I am trying to determine the importance of prospectuses for distribution to employees in employer-sponsored ERISA retirement plans (401(k), 403(B), etc.) At first glance, it would seem logical that each employee would need a copy of a prospectus for each fund offered in an employer plan. However, since the plan sponsor is ususally the client the purchasing client and is acting as a fiduciary, it may only be necessary to obtain prospectuses for the employer and provide prospectuses on demand for the employees.

Other issues are the cost of mailing, difficult of getting adequate supply from each independent fund company and the logistical nightmare of distributing them. For instance a 1000 employee plan, with 10 investment requires 10,000 prospectuses be delivered and distributed. This is difficult and expensive, cutting into resources and profitability.

Can anyone tell me the DOL position on the use of prospectuses and the most logical course of action (e.g.supply at enrollment to all, supply electronically on a website, deliver after enrollments but before contributions begin, or other)???

Thanks

Prospectuses are not required to be delivered to employees by the DOL.

If an employer chooses to comply with ERISA 404© and hence shift some liability to employees, then prospectuses must be provided (not "provided upon request" but provided) to employees immediately before or immediately after an employee shifts part of his/her account into the registered investment vehicle for the first time.

Most firms I'm familiar with opt to arrange for prospectus distribution, whether their motive is 404c compliance or just the sense that it's the right thing to do. But do they pay for it?

Most take the position, and "persuade" their vendors of it, that it's the asset entity (mutual fund, investment house, etc) that should pay--just like Valic would do for retail shoppers interested in prospectus info about its variable annuity products, or other investment options.

For vendors, the "cost" of this marketing function is well worth the value of the information they acquire about those they mail to.

According to DOL Reg 2550.404C-1, a participant MUST receive a prospectus "immediately" after investing a fund governed ny the Securities Act of 1933; a publicly-traded mutual fund. The regs do not say what "immediate" means, but in most cases, the administrator of the plan, many times a mutual fund company if a bundled plan, will send one when the transaction is made. As a plan sponsor I'd make sure the admin has enough on hand to fulfill participant needs.

You should have no problem getting them from mutual fund companies since they are legally required to send them to investors when they invest in a fund. And since they are required by securities regs no sponsor should be charged for distributing them.

once again i am reviving this issue. has there been any revelations as to electronic delivery of prospectus in order to satisfy 404©?

Ok, this thread may be dead, but there's an excellent summary in the copyrighted document below that corrects the outdated/misinformation from other replies:

Benefits Practice Center ISSN 1544-0575
ERISA COMPLIANCE & ENFORCEMENT STRATEGY GUIDE Government Agency Enforcement Activities ERISA §404© Best Practices: Myths versus Facts David J. Witz Fiduciary Risk Assessment LLC Charlotte, North Carolina.

http://www.bna.com/corp/index.html#V

Bottom line, perspectii are required to be provided to participants and should be provided even if not provided to fiduciary (i.e., proactive).


TBV