[Federal Register Volume 65, Number 179 (Thursday, September 14, 2000)]
[Notices]
[Pages 55858-55861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23603]



[[Page 55857]]

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Part VI





Department of Labor





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Pension and Welfare Benefits Administration



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Disclosure Obligations Under ERISA; Request for Information; Notice

  Federal Register / Vol. 65, No. 179 / Thursday, September 14, 2000 / 
Notices  

[[Page 55858]]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration


Disclosure Obligations Under ERISA; Request for Information

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of request for information.

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SUMMARY: This document requests information from the public concerning 
disclosure obligations of fiduciaries of employee benefit plans 
governed by ERISA. A principal component of ERISA's regulatory scheme 
is its specific disclosure rules, which generally impose two types of 
obligations on plan administrators: (1) Obligations to disclose certain 
information to plan participants and beneficiaries automatically; and 
(2) obligations to disclose certain information upon a participant's or 
beneficiary's request. The Department of Labor solicits comments in 
this document regarding the effect on employee benefit plans and 
employers of recent rulings of the United States Supreme Court and 
federal circuit courts regarding the extent of an ERISA fiduciary's 
duty to disclose information to participants and beneficiaries in 
addition to the specific disclosure requirements imposed under ERISA. 
The Department of Labor has in the past expressed its views on this 
matter by filing amicus briefs in related court cases. It intends to 
use the information submitted in response to this document as a basis 
for determining whether it would be appropriate for the Department to 
take more general action on these issues, such as by proposing 
regulations or legislative amendments.

DATES: Written comments are requested to be submitted to the Department 
of Labor on or before January 12, 2001.

ADDRESSES: Comments (preferably, at least six copies) should be 
addressed to the Office of Regulations and Interpretations, Pension and 
Welfare Benefits Administration, Room N-5669, U.S. Department of Labor, 
Washington, D.C. 20210. Attention: Disclosure RFI. All comments 
received will be available for public inspection at the Public 
Disclosure Room, Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5638, 200 Constitution Avenue, NW, 
Washington, D.C. 20210.

FOR FURTHER INFORMATION CONTACT: Ellen Goodwin or Susan Lahne, Office 
of Regulations and Interpretations, Pension and Welfare Benefits 
Administration, Room N-5669, U.S. Department of Labor, Washington, D.C. 
20210, telephone (202) 219-7461, or Patricia Arzuaga, Plan Benefits 
Security Division, Office of the Solicitor, U.S. Department of Labor, 
Washington, D.C. 20210, telephone (202) 219-4600, x153. These are not 
toll free numbers.

SUPPLEMENTARY INFORMATION:   

A. Background

    The Department of Labor (Department) seeks information from the 
public concerning the disclosure obligations of fiduciaries of employee 
benefit plans governed by the Employee Retirement Income Security Act 
of 1974 (ERISA). ERISA contains specific disclosure rules, contained in 
Part 1 of Title I, that require disclosure of certain information to 
participants and beneficiaries. Part 1 generally imposes two categories 
of obligations on plan administrators: (1) Obligations to disclose 
certain information automatically; and (2) obligations to disclose 
certain information upon a participant's or beneficiary's request. The 
provisions contained in Part 1 of Title I describe the content and 
timing of both types of mandated disclosures. ERISA further imposes 
certain general duties, contained in Part 4 of Title I, on plan 
``fiduciaries'' with respect to how they conduct their affairs.\1\
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    \1\ A ``fiduciary'' is ``someone acting in the capacity of a 
manager, administrator, or financial advisor to a `plan'.'' Pegram 
v. Herdrich, _ U.S. _, 120 S. Ct. 2143, 2151 (2000). See ERISA 
Sec. 3(21); 29 U.S.C. 1003(21).
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    Certain recent rulings by the United States Supreme Court and 
several federal circuit courts have expressed views under a variety of 
circumstances on the extent to which the fiduciary duties in Part 4 of 
ERISA create disclosure obligations beyond those set forth in Part 1. 
The law in this area is still evolving. The Department is concerned 
that these rulings, coupled with recent changes in the laws governing 
the substantive requirements for employee benefit plans,\2\ may have 
created uncertainty as to how plan fiduciaries may best conduct their 
affairs so as to satisfy their fiduciary and disclosure obligations 
under ERISA. Moreover, changes in work patterns of participants and 
beneficiaries, new forms of pension and health plan design, and changes 
to the provisions of ERISA and the private pension and welfare benefit 
system have resulted in questions about the application of fiduciary 
and disclosure provisions to differing circumstances. Although the 
Department has provided guidance to interpret and enforce the 
disclosure provisions in Part 1 of Title I and the fiduciary provisions 
in Part 4 of Title I through regulatory and other actions, the 
Department believes that these recent developments may suggest a 
possible need for further general guidance regarding the interplay of 
these provisions.
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    \2\ For example, most states have instituted comprehensive 
benefit mandates for health plans. In addition, federal law now 
includes benefit mandates regarding portability of health coverage 
and nondiscrimination in benefits (Health Insurance Portability and 
Accountability Act of 1996), coverage for maternity hospital stays 
(Newborns' and Mothers' Health Protection Act of 1996), mental 
health (Mental Health Parity Act of 1996), and reconstructive 
surgery following mastectomy (Women's Health and Cancer Rights Act 
of 1998).
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    The Department now seeks public assistance in determining whether 
it would be in the interest of plans, and their participants and 
beneficiaries, for the Department to undertake action to clarify the 
extent of fiduciary duties under ERISA regarding disclosure and the 
interaction of this fiduciary duty with the specific disclosure 
requirements under Part 1 of Title I. The Department intends to 
consider a variety of possible actions, including (but not limited to) 
promulgation of formal regulatory guidance, more targeted intervention 
in litigation, enforcement actions, or legislative reform proposals.

