The US Department of Labor recently stated that an individual account retirement plan such as a 401(k) plan may satisfy its prospectus delivery obligations under ERISA section 404(c) by distributing a mutual fund's Summary Prospectus.   In January 2009, the Securities and Exchange Commission (SEC) updated the disclosure rules for mutual funds to provide the option to use a Summary Prospectus, which is a short-form document written in plain English that includes specific required information.

ERISA Section 404(c) provides that a retirement plan fiduciary will not be liable under ERISA's fiduciary rules for an investment loss that results from participant-directed investments if, among other things, the plan participant is provided, or has the opportunity to obtain, sufficient information to make informed decisions about investment alternatives available under the plan.

The Department of Labor's statement makes clear that it views the provision of the Summary Prospectus (in place of a full prospectus) as meeting the prospectus requirements under ERISA section 404(c).   Because a Summary Prospectus is a simpler form of disclosure that contains key information such as investment objectives, risks and fees, it should be useful to participants in evaluating and comparing their plan investment options.  A Summary Prospectus must also contain information where a participant can obtain the statutory prospectus and other information free of charge.

Provided that mutual funds prepare Summary Prospectuses, the Summary Prospectuses should greatly simplify and enhance compliance with ERISA section 404(c).   Plan fiduciaries who wish to use a Summary Prospectus for purposes of ERISA section 404(c) should consider seeking the advice of legal counsel to ensure that the Summary Prospectus complies with ERISA 404(c), as well as applicable securities law.  Fiduciaries should also arrange to be notified when a Summary Prospectus is revised so that the plan can provide the most up-to-date document to participants.

If you have any questions regarding all the ERISA 404(c) requirements or would like assistance in reviewing your employee communication materials or program design, please contact Liza Hecht at lhecht@nfclegal.com or the NFC attorney with whom you normally work.