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News November 7, 2011 Issue

SEC Allows DOL-Required Plan Disclosures to Satisfy Advertising Rule

A year ago, the Department of Labor (DOL) adopted a new rule requiring the disclosure of certain plan and performance information to plan participants.

The information was similar to, but didnít quite match up with, the disclosures required by Rule 482 under the Securities Act of 1933, otherwise known as the advertising rule.

Commenters in the period prior to the ruleís adoption noted the discrepancies and problems that may result. DOL discussed those comments with the SEC and FINRA and received assurances from the SEC that it would provide guidance to resolve the problem.

To close that loop and ease the burdens of compliance with both the DOL rule and Rule 482 for plan administrators, DOL approached the SEC for some relief. On October 26, the SEC provided a letter expressing the staffís views on the rule discrepancies, and an agreement that the DOL ruleís information would be treated as complying with Rule 482.

The DOL rule describes various performance disclosures for investment companies and "variable rate" investments, a category that includes money market funds. Average annual total returns for one-, five-, and ten-year periods must be shown in a comparative chart. A web site address must be provided that offers supplemental investment-related information, including more current quarterly performance information.

Plan administrators must provide standard disclosures, such as the statement that past performance is not necessarily an indication of how the investment will perform in the future, and that fees and expenses are only one of a number of factors plan participants should consider when making their investment decisions.

Money market funds, as variable rate investments, are not required under the DOL rule to provide current yield information or to disclose that the fund is not insured by the FDIC or any other government agency.

Rule 482 on the other hand, permits a mutual fund to include uniformly calculated performance information in advertisements and other sales materials, provided the information is current to the most recent calendar quarter and available telephonically current to the most recent month ended seven business days prior to the advertisementís use.

Rule 482 also requires advertisements to include certain specific legends, specifies how information must be presented, and prohibits the advertisement from being accompanied by an application to purchase shares.

As part of the SECís analysis of the discrepancies between the two rules, the staff looked to DOLís purposes and policies underlying its rule.

"The DOL rule mandates the disclosure of specific investment-related information to facilitate a comparison of available investment options, and that the Plan Administrator must disclose this information in a comparative format," said the SEC.

Although it does not meet the timeliness standards of Rule 482, the DOL rule does require the inclusion of information that directs an investor to more timely and additional information that is available.

"In light of the purposes and policies behind the DOL Rule, it is our view that disclosure provided by a Plan Administrator to Plan Participants Ö that is required by and complies with the DOL Rule should not be viewed as inconsistent with the Rule 482 Timeliness Requirements or the Other Rule 482 Requirements," said the staff.

Based on that view, the staff agreed to treat DOL-compliant disclosures as communications that satisfy the requirements of Rule 482.

The SEC noted that such information need not be filed pursuant to Rule 497 with the SEC or certain national securities associations, such as FINRA. The SEC also noted that FINRA has agreed to interpret FINRAís rules applicable to these Plan Administrator disclosures under the DOL Rule in a manner that is consistent with the relief granted in the SECís letter.