Interpretive Letter to Craig P. Hoffman, Esq., APM, American Retirement Association, Chris DeGrassi, National Tax-deferred Savings Association, and Richard K. Matta, Esq., Groom Law Group

A member firm that provides services to Non-ERISA Plan participants and beneficiaries may rely on the filing exclusions contained in Rule 2210(c)(7)(B) and (C) in preparing and distributing a “Model Disclosure” as described in the letter, subject to the stated conditions and obligations discussed in the letter.


March 22, 2016

Craig P. Hoffman, Esq., APM
General Counsel
American Retirement Association
4245 N. Fairfax Dr., Suite 750
Arlington, VA 22203

Chris DeGrassi
Executive Director
National Tax-deferred Savings Association
4245 N. Fairfax Dr., Suite 750
Arlington, VA 22203

Richard K. Matta, Esq.
Principal
Groom Law Group
1701 Pennsylvania Ave., NW
Washington, DC 20006

Re: Model Disclosure Delivered to Participants of Non-ERISA 403(b) Programs and Other Non-ERISA Plans

Dear Messrs. Hoffman, DeGrassi and Matta:

In your letter of March 21, 2016, you request interpretive guidance on behalf of the American Retirement Association (“ARA”), the American Society of Pension Professionals & Actuaries (“ASPPA”) and the National Tax-deferred Savings Association (“NTSA”), regarding the application of the filing requirements under FINRA Rule 2210(c)(1) through (c)(3) to a model format for investment-related disclosures that you have separately submitted with your interpretive request (the “Model Disclosure”).

Background

SEC No-Action Letters on DOL Rule 404a-5

On October 20, 2010, the U.S. Department of Labor (“DOL”) adopted DOL Rule 404a-5, which requires the plan administrators of participant-directed plans covered by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to disclose certain plan information, including the investment-related information provided by a plan administrator, or a person designated by a plan administrator to act on its behalf (“DOL Required Investment Information”), to plan participants.1 In a no-action letter issued to the DOL on October 26, 2011 (the “DOL No-Action Letter”), the Securities and Exchange Commission (“SEC”) staff agreed that it would treat the DOL Required Investment Information as if it were a communication that satisfies Rule 482 under the Securities Act of 1933 (“Rule 482”).2 The SEC staff also agreed in the DOL No-Action Letter that information provided to participants by a plan administrator (or its designee) to participants, as required by and complying with DOL Rule 404a-5, need not be filed with the SEC or a national securities association such as FINRA pursuant to Rule 497 under the Securities Act or Section 24(b) of the Investment Company Act of 1940.3

The DOL No-Action Letter only addressed the treatment of DOL Required Investment Information when provided to participants of plans subject to ERISA.  The no-action relief did not extend to the same information if provided to participants and beneficiaries of participant-directed tax-sheltered annuity programs that are not subject to the fiduciary responsibility provisions of ERISA (“Non-ERISA Plans”).4

Accordingly, subsequent to the issuance of the DOL No-Action Letter, the ARA asked the SEC staff to extend its position concerning Rule 482 in the DOL No-Action Letter to information furnished to participants in Non-ERISA Plans.  The ARA’s request for no-action relief with respect to Non-ERISA Plans was subject to certain conditions, as follows:

  • Each insurance company and custodial account vendor (“Investment Vendor”)5 to a Non-ERISA Plan will provide the DOL Required Investment Information to participants in the Non-ERISA Plan6 pursuant to a written agreement with the employer (or its designee)7 that requires the Investment Vendor to provide the DOL Required Investment Information for each investment option offered under annuity contracts and mutual funds available through a custodial account (“Investment Option”) that the Investment Vendor offers under the Non-ERISA Plan and also, to the extent available to the Investment Vendor,8 all fee and expense information as specified in DOL Rules 404a-5(c)(2)(i)(A) and 404a-5(c)(3)(i)(A) under ERISA (together, the “Information”). Each written agreement will specify a date on or before which the Investment Vendor will provide the Information to all current participants in the Non-ERISA Plan.
  • Each Investment Vendor under the Non-ERISA Plan will (i) provide the Information to participants initially on or before the date specified in the written agreement with the employer (or its designee), (ii) update the Information at least annually, (iii) update on at least a quarterly basis, or more frequently if required by other applicable law, the performance information to be disclosed at an Internet website address listed pursuant to the DOL Required Investment Information, and (iv) require the contact person designated by the Investment Vendor as a source of additional information in the DOL Required Investment Information to provide upon request the information specified in the DOL Rule 404a-5.9
  • The Information will be furnished to (i) new participants in the Non-ERISA Plan prior to their initial investment, and (ii) each participant at least annually in accordance with the timing requirements in DOL Rule 404a-5.10
  • Information provided by an Investment Vendor as DOL Required Investment Information will include no information other than information that would be required to comply with DOL Rule 404a-5 if the Non-ERISA Plan were subject to DOL Rule 404a-5.11

