On October 23, 2019, the Department of Labor issued proposed regulations to add a safe harbor provision that permits electronic delivery of annual retirement plan disclosures. The proposed regulations are a significant development in retirement plan regulations and mark the Department of Labor's first expansion into disclosures through electronic media since 2011.
The safe harbor’s key impact is that after the regulations are finalized, required disclosures will be able to be delivered electronically by default if certain procedural and substantive requirements are satisfied. Previously, plan administrators could only provide required disclosures electronically in limited circumstances or by obtaining the consent of participants. Under the proposed regulations, however, plan administrators are offered another path to communicate information electronically to all participants who do not opt out. Once the regulations become final and effective, plan administrators may set up websites that participants can access to receive required disclosures.
BACKGROUND ON RETIREMENT PLAN DISCLOSURES
Under ERISA, plan administrators are required to deliver certain documents to retirement plan participants, beneficiaries, and other entitled individuals on an annual basis. Plan administrators must provide required information by methods reasonably calculated to ensure actual receipt. In the past, this was accomplished through hand-delivery or mailing of documents.
In 2002, the Department of Labor created a safe harbor permitting the electronic distribution of information to participants whose use and access of computer systems is an integral part of their employee duties. Other participants may also opt into electronic delivery under this safe harbor.
In 2011, the Department of Labor published temporary guidance permitting electronic delivery of disclosures if the participant voluntarily provides the employer, plan sponsor, or administrator with an email address.
Under an August 2018 Executive Order, the Department of Labor was directed to investigate ways of making required plan disclosures easier to understand and more useful for participants and their beneficiaries and less burdensome for employers.
OVERVIEW OF THE PROPOSED REGULATIONS
What is it?
The proposed regulations create a system under which certain retirement plan disclosures may be made electronically. After the plan administrator provides the participant a paper notice, one or more required plan disclosures may be uploaded onto a website. Plan participants may opt out of electronically receiving individual disclosures or “globally,” in which case, the disclosures must be made in paper or another form permitted under the regulations. Participants who do not opt out must be given a notice, electronically, which identifies the disclosures and contains a link directly to the website. The link may direct the participants to a portal login for the disclosures.
Who does it affect?
The proposed safe harbor may be used to provide disclosures to participants, beneficiaries, or other individuals entitled to the required disclosures who provided the employer, plan sponsor, or plan administrator with an “electronic address,” such as an email address or smartphone number. Employers may collect this information through plan enrollment or independently, for example, as part of the hiring process. A participant who is issued a company email address or phone number is deemed to have provided this information.
When will it be effective?
The proposed regulations are open for comments for 30 days from publication. Once the final regulations are published, they will become effective after 60 days. Plan administrators may begin using the safe harbor at any time after it becomes effective.
What does it not affect?
The proposed regulations do not affect the distribution of required disclosures for health and welfare plans. The Department of Labor is considering the application of the regulations to such plans and reserved a subsection for this purpose.
THE PROPOSED REGULATIONS IN DETAIL
Any document provided to a participant or beneficiary under Title 1 of ERISA may be delivered through this safe harbor. These documents include, for example, the summary plan description and summary of material modifications. This safe harbor, however, is not available for documents that must be furnished on request or another triggering event. Documents that participants may specifically request include the latest summary plan description, form 5500 annual report, and the instruments under which the plan is established or operated. Plan administrators are not required to furnish all disclosures under this safe harbor and may use multiple methods of delivery.
Notice of Internet Availability
The plan administrator must send each electronic disclosure recipient a Notice of Internet Availability (the “Notice”), at their electronic address, when a required disclosure is posted on the website. The Notice must contain only specified information designed to lead the recipient directly to the disclosure document. Notices for multiple disclosures may be combined and sent once annually but prior to the date or dates on which each document must be furnished.
Timing of electronic disclosures
The plan administrator or other party must ensure that the required disclosure is uploaded to the website on or before the date that it must be furnished under ERISA.
The disclosures website
The plan administrator is responsible for setting up and maintaining the website which displays the required disclosures and must take measures reasonably calculated to ensure that personal information is kept confidential.
Participants who opt out
Participants are not required to accept electronic delivery of required disclosures. At any time, participants may request a free paper copy of any or all disclosures. A person entitled to the disclosures may opt out of receiving any covered documents electronically altogether; this global opt out is effective until the participant elects to opt back in to electronic delivery.
Deemed opt out on failure of electronic address
The Notice system must have the ability to alert the plan administrator of a participant’s invalid or inoperable electronic address. When the plan administrator becomes aware of such an issue, it must treat the recipient as if he or she had elected to opt out of electronic delivery. To prevent this issue, plan administrators could, for example, retain a backup electronic address for the recipient. In any case, the plan administrator must promptly cure the issue; otherwise, the deemed election persists until the plan administrator obtains a valid electronic address.
Obligation to ensure participants use electronic address
The plan administrator’s responsibility under the safe harbor is ensuring that participants receive the Notice at their electronic address and that disclosures are available on the website; the proposed regulations, however, do not discuss the plan administrator’s duty for ensuring that the participant actually reads the Notice. As a best practice, a plan administrator should confirm that recipients read the Notice, for example, by sending the Notice “read receipt requested.” Forthcoming comments to the proposed regulations may provide further insight into what duty plan administrators have to ensure that participants review the Notice and disclosures.
Initial paper notice
Before electronic disclosures may be made to participants, a one-time paper document must be provided to each participant, even if the participant currently receives electronic disclosures under existing safe harbors. This Initial Notification must alert participants that they will default to electronic delivery of disclosure documents and state the participant’s right to opt out.
Employees who terminate employment
The plan administrator must ensure that electronic addresses will remain effective for employees who terminate or obtain new electronic addresses.
Once the proposed regulations become final, plan sponsors may consider requiring the plan’s recordkeeper to include the Notice in the plan’s enrollment materials as well as to maintain the plan’s website and be responsible for its content. If the recordkeeper agrees to accept these responsibilities, these terms should be specifically incorporated in the vendor services agreement. We suggest that the revised recordkeeping agreement be reviewed by legal counsel. The plan sponsor may also consider reminding all employees on an annual or bi-annual basis of the importance of updating their current mailing address, e-mail address, and marital status and reviewing their beneficiary elections.