Plan administrators can satisfy fiduciary requirements for disclosures concerning participant-directed individual account plans (the most common example being 401(k) plans) through the use of electronic media in certain circumstances, as described in a Technical Release issued by the U.S. Department of Labor (DOL) on September 13, 2011. Technical Release 2011-03 provides guidance on using electronic media for plan information disclosures in two situations: 1) when the information disclosed is included in a pension benefits statement; and 2) when the information is disclosed separately from a pension benefits statement. Plan administrators who make the required disclosures in accordance with the Technical Release will not be subject to enforcement action by the DOL. Notwithstanding this guidance, employers should watch out for future guidance as this is merely interim relief and final regulatory guidance is expected in the future.
Background on DOL Electronic Communication Rules
Plan sponsors and administrators are required to give various documents in the administration of their employee benefits plans. Using electronic media to provide such documents has become commonplace due to administrative and cost efficiencies. The DOL has issued final rules for the electronic delivery of documents required by the Employee Retirement Income Security Act (ERISA). These rules provide a safe harbor that can only be used for two classes of individuals: (1) participants who are able to effectively access electronic documents at any location where the participant is reasonably expected to perform his or her duties as an employee and for whom access to the electronic information system is an integral part of their duties; and (2) other participants (i.e., retirees, former employees, beneficiaries, and employee-participants who don’t have a computer as an integral part of their duties) who have affirmatively agreed to receive disclosures through electronic media.
In 2006, the DOL released guidance (Field Assistance Bulletin 2006-03) relating to pension benefit statements stating that they could be sent electronically using the safe harbor rule described above. In addition, the 2006 guidance permitted issuance of pension benefit statements in two other methods: (1) in accordance with Department of Treasury regulations relating to the provision of documents via electronic media or (2) via a secured website if certain requirements are satisfied. In the case of participant-directed 401(k) plans, these statements must be provided at least quarterly.
Final Rules on Disclosure for Participant-Directed Individual Account Plans
In October 2010, the DOL issued final rules regarding the fiduciary requirements for disclosures as to participant-directed individual account plans. These rules allow some of this required information, specifically certain fee and expense information, to be included in the quarterly pension benefit statement described above. However, in these rules, the DOL specifically did not address the standards applicable to electronic distribution of required disclosures. The preamble to the final rule notes that until further guidance is released, the DOL rule noted above, including the safe harbor, applies. It was expected that this section would be completed in time to ensure notice to plans prior to the compliance date for the rule (the earliest date that disclosures have to be made is May 31, 2012).
Technical Release 2011-03
Due to the approaching applicability date of the disclosure for participant-directed individual account plan final rules and the concerns of the employee benefits community, on September 13, 2011, the DOL issued Technical Release 2011-03 to clarify the different circumstances in which such disclosures may be sent electronically, pending the release of guidance under the final rule. The Technical Release provides interim relief for two categories of disclosures: one for disclosures that are included in pension benefit statements and a separate one for disclosures that are not included in pension benefit statements.
Disclosures Included in Pension Benefit Statements
Disclosures required under the participant-directed individual account plan disclosure final rules that are included in a pension benefit statement may be furnished in the same manner that the pension benefit statement is furnished. For example, if the pension benefit statement was sent electronically via a secure website in compliance with Field Assistance Bulletin 2006-03, then the fee and expense information for the participant-directed individual account plan may be sent electronically as well.
Disclosures Not Included in Pension Benefit Statements
The Technical Release provides separate guidelines for disclosures not included in pension benefit statements. The plan administrator has the option of using the safe harbor of the DOL general rule for disclosures through electronic media. In the alternative, pending further guidance, a plan administrator may furnish disclosures through electronic media in accordance with the following set of conditions:
- Participants and beneficiaries to whom the information is being disclosed must voluntarily provide their email address for the purpose of receiving the disclosure. The email must be requested at the same time that the plan sponsor provides an “Initial Notice” (described in paragraph 2 below). Employers must take note that the provision of an email address as a condition of employment (or plan participation) or the assignment of an email address by the employer will not be deemed voluntary for purposes of this requirement.
- An Initial Notice must be provided to participants and beneficiaries at the same time and in the same medium as the request for the email address (as described above) and contain certain information, including:
A statement that providing an email address for the disclosures is voluntary, and that providing the email address will result in disclosures being made electronically;
Identification or a brief description of the information that will be furnished electronically and how it can be accessed;
A statement that participants and beneficiaries may request and obtain the information, free of charge, via a paper copy and an explanation of how to exercise that right;
A statement that the participant or beneficiary has the right to opt out of receiving disclosures electronically at any time and an explanation of how to exercise that right ; and
An explanation of the procedure for updating the participant’s or beneficiary’s email address.
- An “Annual Notice” must be provided each year containing the information contained in parts (b) through (e) of the Initial Notice described above. Alternatively, if a participant or beneficiary has interacted electronically with the plan (for example, by updating or confirming an email address, sending an electronic message to the plan, or logging in to a website housing plan information) after he or she received the prior year’s Annual Notice or Initial Notice, the current Annual Notice may be provided electronically.
- The plan administrator must take reasonable steps to ensure that the electronic delivery results in actual receipt of the information. This can be accomplished through the use of return receipt or notice of undelivered electronic mail features, or through reviews or surveys.
- The plan administrator must take appropriate measures to make sure the confidentiality of personal information is protected within the electronic delivery system.
- The notices must be written in a way that is easily understood by the average plan participant.
- To the extent that a group of participant or beneficiary email addresses was already on file with the employer, plan sponsor or plan administrator at the time that certain initial disclosures under the final rules are required, a special transition provision allows the plan sponsor to forgo requirements 1 and 2 described above for that group. Instead, the group can be sent a notice that contains the information required for an Initial Notice (other than the statement regarding the voluntary nature of the email address disclosure). This notice must be sent on paper unless a participant has interacted with the plan electronically in the past year, in which case the notice may be sent via email.