1. Statutory Duties

    With respect to automatic disclosures of information, ERISA 
specifically identifies particular documents and information that must 
automatically be provided to participants and beneficiaries independent 
of any request, for example, the Summary Plan Description (SPD) \3\ and 
summary annual reports.\4\ There are additional required disclosures 
that arise under particular circumstances (e.g., material modifications 
in plan terms) \5\ or as a result of the type of plan involved (group 
health plan versus other welfare benefit plans, self-funded plans 
versus insured).\6\
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    \3\ ERISA section 104(b)(1); 29 U.S.C. 1024(b)(1) (SPD to be 
furnished to participant and beneficiary receiving benefits under 
the plan within 90 days of becoming participant or beneficiary).
    \4\ ERISA section 104(b)(3); 29 U.S.C. 1024(b)(3) (summary 
annual report to be furnished to participants and beneficiaries 
within 210 days after close of fiscal year of the plan).
    \5\ ERISA section 104(b)(1); 29 U.S.C. 1024(b)(1) (summary of 
material modification (SMM) to be furnished within 210 days after 
end of plan year during which modification was adopted).
    \6\ ERISA section 101(d); 29 U.S.C. 1021(d) (single employer 
plan required to notify participants and beneficiaries of failure to 
meet minimum funding standards); ERISA section 104(b)(1); 29 U.S.C. 
1024(b)(1) (group health plan required to furnish summary to 
participants and beneficiaries of material reduction is covered 
benefits not later than 60 days after adoption of the change); ERISA 
section 103(e); 29 U.S.C. 1023(e) (plans offering coverage through 
an insurance policy required to disclose in annual report certain 
information regarding premium payments).

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[[Page 55859]]

    ERISA separately prescribes categories of documents that must be 
provided upon a participant's request, such as an annual individual 
statement of accrued benefits,\7\ or the latest version of the plan's 
SPD, annual report, or any terminal report.\8\ The statute also 
requires plans to provide to participants and beneficiaries, on written 
request, copies of any ``trust agreement, contract, or other 
instruments under which the plan is established or operated.'' \9\
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    \7\ ERISA Sec. 105; 29 U.S.C. 1025.
    \8\ ERISA Sec. 104(b)(4); 9 U.S.C. 1024(b)(4).
    \9\ Id. Compare Teen Help Inc. v. Operating Engineers Health and 
Welfare Trust Fund, No. C 98-2084, slip op. at 8 (N.D. Cal. Aug. 24, 
1999) (utilization review criteria used to decide a claim for 
benefits are ``other instruments'' and must be disclosed upon 
request under section 104(b)(4)), with Doe v. Travelers Ins. Co., 
167 F.3d 53, 60 (1st Cir. 1999) (``mental health guidelines'' used 
to decide a claim were not ``other instruments'' and therefore not 
required to be disclosed upon request under Sec. 104(b)(4)). In 
Advisory Opinion 96-14A (July 31, 1996), the Department expressed 
its view that ``any document or instrument that specifies 
procedures, formulas, methodologies, or schedules to be applied in 
determining or calculating a participant's or beneficiary's benefit 
entitlement * * * would constitute an instrument under which a plan 
is established or operated'' for purposes of section 104(b)(2) and 
(b)(4), regardless of whether such information is contained in a 
document designated as the ``plan document.''
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2. Fiduciary Obligations