In a no-action letter issued on February 18, 2015 (the “SEC No-Action Letter”), the SEC staff agreed to treat investment-related information presented in a comparative format in accordance with DOL Rule 404a-5 to participants and beneficiaries of Non-ERISA Plans as if it were a communication that satisfies Rule 482 based on the representations contained in the ARA’s request for relief.12

Model Disclosure

You represent that the Model Disclosure is designed to provide employees eligible to participate in Non-ERISA Plans with key information about their service and investment choices in a standardized format that would be used by all Investment Vendors providing services to their Non-ERISA Plan.  You represent that the Model Disclosure will include a comparative chart for investment fee and performance information, titled the “Part II - Comparative Chart” (the “Comparative Chart”), which follows the DOL Required Investment Information.  You have stated that other parts of the Model Disclosure will provide additional information about services available to participants in the Non-ERISA Plan and fees associated with these services and an explanation for participants receiving the Model Disclosure.

You state that the Model Disclosure includes four parts.  The first three parts, which are designed to be delivered together to participants of Non-ERISA Plans, include (i) an overview of services and fees, (ii) the Comparative Chart, and (iii) a standardized explanation of the Model Disclosure for participants.  The fourth part, titled “Instructions for Completing the Retirement Savings Plan Participant Disclosure Form” (the “Vendor Instructions”) provides specific instructions to Investment Vendors about the completion and distribution of the Model Disclosure in connection with Non-ERISA Plans.

a. Part I – Overview of Services and Fees. You represent that this part of the Model Disclosure (titled “Part I – Overview of Services and Fees” or the “Overview”) is designed to provide participants key information needed when choosing among Investment Vendors.  The first section provides Investment Vendors with a standardized format for identifying the services that are offered to the participant by the Investment Vendor (e.g., investment education and advice tools and administrative services such as account transactions, statements and loan processing) and refers participants to the Investment Vendor’s website for more information.  This section allows Investment Vendors to list other services that are not included in the standardized listing.  The Vendor Instructions clarify that all descriptions must be brief, factual and non-promotional.

You state that the Overview’s second section is a standardized format designed to capture all of the fees and charges that apply in connection with Investment Options offered by the Investment Vendor, including:

  • administrative and operational fees, such as loan fees and fees charged in connection with a distribution of benefits and other administrative charges;
  • annuity product charges, including any front-end charges, surrender charges and other fees that could be charged to a participant in connection with a fixed, indexed or variable annuity Investment Option; and
  • custodial account charges, charged in connection with mutual fund Investment Options, such as any front-end sales charges, surrender charges, and custodial fees.

This section also directs participants to the Comparative Chart for information about specific Investment Options and provides a standardized format for providing information to participants about a brokerage window or other platform that offers participants a broader range of investment options than the “core” options that are described by the Comparative Chart.13

You state that, for each type of fee described in this section, the Vendor Instructions require the Investment Vendor to indicate the amount of the fee or describe how the fee is determined, indicate if there is a minimum fee, and describe any applicable fee waivers, breakpoint reductions or other factors that might affect the amount of the fee charged to the participant.  The Vendor Instructions caution that all fee descriptions must be brief, factual and non-promotional.  The Vendor Instructions include a sample completed version of the Overview to assist persons completing this part of the Model Disclosure.

