In Field Assistance Bulletin No. 2009-3, the Department of Labor (the “DOL”) provides guidance on a plan fiduciary, of a participant-directed individual account plan, using a mutual fund’s Summary Prospectus to meet the fiduciary’s obligation to deliver a prospectus describing that mutual fund under the DOL’s ERISA Section 404(c) regulations.
By way of background, Section 404(c) of ERISA provides that, in the case of a participant-directed individual account plan, the fiduciary is not liable under ERISA for any investment loss which results from participant direction as to the investment of his or her plan account. The regulations under Section 404(c) regulations require that, among other things, a participant be given sufficient information to make informed decisions with regard to investment options available under the plan. In the case of an investment option which is a mutual fund, the Section 404(c) regulations require the plan fiduciary to automatically provide the participant with a copy of most recent prospectus for the mutual fund that has been provided to the plan, either immediately before or immediately following the participant’s initial direction to invest any portion of his or her plan account in the mutual fund. The Section 404(c) regulations also require the plan fiduciary to provide the participant, upon request and based on the latest information and materials available to the plan, with copies of the prospectus, financial statements, reports and any other financial materials relating to an investment option available under the plan, including a mutual fund.
On January 26, 2009, the Securities and Exchange Commission published rules for an enhanced disclosure framework for mutual funds, including a new Summary Prospectus rule (Rule 498 of the Securities Act). Under the new Summary Prospectus rule, a person may provide an investor with a Summary Prospectus as a means of complying with the prospectus delivery requirements of Section 5(b)(2) of the Securities Act, under which a statutory prospectus for a mutual fund must be provided to an investor upon the purchase of shares in that mutual fund. The Summary Prospectus is required to contain certain information about the mutual fund, e.g., the mutual fund’s name, its investment objectives and strategies, risks and prior performance, fee and expense information, the mutual fund’s investment advisers and sub-advisers and portfolio managers, and a toll-free telephone number where investors may obtain a full prospectus and other information free of charge.
In the Field Assistance Bulletin, the DOL indicates that the term “prospectus”, where ever used in the Section 404(c) regulations, includes a Summary Prospectus, because the required contents of the Summary Prospectus provide key information about a mutual fund that will assist participants in making informed investment decisions. Therefore, the delivery of a Summary Prospectus, both automatically and upon request, to a participant by the plan fiduciary will satisfy the prospectus delivery requirements of the Section 404(c) regulations, so long as the Summary Prospectus is the most recent prospectus provided to or received by the plan.