    The general fiduciary duties set forth in Part 4 of Title I are 
simply summarized. Fiduciaries owe a duty of loyalty to plan 
participants and beneficiaries to act solely in their interest and for 
the exclusive purpose of providing benefits to them and defraying the 
reasonable expenses of administering the plan. ERISA section 404(a); 
see Pegram, 120 S. Ct. at 2151. A fiduciary must carry out his or her 
duties with the care, skill, prudence, and diligence under the 
prevailing circumstances that a prudent person with like knowledge and 
like capacity would use to conduct an enterprise of a like character 
with like aims; must diversify plan assets; and must operate the plan 
in accordance with its governing documents. Id. However, section 404 
does not specifically articulate a duty regarding disclosure of 
information to participants and beneficiaries.
    Recent court decisions have found that plan fiduciaries have a duty 
to disclose information not expressly required to be disclosed under 
Part 1 of Title I. These cases have involved the fiduciary duty to act 
solely in the interest of plan participants and beneficiaries and the 
issue of the extent to which this fiduciary duty encompasses a 
collateral duty to provide participants and beneficiaries with 
information they need to exercise their rights effectively under the 
plan, to protect their rights under ERISA, or otherwise to make 
informed decisions about their future. These decisions have differed 
with respect to their approach, and the law appears to be evolving. As 
a result of the differing judicial rulings, the rules applicable to 
fiduciaries regarding these obligations at present appear to vary 
according to the federal judicial circuit that has jurisdiction over 
the case.
    In Varity Corp. v. Howe,\10\ the Supreme Court opined that when a 
fiduciary speaks to participants and beneficiaries, the fiduciary 
standards of section 404 impose a duty upon the plan fiduciary to speak 
truthfully. Thus, a fiduciary may not lie to, or affirmatively mislead, 
a participant or beneficiary about plan terms or important aspects of a 
plan's status, such as whether the plan will soon be terminated. In 
reaching its decision, the Court expressly reserved the broader 
question of ``whether ERISA fiduciaries have any fiduciary duty to 
disclose truthful information on their own initiative, or in response 
to employee inquiries.\11\ The Court's recent decision in Pegram, 120 
S. Ct. at 2154 n.8, which addressed fiduciary issues arising out of 
medical decisionmaking under a group health plan, stated in dicta that 
``it could be argued that * * * [a fiduciary] is obligated to disclose 
characteristics of the plan and of those who provide services to the 
plan, if that information affects beneficiaries' material interests.'' 
Although not part of the holding of the Court in Pegram, this dicta 
could be read to support the conclusion that, in certain circumstances, 
a fiduciary has an affirmative duty of disclosure. In Pegram, the 
plaintiff had challenged an HMO's system for awarding financial 
incentives to its physicians, which she claimed impermissibly 
encouraged HMO physicians to deny needed care in return for increased 
monetary rewards.\12\
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    \10\ 516 U.S. 489 (1996).
    \11\ Id. at 506.
    \12\ Cf. Shea v. Esensten, 107 F.3d 625 (8th Cir.) (holding that 
a plan administrator has a fiduciary duty to disclose all material 
facts affecting a plan participant's health care interests, 
including financial incentives that might discourage a treating 
physician from providing essential referrals for covered 
conditions), cert. denied, 522 U.S. 914 (1997). But see Ehlmann v. 
Kaiser Foundation Health Plan of Texas, 198 F.3d 552 (5th Cir.) 
(holding that ERISA does not impose a duty on fiduciaries to 
disclose physician compensation arrangements in absence of inquiry 
or special circumstances), cert. dismissed, ____ U.S. ____, 2000 WL 
1146498 (Aug. 15, 2000).
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    Following the decision in Varity, lower federal courts have been 
confronted with a variety of issues regarding the scope of a 
fiduciary's duty to disclose, when such disclosure would not be 
expressly required under Part 1. The resulting decisions have created a 
patchwork of rules across jurisdictions. Certain circuit courts have 
held that providing misleading information to plan participants who 
inquire about, for example, their benefits under a plan or the extent 
of benefits generally under a plan may constitute a breach of fiduciary 
duty.\13\ Other circuit courts have gone farther to impose an 
affirmative duty on fiduciaries to provide complete and correct 
information, regardless of whether a participant or beneficiary has 
specifically inquired.\14\ Another circuit court has imposed upon plan 
fiduciaries a continuing ``duty to correct'' statements in an SPD that 
have become materially misleading to plan participants due to events 
subsequent to the distribution of the SPD.\15\ Courts have recognized 
that circumstances that may necessitate plan changes, such as employer 
business reorganizations or bad financial times, may create a conflict 
of interest between plan fiduciaries and participants over what 
information should be disclosed. In defining the boundaries of required 
disclosures, courts have attempted to balance the conflicting needs of 
employers and participants in the area of increased benefits under so-
called ``window plans'' by articulating tests requiring disclosure only 
when a company has become engaged in ``serious consideration'' of a 
plan change.\16\ At the other end of the