You represent that the final section of the Overview provides information about payments that Investment Providers may make to third parties.  The purpose of this section is to allow participants to understand who is receiving compensation from service providers with respect to their Non-ERISA 403(b) Plan so that they may better understand the relationships among these parties. The Vendor Instructions require all descriptions provided to be brief, factual and non-promotional.

b. Comparative Chart. You represent that the Comparative Chart is a series of tables that follows the safe harbor format for presenting the DOL Required Investment Information set forth in an appendix to DOL Rule 404a-5.  The Comparative Chart presents:

  • for each Investment Option, certain statistical and other non-narrative information, including the name of the Investment Option, performance information and a relevant benchmark (or the stated annual rate of return and applicable term for Investment Options that have a fixed or stated rate of return), fee and expense information, and an Internet website address that provides access to additional information in accordance with DOL Rule 404a-5;
  • certain standardized information about annuity options under the plan, if available; and
  • standardized disclosure statements required by DOL Rule 404a-5, including for example (i) a statement that additional investment-related information (including more current performance information) for each Investment Option is available at the listed Internet website address, (ii) a statement that an Investment Option’s past performance is not necessarily an indication of how the investment will perform in the future, (iii) a statement that the cumulative effect of fees and expenses can substantially reduce the growth of retirement savings, and (iv) a statement that fees and expenses are only one of several factors to consider when making investment decisions.

You state that the Vendor Instructions require Investment Vendors to complete the Comparative Chart in accordance with DOL Rule 404a-5, and also require Investment Vendors to designate a person to be a source to provide on request the information required to be provided by DOL Rule 404a-5.

c. Explanation for Participants. You represent that the third part of the Model Disclosure, which is titled “How to Read the Retirement Savings Plan Participant Disclosure Form” (the “Explanation for Participants”), is designed to be delivered to Non-ERISA Plan participants together with the Overview and the Comparative Chart.  It offers a “plain English” explanation of the Model Disclosure and a glossary of key terms used in the Model Disclosure.  It discusses the importance of the information that is provided on the Overview and Comparative Chart and directs participants how to obtain additional information about the Non-ERISA Plan and Investment Options.  It also explains that, if a Non-ERISA Plan has more than one Investment Vendor, participants will receive copies of the Overview and Comparative Chart from each different Investment Vendor.

You represent that the Explanation for Participants is a standardized form that may not be modified by users.  It does not provide any information about specific Investment Options or any other specific information about an Investment Vendor.

d. Vendor Instructions/Use of Model Disclosure. You state that, in addition to providing specific instructions about how to prepare the Overview and Comparative Chart, the fourth part of the Model Disclosure describes the purpose of the Model Disclosure and conditions for use of the Model Disclosure.  It explains that the Model Disclosure is intended to be used solely pursuant to the terms of the SEC No-Action Letter, and in this regard, establishes the following conditions for the use of the Model Disclosure.  You represent that:

