SEC Division of Investment Management staff letter: Department of Labor

Securities Act of 1933 — Rule 482 Department of Labor

October 26, 2011

RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT

File No. 132-3 Our Ref. No. 20081112953

Your letter dated October 26, 2011 requests that we state our views regarding the applicability of Rule 482 (“Rule 482”) under the Securities Act of 1933 (“Securities Act”) to disclosures required by Rule 404a-5 (“DOL Rule”) under the Employee Retirement Income Security Act of 1974 (“ERISA”). We agree to treat information provided by a plan administrator 1 or any person designated by a plan administrator to act on its behalf (“Plan Administrator”) to plan participants or beneficiaries that is required by and complies with the disclosure requirements set forth in the DOL Rule, as specified below, as if it were a communication that satisfies the requirements of Rule 482 under the Securities Act.

I. Background

On October 20, 2010, the Department of Labor (“Department”) adopted the DOL Rule which requires the disclosure of certain plan and investment-related information, including performance information, to participants and beneficiaries in participant-directed individual account plans (“Plan Participants” and “Plans,” respectively) by Plan Administrators. 2 The DOL Rule is designed to ensure that Plan Participants are provided with sufficient information regarding the Plan and designated investment alternatives (“Investment Options”), in a comparative format, to make informed decisions when managing their accounts. In developing the investment-related disclosure requirements, the staff of the Department consulted with the Commission staff on certain provisions of the DOL Rule, including those relating to the presentation of the performance of Investment Options with respect to which the return is not fixed (“Variable Rate Investment Options”).

A Plan may designate securities issued by an investment company registered under the Investment Company Act of 1940 ("Investment Company Act") as an Investment Option. 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 prior to or on the date on which the Plan Participant can first direct his or her investment and at least annually thereafter. 3 The DOL Rule requires that the investment-related information for all Investment Options under a Plan be presented in a chart or other comparative format. 4 The comparative chart must provide contact information for the purpose of obtaining a prospectus (for Investment Options registered under the Securities Act or the Investment Company Act) or similar document (for Investment Options that are not so registered). 5

With respect to an Investment Option that is a Variable Rate Investment Option, the DOL Rule generally requires disclosure, in a comparative format, of the average annual total return (“total return”) of the investment for the one-, five- and ten- calendar year periods ending on the date of the most recently completed calendar year (or for the life of the investment, if less than one of the specified periods). 6 A Plan Administrator, after the initial disclosure to Plan Participants, is required to disclose the total return for any Variable Rate Investment Option at least annually to Plan Participants (“DOL Timeliness Requirement”). 7 In addition, the comparative chart must specify an Internet Web site address 8 in order to provide Plan Participants with access to supplemental investment-related information, including more current performance information. 9 Performance information available at the Web site address must be updated on at least a quarterly basis, or more frequently if required by other applicable law. 10 The comparative chart must contain a statement that an investment's past performance is not necessarily an indication of how the investment will perform in the future. 11 The comparative chart also must contain a statement that fees and expenses are only one of several factors that Plan Participants should consider when making investment decisions. 12

Under the DOL Rule, money market funds 13 are considered a Variable Rate Investment Option and their performance information must include total return for the one-, five- and ten- calendar year periods ending on the date of the most recently completed calendar year (or for the life of the investment, if less than one of the specified periods). 14 The DOL Rule does not require that the performance information for a money market fund -- or any other Variable Rate Investment Option presented alongside the money market fund in a comparative format -- include its current yield in addition to total return. The DOL Rule does not require a money market fund to disclose that it is not insured by the Federal Deposit Insurance Corporation or any other government agency.

II. Analysis

Rule 482 permits an open-end investment company registered under the Investment Company Act ("fund") to include, among other things, uniformly calculated performance information in advertisements and other sales materials (“advertisements”). Under Rule 482, among other things, performance information included in an advertisement for a fund generally must meet the following requirements: (A)(i) total return is current to the most recent calendar quarter ended before the advertisement is submitted for publication, and (ii) total return current to the most recent month ended seven business days prior to the date of use is provided telephonically or through a Web site address identified for that purpose; or (B) total return is current to the most recent month ended seven business days prior to the date of use of the advertisement ("Rule 482 Timeliness Requirements"). 15 Under Rule 482, any quotation of a money market fund's total return in an advertisement must be accompanied by a quotation of the fund's current yield. 16 Rule 482 also requires certain specific legends in advertisements, 17 specifies the manner of presentation, 18 and prohibits an advertisement from being accompanied by an application to purchase shares (collectively, "Other Rule 482 Requirements"). 19

The DOL Timeliness Requirement for performance information presented in a comparative chart may provide for performance information that is less current than that required under the Rule 482 Timeliness Requirements. The DOL Rule does not require a comparative chart to present a money market fund's current yield, but only total return. Finally, the DOL Rule's requirements as to specific legends and presentation of information in the comparative format differ somewhat from the Other Rule 482 Requirements. 20

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. The DOL Timeliness Requirement applies to the presentation of performance information for all Variable Rate Investment Options. The DOL Rule requires that any comparative chart include a statement that additional investment-related information (including more current performance information) is available at the listed Internet Web site address for the Investment Options. With respect to money market funds, under the DOL Rule, performance information for money market funds would be presented in the same manner as, and compared to, other Variable Rate Investment Options, none of which is required by the DOL Rule to disclose current yield for purposes of the comparative presentation. 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, specified above, 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.