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spectrum, other circuit courts have been reluctant to create new duties 
to disclose information to participants, regardless of the asserted 
value of the information to participants, beyond what is specifically 
required by Part 1 of Title I, ERISA's reporting and disclosure 
provisions.\17\
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    \13\ Krohn v. Huron Memorial Hosp., 173 F.3d 542, 551 (6th Cir. 
1999) (faced with a participant injury, fiduciary had a duty under 
ERISA to convey to the participant complete and correct material 
information as to his eligibility for benefits and options under the 
plan); Eddy v. Colonial Life Ins. Co., 919 F.2d 747, 750 (D.C. Cir. 
1990 (same).
    \14\ Farr v. U.S. West, 151 F.3d 908, 913 (9th Cir. 1998), cert. 
denied ____ U.S. __, 120 S. Ct. 935 (2000) (finding that ``fiduciary 
has an obligation to convey complete and accurate information 
material to the beneficiary's circumstance, even when a beneficiary 
has not specifically asked for the information'' where SPD provided 
incomplete information on tax treatment of lump sum distributions); 
Jordan v. Federal Express Corp., 116 F.3d 1005, 1016 (3rd Cir. 1997) 
(finding that participant's failure to inquire did not preclude suit 
for breach of fiduciary duty for failure to disclose material facts 
regarding irrevocability of retirement elections).
    \15\ McAuley v. IBM Corp., Inc., 165 F.3d 1038, 1046 (6th Cir.), 
cert. dismissed, ____ U.S. ____, 120 S. Ct. 38 (1999).
    \16\ Bins v. Exxon, U.S.A., 189 F.3d 929, 935-37 (1999) 
(discussing different standards for ``serious consideration'' 
adopted by various federal circuits), rev'd en banc, No. 98-55662, 
2000 WL 1126387 (9th Cir. Aug. 10, 2000) (holding that in response 
to participant inquiries a fiduciary must disclose information about 
any plan changes then under serious consideration. Absent such 
inquiry, fiduciaries have no obligation to volunteer information 
about plan changes prior to final adoption.); Vartanian v. Monsanto 
Co., 131 F.3d 264, 272 (1st Cir. 1997) (employer had no fiduciary 
duty to disclose retirement incentive program because it was not yet 
under serious consideration at the time of participant's inquiry); 
Fischer v. Philadelphia Elec. Co., 96 F.3d 1533, 1539 (3rd Cir. 
1996) (the ``serious consideration'' test ``recognizes and moderates 
the tension between an employee's right to information and the 
employer's need to operate on a day-to-day basis;'' serious 
consideration found when ``(1) a specific proposal (2) is being 
discussed for purposes of implementation (3) by senior management 
with the authority to implement the change''), cert. denied, 520 
U.S. 1116 (1997).
    \17\ Ehlmann, 198 F.3d at 555; CWA/ITU Negotiated Pension Plan 
v. Weinstein, 107 F.3d 139 (2nd Cir. 1997) (no right to disclosure 
of pension plan's actuarial valuation reports); Faircloth v. Lundy 
Packing Co., 91 F.3d 648 (4th Cir. 1996) (no right to disclosure of 
IRS determination letter on plan's qualification status, bonding 
policy insuring ESOP against fiduciary misconduct, appraisal 
reports, or valuation reports of employer's stock and documents 
concerning employer's financial status and operations; funding and 
investment policy for plan treated differently as ``instrument under 
which the plan is established or operated''), cert. denied, 519 U.S. 
1077 (1997); Barnes v. Lacey, 927 F.2d 539 (11th Cir.) (no right to 
disclosure, in connection with company's offering early retirement 
window plan, of possibility that company might later offer second, 
enhanced window plan), cert. denied 502 U.S. 938 (1991).
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3. Issues To Be Addressed