  • The Model Disclosure may only be used in connection with Non-ERISA Plans covered by the SEC No-Action Letter (including non-ERISA 403(b) plans maintained by governmental or tax-exempt employers (including churches) and plans not subject to ERISA that are: governmental 457(b) or 401(a) plans, 415(m) plans, church 401(a) plans, non-governmental 457(b) plans, or 409A or 457(f) plans of governmental or tax-exempt entities).
  • The Model Disclosure may be distributed to participants of a Non-ERISA Plan only if the employer or other sponsor of the Plan enters into a written agreement that requires the Investment Vendor to complete the Model Disclosure Form with each Investment Vendor offering Investment Options under the Non-ERISA Plan.
  • The written agreement with each Investment Vendor must (i) identify a date on or before which the Investment Vendor is required to deliver the completed Model Disclosure to all current participants of the Non-ERISA Plan; (ii) require the Investment Vendor to deliver the Model Disclosure to new plan participants before their first investment and to all participants at least annually in accordance with requirements of DOL Rule 404a-5; (iii) require the Investment Vendor to update the Comparative Chart at least annually and to update on at least a quarterly basis (or more frequently if required by law) the investment performance information disclosed at an Internet website address listed on the Comparative Chart; and (iv) require the contact person designated by the Investment Vendor on the Comparative Chart as a source of additional information to provide on request the information required to be provided by DOL Rule 2550.404a-5(d)(4) (e.g., copies of prospectuses, financial statements, statements of additional information and shareholder reports).
  • When completing the Overview and Comparative Chart, each Investment Vendor must include, to the extent available to the Investment Vendor, all fee and expense information described by DOL Rule 404a-5(c)(2)(i)(A) and 404a-5(c)(3)(i)(A), in addition to all other information required by the Model Disclosure.
  • Each Investment Vendor must deliver to each eligible participant in the Non-ERISA Plan, in accordance with the timing and delivery requirements of the written agreement with the Employer: (i) a completed version of the Overview, (ii) a completed Comparative Chart, and (iii) a copy of the Explanation for Participants.  Employers may also arrange to have these materials available at all places where employees will be informed about their Non-ERISA Plan (such as at benefit fairs) and require persons talking to their employees about the Non-ERISA Plan to give these materials to each employee eligible to participate in the Non-ERISA Plan.
  • Investment Vendors must complete all items of the Overview and Comparative Chart with factual and accurate information.  Where narrative responses are indicated, narrative information must be brief, factual and non-promotional in nature.  Information not required on the standard form of the Overview and Comparative Chart may not be included.

You state that the Vendor Instructions also explain that FINRA members preparing and distributing the Model Disclosure to participants of Non-ERISA Plans under these conditions are not relieved from their obligations to supervise and review all correspondence and to ensure that all communications including materials prepared based on the Model Disclosure Form comply with applicable SEC, FINRA and other rules.

Distribution and Use of Model Disclosure

You represent that NTSA will make the Model Disclosure available to the public for use with Non-ERISA Plans by posting the Model Disclosure on its website and through other forums (such as NTSA conferences). The ARA, ASPPA and NTSA anticipate that the Model Disclosure may be adopted by employers offering Non-ERISA Plans to employees on their own initiative or at the request of Investment Vendors who are willing to prepare and distribute the Model Disclosure.

You further state that, as required by the SEC No-Action Letter, Investment Vendors may only distribute the Model Disclosure if the employer and the Investment Vendor have entered into a written agreement meeting the conditions of the SEC No-Action Letter.  In accordance with the terms of such written agreements, Investment Vendors may prepare and distribute copies of the Model Disclosure to individuals eligible to participate in the employer’s Non-ERISA Plan as described by the Vendor Instructions and also to employers, who may arrange to make copies of the Model Disclosure available to employees at places where employees may learn about the Non-ERISA Plan such as benefit fairs or employee welcome packets.  Some employers may maintain websites for employees with Non-ERISA Plan information, and Model Disclosures provided by Investment Vendors may be available electronically on such websites.

You state that the Model Disclosure would supplement the information currently available to participants of Non-ERISA Plans because these participants will still receive all information that a participant is required to receive under the federal securities laws, such as a prospectus and annual and semiannual reports.

Discussion

FINRA Rule 2210 imposes approval, supervision, recordkeeping, filing and content standards on member communications with the public.  Among other things, FINRA Rule 2210(c)(1) requires a member to file broadly disseminated retail communications during a one-year period beginning on the date the member’s registration became effective, and FINRA Rules 2210(c)(2) and (3) require members to file certain retail communications based on their content, such as retail communications concerning registered investment companies (including variable insurance products).14

You have committed to file, under separate cover, the Comparative Chart with FINRA’s Advertising Regulation Department for review pursuant to FINRA Rule 2210(c)(3), since the Comparative Chart may contain information concerning registered investment companies.  However, you have requested that the Comparative Chart be considered a template pursuant to FINRA Rule 2210(c)(7)(B), which excludes from filing retail communications that are based on templates that were previously filed with the Advertising Regulation Department the changes to which are limited to updates of more recent statistical or other non-narrative information. 

You request our concurrence that the other parts of the Model Disclosure, specifically, the Overview and Explanation for Participants, if prepared and distributed in accordance with the Vendor Instructions, are excluded from filing requirements under FINRA Rules 2210(c)(1) through (c)(3) based on FINRA Rule 2210(c)(7)(C), because these communications do not make any financial or investment recommendation or otherwise promote a product or service of a member firm.

