants of a plan have the right to certain plan disclosures in order to keep them informed about plan operations and give them a chance to make informed decisions with respect to their accounts.  These disclosures should not only be made when the participant is enrolling in the plan, but also after enrollment to inform them of their earnings, changes to investment options, changes to sponsor contributions, blackout periods and other changes to the plan as they occur and as the plan grows. 

The summary plan description (SPD) is one document that discloses important information to each participant.  The SPD gives details on the basic structure of the plan being offered to them as employees of your company.  The SPD is written in plain language which allows the participant to easily understand what the plan has to offer as well as what to expect. In the SPD, a participant can find out when and how employees become eligible to participate in the plan, how long it takes to become vested, basic participant rights, responsibilities the sponsor has under the Federal retirement law, and many other details about their participation.  The SPD should be given to employees when they join the plan.

Changes to the plan can be communicated by either providing updated SPD’s or use of another document called the summary of material modification (SMM).  If a SMM is used it should be furnished to participants within a certain number of days after a change in the plan is made.  This is a stand alone document, letting the participants know about the change.

Plan participants who participate in a participant-direct account should receive a statement of their account showing activity every quarter. If your plan is not a participant-directed plan, then annual statements must be provided.  This helps keep participants informed about their accounts and make informed decisions about any changes that should be made.

Many times, if there is a major change in the plan (for example, a change in third party administrators or there is a change in investment options), there is a blackout period which occurs.  The plan sponsor is required to give advance warning to the plan participants when a blackout period is about to occur.  The participants’ right to direct investments, take loans, or take distributions are suspended during blackout periods so it is imperative that the advance notice is far enough in advance for important decisions to be made.

Additionally, notification to participants is required when the plan sponsor decides to change the amount of contributions they will provide to the plan participant (such as matching to a lesser amount).  This notification should allow the employees participating in the plan adequate time to update their contribution amount accordingly.

The plan’s third party administrator sometimes alerts the plan sponsor when communications with the participant’s are required, but it is imperative that the plan sponsor understand each of the circumstances as the ultimate responsibility for alerting the participants lies with the plan sponsor.

Shelby Williams

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