    Because the federal courts' decisions have differed in their 
treatment of many issues concerning the fiduciary duty to make 
disclosures to participants and beneficiaries, the Department wishes to 
determine whether it would be advisable to issue general guidance in 
this area to encourage uniform protections to participants and 
beneficiaries across the nation.\18\ Therefore, the Department solicits 
comments to assist it in developing a basis on which to determine what 
actions, if any, would be in the public interest. The following 
specific questions are intended to highlight the areas of the 
Department's concern, but are not intended to limit the scope of 
comments. Please refer to the specific relevant question by number in 
responding to the enumerated questions. The Department solicits comment 
from interested parties on the following questions:
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    \18\ The Department has expressed its views in specific 
circumstances, including submitting amicus briefs in Varity v. Howe 
and Shea v. Esensten.
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    1. To what extent do the current reporting and disclosure 
requirements of Part 1 of Title I fail to meet the needs of 
participants and beneficiaries with respect to understanding their 
benefits, their rights under ERISA, and the consequences of choices 
offered to them under their plans?
    2. To what extent do the current administrative practices of plans 
fail to meet any of the following standards, each of which has been 
articulated by one or more courts as part of a fiduciary's duty under 
Part 4 of Title I:
    a. Plan administrators should provide complete and accurate 
information when responding to requests for automatic disclosures 
(courts have treated material omissions as affirmative 
misrepresentations);
    b. Plan administrators should correct misleading statements 
contained in documents provided upon request when it is clear that the 
statements which were once accurate and informative have now become 
misleading;
    c. Plan administrators should provide complete and accurate 
information relevant to the participant or beneficiary's specific 
circumstances when the participant or beneficiary requests information 
about his or her benefits;
    d. Plan administrators should provide complete and accurate 
information relevant to the participant or beneficiary's specific 
circumstances when the participant or beneficiary inquires about future 
plan changes;
    e. Plan administrators should disclose characteristics of the plan 
and of those who provide services to the plan, if that information 
affects beneficiaries' material interests.
    3. What practical factors should the Department consider in 
developing a general policy or interpretive approach to provide 
guidance concerning what disclosures are required of plan fiduciaries, 
beyond those required by Part 1 of Title I, and the relationship 
between a fiduciary's duties under Part 4 and Part 1?
    4. To what extent would changes have to be made to plan 
administration in order for plans to meet any or each of the standards 
set out in question 2, above?
    5. Should any guidance issued by the Department on fiduciary 
disclosure obligations take into consideration State regulatory 
requirements, or other federal regulatory requirements (e.g., 
securities laws, consumer protection laws, etc.)? If so, which 
requirements?
Data
    6. What costs and benefits for plan sponsors and participants would 
be associated with modifying plan administrative practices regarding 
disclosure to meet each of the possible standards described in question 
2, above?
    7. To what extent do the costs and benefits associated with 
modifying administrative practices to meet the possible standards 
described in question 2, above, differ among plans that are fully 
insured, administered by third parties, or self-administered?
    8. Are the costs and benefits for plan sponsors and participants of 
modifying administrative practices to meet the possible standards 
described in question 2, above, different for small plans (those with 
fewer than 100 participants)?
    9. To what degree is the timing of disclosures about plan 
modifications related to the timing of routine communications with 
employees, such as furnishing employee newsletters, open-season 
informational packets, or individual account statements?
    10. What costs and benefits might arise for plan sponsors and 
participants from additional guidance on fiduciary disclosure 
obligations, and how might these costs and benefits differ for small 
plans?
Hypothetical Fact Patterns
    11. A plan sponsor modifies the benefits provided under a plan to 
comply with recently enacted federal benefit requirements. How and when 
do plan fiduciaries currently inform participants of these changes?
    12. A plan subject to new federal benefit requirements has not yet 
been brought into compliance with the new federal requirements. The 
plan materials (such as the SPD) also have not yet been updated to 
reflect the changes, nor has the plan issued any notices advising plan 
participants of the changes in the law. The plan administrator is aware 
that the law affecting the plan has changed and that the plan is not 
yet in compliance. A participant, unaware of the new law, calls to ask 
whether the plan provides benefits that are mandated under the new 
requirements. What do plan administrators do in these circumstances?
    13. A participant has requested information about the value of the 
retirement benefit that he will have earned upon attaining a certain 
age. The plan administrator is aware that the retirement benefit would 
have a much greater value as an annuity versus a lump sum amount. The 
plan administrator is aware that the

