When it comes to communicating with participant-directed individual account plan participants, firms must provide certain disclosures as required by the U.S. Department of Labor.  To assist its member firms, FINRA has published a Notice on what firms need to do in order to comply with both NASD communications requirements (Rules 2210 and 2211) and DOL requirements (ERISA Rule 404a-5). FINRA Staff Contacts. After reading this post, if you still have questions, contact:  Thomas Pappas, VP, Advertising Regulation - (240) 386-4553; or  Joseph Savage, VP, Investment Companies Regulation - (240) 386-4534. Background. In 2010, the U.S. DOL adopted Rule 404a-5 under the Employee Retirement Income Security Act of 1974 (ERISA), that requires the disclosure of certain plan and investment-related information.  This includes performance information to participants and beneficiaries in participant-directed individual account plans by a plan administrator or the administrator's designee. The DOL rule is designed to ensure that plan participants receive sufficient information about the plan and their investment alternatives or options - in a comparative format - to enable them to make informed decisions when managing their accounts. Under the DOL rule, a plan administrator must furnish investment-related information for each investment option offered under a plan - including performance information - to a plan participant on or before the date on which the plan participant can first direct his or her investment and, at least annually thereafter.  It's common for mutual funds and other securities issued under the Investment Company Act of 1940 to be among the investment options.

The Investment-related information for all the investment options must be presented in a chart or other comparative format, and that comparative chart must provide contact information for the purpose of obtaining a prospectus  - i.e., for investment options registered under the Securities Act of 1933 or the Investment Company Act or similar document (for investment options that are not so registered).

SEC No-Action Letter, dated 10/26/11. SEC staff issued a letter to the DOL in which the staff agreed to treat information provided by a plan administrator to plan participants that is required by and complies with the disclosure requirements set forth in the DOL rule as if it were a communication that satisfies the requirements of Rule 482 under the Securities Act.  The SEC staff further stated that such information need not be filed pursuant to Rule 497 under the Securities Act and Section 24(b) of the Investment Company Act with the SEC or FINRA.  The SEC letter further noted that FINRA staff intends to interpret applicable FINRA rules consistent with the SEC letter. Application of NASD Rules 2210 and 2211. NASD Rules 2210 and 2211 impose certain approval, recordkeeping, filing and content standards on firm communications with the public.  Among other things:

• NASD Rule 2210(c)(2) requires a firm to file advertisements and sales literature concerning registered investment companies (RICs) within 10 business days of first use or publication.
• NASD Rule 2210(d)(3) requires firm communications with the public, other than institutional sales material and public appearances, that present non-money market fund open-end management investment company performance data as permitted by Rule 482 under the Securities Act and Rule 34b-1 under the Investment Company Act to disclose certain performance and expense information in a manner prescribed by paragraph (d)(3).

To the extent that a firm provides information to plan participants that's required by and complies with the disclosure requirements set forth in the DOL rule, FINRA will treat the information as if it were a communication that satisfies the content and filing requirements of NASD Rules 2210 and 2211.  Accordingly, firms are not required to file the information with FINRA pursuant to NASD Rule 2210(c), nor is the information subject to the content requirements of NASD Rule 2210(d), including the expense and performance-related provisions of NASD Rule 2210(d)(3). Firms are cautioned, however, that including the disclosures required by the DOL rule in a communication does not affect other content not required by the DOL rule.  Accordingly, to the extent a firm includes in an advertisement or item of sales literature content that promotes a product or service of the firm, and is in addition to what is required by the DOL rule, the non-required content is subject to the requirements of NASD Rules 2210 and 2211.

e.g., if a firm prepares a brochure for plan participants that includes the disclosures required by the DOL rule, and also includes non-required promotional content regarding investment company securities available as investment options through the plan, the nonrequired content will be subject to the content and filing requirements of NASD Rules 2210 and 2211.

Furthermore, a firm that prepared such a brochure would be required to file the brochure with FINRA for review of the content not required by the DOL rule.

For further details, go to:   [FINRA RegNote 12-02, January 2012].