On October 23, 2019, the United States Department of Labor (DOL) published proposed regulations that would add a new safe harbor for the use of electronic disclosures by retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). The proposal, if adopted, would allow retirement plan administrators to post most required communications under ERISA online.
The proposed safe harbor uses a “notice and access” approach. Under the proposal, disclosures could be posted on a website; participants and beneficiaries could be given an electronic notice of the posting, and they could access the documents online. Although plan administrators would be required to send a notice informing participants that a document is available online, administrators would not be required to send an electronic version of the document itself. The required document would only need to be posted on a website. This approach is consistent with many of the electronic recordkeeping platforms already in use that allow participants and beneficiaries to log into their accounts online and access a variety of documents, such as summary plan descriptions, summary annual reports and quarterly benefit statements.
These rules are proposed to apply only to retirement plan communications. They would not apply to welfare plans, like medical plans and disability plans. However, the DOL has left open the possibility that it may extend these or similar rules to apply to welfare plans in the future. In the preamble to the proposed regulations, the DOL explains that many of the disclosures required by welfare plans raise different considerations from the disclosures required by retirement plans. The preamble explains that the DOL intends to study the future application of these rules to welfare plans and asks for comments on this issue.
Under the proposed rule, the administrator of a retirement plan would be permitted to furnish “covered documents” to “covered individuals,” subject to certain notice and other requirements.
- Covered documents: The proposed rule would cover any retirement plan disclosure that a plan administrator is required to furnish to participants and beneficiaries under Title I of ERISA, except for documents that must be provided upon request. Covered documents include summary plan descriptions, summaries of material modifications, summary annual reports, pension benefit statements and blackout notices.
Eversheds Sutherland Observation: Some of the documents that a plan administrator must provide automatically (and that are covered by the new safe harbor) are also ones that must be provided upon request (and that are not covered by the safe harbor). For example, a plan administrator must automatically provide a summary plan description and an annual report to plan participants, but a plan participant can also request the most recent summary plan description and latest annual report. Under the proposed rule, a plan administrator could not satisfy a participant request for these documents simply by directing the participant to the online webpage where the documents are available. This seems like an odd result, and this aspect of the proposed rule is likely to be the subject of much commentary. Other documents that must be furnished upon request include bargaining agreements, terminal reports, and trust agreements.
- Covered individuals: The proposed rule applies to individuals entitled to the covered documents who—as a condition of employment, plan participation, or otherwise—provide the employer, plan sponsor or plan administrator with an electronic address, such as an email address or smartphone number. Employees who receive employer-provided email addresses, or who receive an employer-issued smartphone with a data plan, will automatically satisfy this requirement.
Eversheds Sutherland Observation: By including a smartphone number as an electronic address that satisfies the requirements of the proposed rule, the DOL appears willing to accommodate some of the more cutting-edge technology in the plan recordkeeping industry. Although mobile retirement plan administration is relatively new, it is quickly gaining popularity. The proposed rule signals that the DOL does not intend to stand it its way.
Notice: Before making the documents available online, the plan administrator must provide each covered individual with a paper notice explaining that: (1) some or all covered documents will be furnished electronically, along with a statement of the right to request and obtain a paper version of the covered document, free of charge; (2) a statement of the right to opt out of receiving covered documents electronically; and (3) an explanation of how to exercise those rights.
After providing the initial paper notice described above, plan administrators must then furnish each covered individual with a “notice of internet availability” for each covered document. This notice generally must be furnished using the covered individual’s electronic address at the time the covered document is made available on the website, but no later than the date that the covered document is required to be provided.
Plan administrators may provide a combined notice of internet availability for certain documents. If a combined notice is used, the combined notice must be provided annually, subject to certain timing requirements. The combined notice can cover the following documents: summary plan descriptions, summary of material modifications, summary annual reports, certain investment-related disclosures, qualified default investment alternative (QDIA) notices and pension benefit statements.
Eversheds Sutherland Observation: Although the proposed regulations make it clear that certain notices can be combined for a given plan, it is not as clear whether notices for multiple plans can be combined. Additional clarification on this point would be helpful.
The notice of internet availability must include:
- a prominent statement, such as a title, legend or subject line that reads, ‘‘Disclosure About Your Retirement Plan’’;
- the following statement: “Important information about your retirement plan is available at the website address below. Please review this information’’;
- a brief description of the covered document that conveys key information about its importance;
- the internet website address where the covered document is available, which must be sufficiently specific to provide ready access to the covered document (a website address that leads an individual directly to the covered document meets this standard, as does a web address that leads to a login page that provides a prominent link to the covered document);
- a statement of the right to request and obtain a paper version of the covered document, free of charge, and an explanation of how to exercise that right;
- a statement of the right to opt out of receiving covered documents electronically, and an explanation of how to exercise that right; and
- a telephone number to contact the administrator or other designated representative of the plan.
Interestingly, the proposed rule provides that the notice can contain only the information described above and cannot include other content, except for pictures, logos and design elements that are not misleading. The proposed rule also requires the notice to be written in a manner that is calculated to be understood by the average plan participant, with short active-voice sentences that use everyday words and avoid double negatives. The preamble explains that the DOL intends the notice of internet availability to be a clear, concise disclosure that will convey its importance and alert recipients to its content.
- Internet Website: On the website itself, the plan administrator must take measures reasonably calculated to ensure that the covered document(s):
- is available no later than the date on which the covered document must be furnished under ERISA;
- remains available on the website until it is superseded by a subsequent version of the covered document;
- is presented in a manner calculated to be understood by the average plan participant;
- is electronically searchable (i.e., by numbers, letters or words); and
- is presented in a widely available format or formats (such as portable document format or PDF) suitable to be read both online and printed clearly on paper, as well as being able to be permanently retained in an electronic format.
In addition, the plan administrator must take steps to protect the confidentiality of personal information.
- Right to paper copies or to opt out of electronic delivery: Covered individuals must have the right to opt out of electronic delivery and receive only paper versions of some or all covered documents. The plan administrator must establish and maintain reasonable procedures governing these requests.
- Invalid or inoperable addresses: The system for furnishing notices of internet availability must be designed to alert the plan administrator of invalid or inoperable electronic addresses. If the plan administrator becomes aware that a covered individual’s electronic address has become invalid or inoperable, the plan administrator must promptly take “reasonable steps to cure the problem” or treat the covered individual as if he or she elected to opt out of electronic delivery and receive only paper copies. The proposed regulation notes that a plan administrator might become aware that an email address is invalid if an email is returned as undeliverable. Examples of “reasonable steps to cure the problem” include sending the notice to a secondary electronic address or obtaining a new valid address.
- Special rule for severance from employment: If a covered individual severs from employment with the employer, the plan administrator must take steps to ensure that the individual’s current electronic address remains valid or obtain a new electronic address following the individual’s severance from employment.
The preamble to the proposed rule explains that the DOL wants to make this new safe harbor available as soon as possible. Underscoring this intent, the rule is proposed to be applicable for the first calendar year following publication of the final rule, and the DOL has asked for comments on the proposed rule by November 22, 2019, only 30 days after publication in the Federal Register. (Comments are typically due 90 days after publication.) It seems unlikely that the DOL will be able to finalize this rule before the end of 2019 for application in 2020, but finalization for 2021 is realistic.