You note that the Overview is a standardized format to be used by an Investment Vendor to identify the services that it offers to the participant and to disclose all fees and charges that apply in connection with these services and the Investment Options offered by the Investment Vendor.  You further state that the Vendor Instructions require that all descriptions of services and fees must be brief, factual and non-promotional, and that specific information about Investment Options, such as investment performance, is provided on the Comparative Chart and not on the Overview.

You assert that, under these circumstances, the Overview does not involve any financial or investment recommendations or otherwise promote a product or service of an Investment Vendor.  You also assert that the Explanation for Participants does not involve any financial or investment recommendations or otherwise promote a product or service of an Investment Vendor because it is a standardized disclosure form that does not describe investment services and products offered by an Investment Vendor and cannot be modified by the user.

You also note that FINRA members preparing and distributing the Model Disclosure to participants of Non-ERISA Plans will not be relieved from their obligations to supervise and review all correspondence and to ensure that all communications including materials prepared based on the Model Disclosure comply with applicable SEC, FINRA and other rules.  In this regard, Investment Vendors will still be required to supervise the preparation and use of the Model Disclosure in accordance with FINRA Rules for supervising and reviewing retail communications under FINRA Rule 2210(b).

FINRA staff agrees that the Comparative Chart may be filed as a template pursuant to FINRA Rule 2210(c)(7)(B).  Upon completion of the filing and FINRA staff review of the Comparative Chart, FINRA members may rely on this filing exclusion with respect to future Comparative Charts distributed to participants in Non-ERISA Plans that are appropriately based on this template.  FINRA staff also agrees that the other parts of the Model Disclosure are excluded from the filing requirements of FINRA Rules 2210(c)(1) through (c)(3) pursuant to FINRA Rule 2210(c)(7)(C), since they do not include any financial or investment recommendation or otherwise promote a product or service of the member. 

FINRA staff interprets FINRA Rules 2210(c)(7)(B) and (C) to exclude the Model Disclosure from filing based on the unique facts presented.  In particular, FINRA staff has reached these conclusions based on the fact that the Model Disclosure’s content is based on DOL requirements applicable to ERISA Plans, and on the fact that you have obtained a no-action letter from the SEC staff in which the staff agreed to treat content contained in the related comparative chart as if it were a communication that satisfies Rule 482. 

Members are cautioned, however, that including the Information required by DOL Rule 404a-5 does not affect the filing requirements applicable to other content not required by DOL Rule 404a-5.  Accordingly, to the extent that a member includes in a retail communication content that promotes a product or service of the member, and is in addition to the Information required by DOL Rule 404a-5, the non-required content is subject to the filing requirements of FINRA Rule 2210.15

We trust that this letter is responsive to your request.  Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the FINRA Board of Governors.  This letter responds only to the issues raised based on the facts as you have described them, and does not address any other rule or interpretation of FINRA, or all the possible regulatory or legal issues involved.  In addition, you should be aware that any changes in the facts as you have described them will require further consideration and may cause us to reach a different conclusion.

If you have any questions regarding this letter, please contact me at (240) 386-4534 or joe.savage@finra.org.

Sincerely,

/s/ Joseph P. Savage

Joseph P. Savage


1. Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans, 75 FR 64910 (Oct. 20, 2010) (adopting DOL Rule 404a-5) [29 CFR § 2550.404a-5].

2. Department of Labor, SEC Staff No-Action Letter (Oct. 26, 2011).

3. FINRA subsequently issued Regulatory Notice 12-02 (January 2012), in which FINRA stated that, to the extent that a member provides information to plan participants that is required by and complies with the disclosure requirements set forth in DOL Rule 404a-5, FINRA will treat the information as if it were a communication that satisfies the content and filing requirements of NASD Rules 2210 and 2211.

