The DOL issued a very helpful opinion last week, DOL Advisory Opinion 2003-11A, which answers this question: whether a plan’s delivery of a mutual fund Profile to participants and beneficiaries immediately before or immediately after their investment in a mutual fund would satisfy regulations issued by the DOL pursuant to section 404(c) of ERISA. Generally, in the case of an investment alternative subject to the registration requirements of the Securities Act of 1933 such as a mutual fund, the 404(c) regulations provide that a participant or beneficiary shall be provided a copy of the “most recent prospectus” that was provided to the plan. DOL Advisory Opinion 2003-11A basically provides that the “prospectus” requirement can be met with a “profile”:
The Department has not defined the term “prospectus” in the 404(c) regulations, or elsewhere. In the preamble to the 404(c) regulations, the Department states that the prospectus delivery requirement is intended to ensure that, immediately before or immediately after a participant’s or beneficiary’s initial investment in an investment alternative, such as a mutual fund, that is required to deliver a prospectus to investors under the federal securities laws, participants and beneficiaries must be afforded the opportunity to review the prospectus in connection with an initial investment in such investment alternative. . . it is the view of the Department that, under the 404(c) regulations, the term “prospectus” includes a Profile. The Department believes that the delivery of a Profile by an identified plan fiduciary or designee to plan participants or beneficiaries satisfies the requirements of the 404(c) regulations because it provides a clear summary of key information about a mutual fund that is useful to such participants and/or beneficiaries.
The opinion goes on to say:
Where the most recent prospectus in the plan’s possession is a Profile, then delivering the Profile to plan participants and beneficiaries, immediately before or immediately after such individuals’ initial investment in a mutual fund, would satisfy a participant-directed individual account plan’s prospectus delivery obligation under 29 CFR section 2550.404c-1(b)(2)(i)(B)(1)(viii). Where the most recent prospectus is a 10(a) prospectus, 29 CFR section 2550.404c-1(b)(2)(i)(B)(1)(viii) would require the delivery of a 10(a) prospectus.
Please note, however, that if a participant or beneficiary specifically requests “a 10(a) prospectus” then “the most recent 10(a) prospectus must be provided.”
You can access the DOL’s News Release about the advisory opinion here.
(Any comments on this from my securities law brethren-blawgers?)