[[Page 55861]]

retirement benefit would have a much greater value at a date earlier 
than the normal retirement age due to early retirement benefits. What 
information do plan administrators currently provide to participants 
under these circumstances?
    14. Employer A sells its business to Employer B and cancels its 
group health insurance, which had been provided through Issuer C. 
Employer B's group health plan will not absorb all of the former 
employees of Employer A. Employer A's plan offers conversion rights to 
the individual market, but neither Employer A's plan materials nor 
Issuer C's materials disclose this conversion right. Employee D, 
formerly a participant in Employer A's now-defunct plan, needs 
continuous, expensive treatment for a serious health condition which 
was covered by Employer A's plan and calls Issuer C to ask about 
conversion rights. What information do plan fiduciaries acting in 
capacities similar to Issuer C currently provide to an employee like 
Employee D?
    15. An employer is considering selling part of its business or 
instituting retirement incentives to reduce its labor costs. How, when, 
and to whom do fiduciaries currently disclose an employer's 
deliberations regarding retirement incentives?
    16. An employer is considering instituting a change to its defined 
benefit pension plan that would significantly change the value of the 
benefit, or reduce the value of the benefit upon attaining a certain 
age. How, when and to whom should the fiduciary of the employer's 
pension plan disclose the employer's deliberations regarding the 
changes to the benefit plan? What information do plan fiduciaries 
currently disclose to plan participants and beneficiaries in these 
circumstances, and when is this disclosure made?
    17. An employer offers an early retirement program for Pension Plan 
F, and Plan F issues booklets providing an overview of the retirement 
program to all eligible employees. The booklet purports to highlight 
the ``basic federal tax rules'' relevant to the choice between taking 
the pension benefits in a lump sum or in a series of monthly 
installments. The booklet does not say that only qualified portions of 
the lump sum distributions may be rolled over to another qualified plan 
or IRA without being taxed and that the rest of the distribution will 
be taxed. The plan materials describe the basic rule that qualified 
portions of a lump sum distribution may be rolled over tax-free, but do 
not explain what ``qualified'' means and who will be affected by this 
distinction. Would fiduciaries currently consider the information 
provided in these plan materials sufficient, and, if not, what 
additional information do fiduciaries currently provide, when, and to 
whom?
    18. An employer has failed to meet its obligation to pay for 
premiums on behalf of its employees for an insured health plan which 
could lead to a suspension of benefit payments or a termination of the 
policy. What disclosures are currently made by the insurer to plan 
participants under such circumstances and when are they made?
    All submitted comments will be available for public inspection and 
will be made a part of the public record of future guidance issued by 
the Department, in the event that the Department determines to issue 
future guidance on these matters.

    Authority: 29 U.S.C. 1135, 1143; Secretary of Labor's Order No. 
1-87, 52 FR 13139.

    Signed at Washington, DC, this 8th day of September, 2000.
Leslie Kramerich,
Acting Assistant Secretary for Pension and Welfare Benefits.
[FR Doc. 00-23603 Filed 9-13-00; 8:45 am]
BILLING CODE 4510-29-P