Delivery of summary prospectus satisfies conditions of PTE 77-4, EBSA advises

In an advisory opinion, the Employee Benefits Security Administration (EBSA) has concluded that the delivery of a summary prospectus to a second fiduciary satisfies the prospectus distribution requirements for purposes of Prohibited Transaction Class Exemption 77-4.

PT Class Exemption 77-4 provides an exemption from the prohibited transaction provisions of ERISA for an employee benefit plan’s purchase or sale of shares of a mutual fund when an investment adviser for the mutual fund or its affiliate is: (1) a plan fiduciary; and (2) not an employer of employees covered by the plan. Section II(d) of the class exemption contains certain conditions for the exemptive relief and provides, in pertinent part, that: “A second fiduciary with respect to the plan, who is independent of and unrelated to the fiduciary/investment adviser or any affiliate thereof, receives a current prospectus issued by the investment company, and full and detailed written disclosure of the investment advisory and other fees charged to or paid by the plan and the investment company, including the nature and extent of any differential between the rates of such fees, the reasons why the fiduciary/investment adviser may consider such purchases to be appropriate for the plan, and whether there are any limitations on the fiduciary/investment adviser with respect to which plan assets may be invested in shares of the investment company and, if so, the nature of such limitations.”

An opinion was sought from EBSA as to whether the delivery of a summary prospectus may be used to satisfy the condition in section II(d) of PTE 77-4 that requires the delivery of a mutual fund’s prospectus to the second fiduciary.

EBSA noted that the Securities and Exchange Commission (SEC) in 2009 published revised disclosure provisions for mutual funds which permit a person to satisfy its mutual fund prospectus delivery obligations under SEC rules “by sending or giving [specified] key information directly to investors in the form of a summary prospectus and providing the statutory prospectus on an Internet Web site.” The summary prospectus must contain the same information in the same order as the summary at the front of the statutory prospectus.

Following the SEC’s adoption of the summary prospectus rule, the Department concluded in Field Assistance Bulletin 2009-03 (Pension Plan Guide ¶19,981Z-9) that providing a summary prospectus to participants and beneficiaries satisfied the prospectus delivery obligations under the ERISA §404(c) regulations because “the required contents of the [s]ummary [p]rospectus provide key information about a mutual fund that will assist participants and beneficiaries in making informed investment decisions.”

In Advisory Opinion 94-35A, EBSA concluded that the provision of the Form N-1A Registration statement and certain additional information would satisfy the prospectus delivery requirement of section II(d) of PT Class Exemption 77-4 provided that the additional information contained all of the information relevant to the decision of the independent fiduciary to approve the purchase and sale of the mutual fund shares that otherwise would be included in the prospectus.

EBSA noted that PT Class Exemption 77-4 does not define the term “prospectus.” However, the summary prospectus, under the SEC’s rule, must provide investors with “key information” about a fund’s investment objectives, fees, investment strategies, risks and performance. Additionally, the summary prospectus must include a legend containing an internet address and telephone number for obtaining a statutory prospectus for the relevant mutual fund free of charge. Under such circumstances, it was EBSA’s view that the delivery of a summary prospectus to a second fiduciary satisfies the prospectus distribution requirement solely for purposes of section II(d) of PTE 77-4.

Source: EBSA Advisory Opinion No. 2013-04A.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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