4. These other programs include participant-directed tax-sheltered annuity programs described by section 403(b) of the Internal Revenue Code of 1986, as amended (the “Code”) (known as “403(b) programs”), governmental deferred compensation plans described by Code section 457(b), Code section 401(a) plans that are governmental plans under Code section 414(d), non-qualified governmental qualified excess benefit arrangements established pursuant to Code section 415(m) solely to provide benefits exceeding limits under Code section 415 under a governmental 414(d) plan, section 401(a) plans that are church plans under Code section 414(e) which have not made the election to be subject to ERISA under Code section 410(d), certain non-qualified deferred compensation plans under Code section 457(d) maintained by entities tax-exempt under Code section 501, and non-qualified deferred compensation plans of governmental or tax-exempt entities that do not meet the Code section 401(a), 403(b), 457(b) or 415(m) requirements, but are subject to Code sections 409A and, except for certain church plans, 457(f).

5. The term Investment Vendor does not include vendors of so-called “frozen options” that were available under a 403(b) program before January 1, 2009, but not available for new employer contributions or employee salary reduction contributions on or after January 1, 2009, and that does not enter into a written agreement to provide the DOL Required Investment Information; such vendors may not rely on the interpretation in this letter.  You state that, historically, 403(b) programs have been operated as a collection of individual contracts with respect to which employees could engage in a range of actions without the consent or involvement of the employer.  Therefore, you state that many employers did not maintain written agreements with the insurance company and custodial account vendors until the implementation of the written plan requirements under regulations issued by the Department of Treasury/Internal Revenue Service in 2007, 26 C.F.R. § 1.403(b)-0, et seq.

6. Information provided by an Investment Vendor as DOL Required Investment Information shall not include information about an Investment Option prior to the effective date of the registration statement for that Investment Option.

7. Investment Vendors may satisfy this “written agreement” condition by providing written notice to the employer (or its designee) on or after the date of this letter that the Investment Vendor is complying with this condition as a term of an existing written agreement.

8. You state that Investment Vendors usually will have information about all of the administrative expenses and individual expenses required to be disclosed pursuant to Rules 404a-5(c)(2)(i)(A) and 404a-5(c)(3)(i)(A) under ERISA because the participant account balances from which such expenses are paid must be held by one or more Investment Vendors, but it cannot be ruled out that an Investment Vendor will not have information about expenses (if any) when paid by a participant other than from the participant’s account with the Investment Vendor.

9. See Rule 404a-5(d)(4).

10. See Rules 404a-5(c)(2)(i)(A), 404a-5(c)(3)(i)(A) and 404a-5(d)(4)(1), and DOL Field Assistance Bulletin 2013-2 (July 22, 2013).

11. The DOL Required Investment Information may be accompanied by a plan enrollment form that includes, among other things, instructions as to how a participant in a Non-ERISA Plan may direct his or her investments among the Investment Options.

12. See American Retirement Association, SEC Staff No-Action Letter (February 18, 2015).

13. DOL Rule 404a-5 only requires presentation of the DOL Required Investment Information in a comparative format for each “designated investment option.” See DOL Rule 404a-5(d).  As defined by DOL Rule 404a-5(h)(4), 29 C.F.R. § 2550.404a-5(h)(4), designated investment options include investment alternatives designated by a plan, but do not include brokerage windows, self-directed brokerage options or similar arrangements that enable participants to select investments beyond the “core” investments designated by the plan. 

14. FINRA Rule 2210(c)(2) requires members to file at least 10 business days prior to first use or publication retail communications concerning registered investment companies that include or incorporate self-created rankings or comparisons, retail communications concerning security futures, and retail communications concerning bond mutual funds that include or incorporate bond mutual fund volatility ratings.  FINRA Rule 2210(c)(3) requires members to file within 10 business days of first use or publication retail communications concerning registered investment companies, retail communications concerning direct participation programs, any template for written reports produced by, or retail communications concerning, an investment analysis tool as such term is defined in FINRA Rule 2214, retail communications concerning registered collateralized mortgage obligations, and retail communications concerning registered structured products.

15. See Regulatory Notice 12-02 (January 2012) (similar interpretation of NASD Rule 2210 as applied to disclosures provided pursuant to DOL Rule 404a-5 to participants and beneficiaries of ERISA-covered plans).