III. Conclusion

Based on the facts and representations in your letter, and the purposes and policies underlying the DOL Rule, we agree to treat information provided by a Plan Administrator to Plan Participants, specified above, 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. We also are of the view 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 Commission or certain national securities associations, such as the Financial Industry Regulatory Authority (“FINRA”). 21 We note that FINRA staff has informed us that it intends to interpret FINRA’s rules applicable to the information provided by a Plan Administrator to Plan Participants that is required by and complies with the disclosure requirements under the DOL Rule in a manner that is consistent with our positions in this letter.

Lily C. Reid

Senior Counsel

See n.2, infra .

Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans, 75 FR 64910 (Oct. 20, 2010) (adopting Rule 404a-5) [29 CFR � 2550.404a-5] (“DOL Rule Adopting Release”). The term “plan administrator” is defined in Section 3(21) of ERISA and, for purposes of the disclosure requirements in the DOL Rule, includes a “plan administrator” as defined in Section 3(16)(A) of ERISA. See Rule 404a-5(a).

See Rule 404a-5(d)(1). The required investment-related disclosure, among other information, includes the name, performance data, comparative benchmark, and fees and expenses of the Investment Option.

See Rule 404a-5(d)(2)(i).

See Rule 404a-5(d)(2)(i)(A).

See Rule 404a-5(d)(1)(ii)(A). Under the DOL Rule, total return generally is calculated using the standardized total return method of computation specified by the Commission in Form N-1A (or Form N-3 or N-4 if appropriate). See Rule 404a-5(h)(3).

See Rule 404a-5(d)(1).

The preamble to the DOL Rule confirms that a Plan Administrator is responsible for ensuring availability of the Internet Web site address to Plan Participants. The preamble, however, discusses that a Plan Administrator, service providers to the Plan or issuers of Investment Options may be responsible for establishing and maintaining the Web site depending on the arrangements the parties have entered into to provide or receive such services. See DOL Rule Adopting Release, at 64918.

See Rule 404a-5(d)(1)(v)(E). The comparative chart also must contain a statement that additional investment-related information, including more current performance information, is available at the specified Web site and explain how to request paper copies of such information. See Rule 404a-5(d)(2)(i)(B) and Rule 404a-5(d)(2)(i)(C).

See Rule 404a-5(d)(1)(v)(E).

See Rule 404a-5(d)(1)(ii)(A).

See Rule 404a-5(d)(1)(iv)(4). The comparative chart also requires a statement that the cumulative effect of fees and expenses can substantially reduce the growth of a Plan Participant’s account and that the Department’s Web site contains an example demonstrating such effect. See Rule 404a-5(d)(1)(iv)(5).

Rule 2a-7 under the Investment Company Act defines the term “money market fund.”

See Rule 404a-5(d)(1)(ii)(A).

See Rule 482(g).

See Rule 482(e)(2).

See 482(b)(1), (b)(3) and (b)(4).

See Rule 482(b)(5).

See Rule 482(c).

The information provided in compliance with the DOL Rule may be accompanied by a plan enrollment form that includes, among other things, instructions as to how a Plan Participant may direct his or her investments among the Investment Options.

Rule 497 under the Securities Act requires Rule 482 advertisements to be filed with the Commission. Rule 482 advertisements are considered filed with the Commission if filed with a national securities association registered under Section 15A of the Securities and Exchange Act of 1934 that has adopted rules and procedures for reviewing investment company advertisements, such as FINRA. See Rule 497(i). In addition, Section 24(b) of the Investment Company Act generally requires funds, among others, to file any advertisement, pamphlet, circular, form letter, or other sales literature with the Commission. Under Rule 24b-3 under the Investment Company Act, investment companies are deemed to satisfy this requirement by filing sales literature with the same entities specified in Rule 497(i).

