On Sept. 13, 2011, the Department of Labor (the DOL) issued Technical Release 2011-03 regarding the use of electronic media to satisfy the new participant disclosure requirements under DOL Regulation §2550.404a-5 (the Participant Disclosure Regulation). Though temporary, these rules may simplify the providing of required disclosures electronically.
The Participant Disclosure Regulation will require plan administrators to make disclosures to participants1 regarding participant-directed individual account plans as early as May 31, 2012. Some of the disclosures (e.g., plan fees and expenses) may be made in the participants’ pension benefits statements. Others (e.g., investment fund information) must be provided separately. For most plans, participant disclosures will largely be done by the service providers but we recognize the trend of larger plans to perform their own recordkeeping. In either circumstance, these rules are important and can help the disclosure process.
The Participant Disclosure Regulation specifically allows some information to be disclosed via the pension benefits statement, but the DOL did not indicate in that regulation whether this could be done electronically. Instead, it reserved a decision on this point pending further consideration. However, in Field Assistance Bulletin 2006-03, the DOL issued guidance saying that pension benefits statements could be provided electronically in accordance with either the DOL’s safe harbor for electronic disclosures or the Internal Revenue Service (IRS) electronic disclosure rules. Presumably, this guidance would apply to the participant disclosure information that can be included in the benefits statements.
In April 2011, the DOL issued a request for information regarding electronic disclosures and is now in the process of reviewing comments. In the meantime, the DOL issued Technical Release 2011-03 to provide interim electronic disclosure requirements for purposes of the Participant Disclosure Regulation. The advantage of providing disclosures electronically is that it reduces the costs of recordkeeping, and thus benefits participants by reducing plan expenses. Plan sponsors should discuss with their service providers whether they are using the most effective and cost efficient method of delivery.
The New Guidance
The guidance in Technical Release 2011-03 addresses separately the participant disclosures that may be included in pension benefits statements and those that must be provided separately:
Pension Benefit Statement Disclosures. Participant disclosures that may be included in pension benefits statements under the Participant Disclosure Regulation may be furnished electronically in the same manner as the pension benefits statement (as described in FAB 2006-03). This means they may be provided pursuant to the DOL’s general electronic disclosure safe harbor, the IRS electronic disclosure rules or through a secure, continuous access website. Briefly, the DOL electronic disclosure safe harbor rules apply to (1) those participants who have access to the employer’s electronic information systems as part of their day-to-day job and (2) those that consent to receiving the disclosures electronically. In either case, the administrator must take steps to ensure effective delivery, confidentiality, and that paper copies are available at no cost.
The IRS electronic disclosures rules require that the electronic disclosures be provided in a manner that provides the participant with reasonable access and is given in a manner no less understandable to the participant than in a paper document. The IRS electronic disclosures rules generally provide a consumer consent method, which requires affirmative consent to receive the disclosures electronically, or an alternative method, which requires that the participant is effectively able to access the electronic medium used to provide the notice. The participant must also be advised of the right to receive the notice in written form, without an additional charge.
Other Disclosures. For the participant disclosures that are required to be made in a separate document, i.e., other than in the pension benefits statement, the plan administrator may choose to satisfy either the DOL safe harbor regulation for electronic disclosure or follow new rules set out in the Technical Release. If the plan administrator chooses to follow the new rule, the electronic disclosure must satisfy all of the following conditions:
- Participants must voluntarily provide the plan administrator with an email address for receiving disclosures.
- The participant’s email address must be provided in response to a request included in an initial notice. The initial notice must include the following: (i) a statement that providing an email address is voluntary; (ii) a brief description of the information that will be furnished electronically and how it can be accessed; (iii) a statement that the participant has a right to request a free paper copy and how to make such a request; (iv) a statement that the participant has the right to stop receiving information electronically and how to exercise that right; and (v) an explanation as to how to change the participant’s email address.
- The participant must be provided an annual notice with generally the same information as provided in the initial notice. The annual notice must be provided via paper unless the participant has interacted electronically with the plan during the period since the last annual notice.
- The administrator must take steps to make sure delivery of the information results in actual receipt.
- The electronic delivery system must protect the confidentiality of personal information.
- Notices must be written in a manner calculated to be understood by the average participant.
There is also a special transition provision for those email addresses that are already on file with the plan administrator. The transition rule eliminates the requirement that the plan administrator request participants’ email addresses but does still require notice. Additionally, the transition rule may not be used if the employer, plan sponsor or plan administrator assigned the email address, unless the participant used the email address for plan purposes during the 12-month period before the initial notice is provided.
The DOL has made it clear that this relief is only temporary. We anticipate that the DOL will issue additional guidance regarding making required disclosures electronically. In the meantime, plan sponsors and administrators may want to consider whether to request email addresses in accordance with this new rule. Plan sponsors should work with their service providers to see if the use of electronic disclosures helps reduce plan expenses.