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DOL Advisory Council to Study Model Notices and Disclosures

The DOL’s ERISA Advisory Council is set to seek solutions to difficulties plan participants experience in understanding their choices in pension risk transfer transactions. The goal of the DOL’s 2015 Advisory Council on Employee Welfare and Pension Benefit Plans is to create model notices and disclosures that plan sponsors and participants can use.

The Advisory Council says it is conducting the study due to what it calls a noticeable increase in single-employer defined benefit plans to offering lump sum distributions to some or all of their participants, often with a limited election window. Such transactions — lump sum risk transfers — shift the risk related to lifetime retirement benefits from the plan to the participants. The council is also concerned about the purchase of a group annuity contract by a plan from an insurance company (insurance annuity risk transfer), which transfers the risk from the plan to the insurance company.

The 2015 Council seeks to supplement the work of its 2013 predecessor by focusing specifically on the information participants need to make informed decisions when faced with lump sum risk transfers and insurance annuity risk transfers, and best practices for plan sponsors in communicating that information.

The Council plans to ask witnesses this question: What useful information do participants need to make an informed decision in a risk transfer transaction, and how would you suggest getting this information to participants?

The Council will:

  • Review existing regulations on notices/disclosures/elections/waivers already in use in related contexts and whether they are adequate and understandable.

  • Review the Government Accountability Office’s 2015 findings regarding the relevant information that participants need to consider when faced with lump sum risk transfers, the adequacy of disclosures to participants, and which information that plan participants found useful.

  • Review plan sponsor informational packets from prior lump sum risk transfers and insurance annuity risk transfers.

  • Draft illustrations and examples to compare the value of an ERISA pension plan annuity to a retail insurance annuity purchased with the lump sum amount under current market conditions, and study the information the participant needs in order to understand the economic difference between the two.

  • Study the extent to which behavioral science predicts how people will react when presented with lump sum risk transfers and insurance annuity transfers and the lessons that can be learned.

  • Determine the extent to which plan fiduciaries should take into account participants’ individual circumstances.

  • Invite interested parties to submit model disclosures, notices and informational packets for lump sum risk transfers and insurance annuity risk transfers, and provide advice on the best practices and experience with different media.

  • Study the types of communications and disclosures that are provided to different participant populations, and the most effective method of delivery of the information.

  • Regarding lump sum risk transfers, study disclosures that are needed to communicate the consequences of choosing a lump sum in lieu of future benefits payable from the pension plan and the risks the participant takes on with such an action (e.g. longevity and investment risk).

  • Regarding a group annuity purchase by the pension plan sponsor, consider the disclosures needed to communicate differences between annuities offered under the ERISA pension plan and annuities provided by an insurer.

  • Cybersecurity and cybertheft issues.

The Council has 15 members appointed by the Secretary of Labor. Three are representatives of employee organizations; three are representatives of employers; three members are representatives of the public. There is one representative each from the fields of insurance, corporate trust, actuarial counseling, investment counseling, investment management and accounting. The Issue Chair of the council is James I. Singer, who is a partner at Schuchat, Cook and Werner, St. Louis, Mo.; the Vice Chairs are Jennifer Tretheway, retired Northern Trust Managing Director, and Dennis F. Mahoney, Director of the Certified Employee Benefit Specialist Program of the Wharton School of The University of Pennsylvania.