Thursday, November 03, 2011

DOL-Mandated Disclosures Satisfy Fund-Advertising Requirements

In a letter to the Department of Labor, the SEC staff has agreed to treat information provided by administrators of participant-directed individual account plans to plan participants pursuant to a Department of Labor (“DOL”) disclosure rule as if it were a communication that satisfies the requirements of the Securities Act. The DOL’s rule requires certain retirement plan administrators to disclose information on investment alternatives, including investment options issued by registered investment companies, to participants directing the investment of their individual plan accounts. (Department of Labor, October 26, 2011)

The required disclosures include performance data and benchmarking information, as well as fees and expenses, for each investment option and must be provided in a comparative format in order to facilitate participants’ review. For variable-rate investment options, which include money market funds, a plan must, in comparative form, disclose the average annual total return of the investment for 1-, 5-, and 10- year periods ending as of the close of the last calendar year. For these investment options, however, the comparative chart must also contain a statement that an investment's past performance is not necessarily indicative of future performance.

Rule 482 under the Securities Act permits registered investment companies to include performance information in advertisements so long as any total return figure is current to the most recent calendar quarter-end prior to publication or to the most recent month ended seven business days prior to use. Under the rule, any quotation concerning a money market fund's total return must be accompanied by a quotation of the fund's current yield; the rule also requires the inclusion of certain statements in fund advertisements and specifies the manner of presentation.

The DOL acknowledged that the information required under its regulations may provide for performance data less current than that required under Rule 482 and would not include records regarding a money market fund's current yield or other required statements and clarifications. The DOL explained that additional investment-related information, including more current performance data, will be available to participants online and that it would be inappropriate to treat money market funds as distinct from other variable-rate investment options under the DOL’s disclosure rule.

The staff agreed that disclosures provided in compliance with the DOL’s regulations would be treated as consistent with Rule 482 and clarified that the disclosures also need not be filed with the Commission or certain self-regulatory organizations pursuant to Securities Act Rule 497 or Investment Company Act Section 24(b).

This post was contributed by my colleague Amy Leisinger