Incoming Letters

U.S. Department of Labor, Employee Benefits Security Administration

Final Rule: Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans , U.S. Department of Labor, Employee Benefits Security Administration (75 FR 64910)

Final Rule: Requirements for Fee Disclosure to Plan Fiduciaries and Participants � Applicability Dates , U.S. Department of Labor, Employee Benefits Security Administration (76 FR 42539)

http://www.sec.gov/divisions/investment/noaction/2011/dol102611-482.htm

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U.S. Department of Labor Employee Benefits Security Administration Washington, D.C.20210 October 26,201 1 Douglas J, Scheidt Associate Dkor and Chief Counsel Division of Investment Management United States Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549
Dear Mr. Scheidt:
This is to request a 'bo-action"letter concerningthe applicabilityof Rule 482 under the Securities Act of 1933 with respect to disclosures required under a regulation issued by the Department of Labor last October, 75 Fed. Reg. 64910 (Oa.20,2010). The regulation requires certain retirement savings plans to disclose information on invcstment alternatives to participants and beneficiarieswho may direct the investment of their individual plan accounts. The Department seeks assurance that a plan's compliance with these disclosure requirements, whether by the plan administratoror its designees, will not result in action by the Securities and Exchange Commission (SEC or the Commission) related to Rule 482. The Department administersand enforces the fiduciary, reporting, disclosure and other provisions ofTitle I of the Employee Retirement Income Security Act of1974 (EMSA). 29 U.S.C. 1002 et sq. Throughthe Employee Benefits Security Administration, it oversees approximately718,000 private pension plans, including 498,000participant-directed individual account plans, such as 401&)-type plans. These plans cover an estirnated 86 millionactive participants and hold approximately$4.7 trillion in assets. Many of these plans offer investment options issued by investment companies registered under the Investment Company Act ofI 940. The Department'sregulationrequires plan administratorsof participant-directeel individual account plans to disclose plan and investment-related inkrmation to participants and beneficiarieson or before the date an individual can bt direct his or her investments and at least annually thereafter. 29 CFR $25 50.404~-5.The Department recently delayed the applicability date for this rule, 76 Fed. Reg. 42541 (July 19,2011). We expect that plans will need to begin making disclosuresunder this rule by June 201 2. A copy of the regulation and its related extension are enclosed for your convenience.

The regulation generally requires disclosure of specified performance, benchmarking, and fke infbrmation &r each investment option available under the plan, including those issued by investment companiesregistered under the Investment Company Act clf 1940. For investment options with varying returns, the plan must disclose the "average annual total return ofthe investment for 1-,5-, and f 0- yew periods (or for the life of the alternative, if shorter) ding on the date of the most recently completed calendar year." Plans must also make this and other infoxmation, including performance data updatedon at least a quarterly basis, or more hquently if required by other applicable law, availableto participants via an Internet Web site address, which may or may not [ink to an investment company's or issuer's Web site. 29 C.F.R. 4 2550.404a-S(d)(l)(v). The regulationtreats money market funds as investments for which the return is not fixed. Thus under the regulation, plans must provide the above-mentionedhistorical return information tbr a mney market fund along with a statement that past perfbrmance is not necessarily indicative of performance in the futwe. However, unlike SEC Rule 482, the regulation does not require a statement that a mney market fund is not insured by the Federal Deposit Insurance Corporation or any 0th government agencyor disclosureofthe fund's current yield. 29 C.F.R. #2550.404a￾5@)(1)(NCA)- Investment-related information, including performance data, must be provided in a chart or other cornparative fbrmat designed to help plan participants review and compare their investment options. This document must include the name and telephone humber of the person to contact in order to request additional information about the investmentsoffered under the plan, including a prospectus or similar document. It must ah direct participants to the website address where supplementa1 information is available. 29 C.F.R $2550.404a-5(d)(2). Comments we received on the notice ofproposed rulemaking published in 2008 raised questions on how compliance with the Department'sregulationwould be treated under the Commission's advertking rules. Although cornenters fbcused on differencesbetween the proposal's annual disclosure requirement for perfbrmance data and the timeliness quuements in Rule 482(g), other difference exist as well. Based On our review of these comments, it appears that applying Rule 482 to the disclosures required by the Department'sregulation may greatly complicate wmpliance with the regulation. As ynu know, we discussed the issues with the Commission's staff and staff of FTNRA. As a result of these consultations, we stated in the preamble to the final regulation that - The Commission's staff has advised that it expects to communicate its position to the Department in a staff no-action letter, which will be issued before the applicability date of this final mle. FINRA staff has stated that it will apply the Commission's advertising rules in a
manner that is consistent with the Commission's staff position published in the no-action letter. The Department and the Commission will in turn, make the letter available to the public on their respective Web sites.

75 Fed. Reg. 64916. The regulated community's legitimate aoncms should be resolved as soon as practicable. We believe a clear no-action statement by the Commission staff will provide the needed assurance and wiil assist ERISA plan administrators and their service providers. We are aware that a no-action letter will neither relieve any party of its obligations under the anti-hud provisions offederal securities laws nor affect the Cammission's enforcement ofsuch provisions. Please feel kee to oontact Jeffrey Tuner of my staff at (202) 693-8510 if you require any addit ional information. Sincerely, I Alan D.Lebowitz Deputy Assistant Secretary for Program Operations Attachments