As a follow-up to its fee disclosure regulations for participant-directed individual account plans, including 401(k) plans (see our July 26, 2011 One Minute Memo on Plan and Investment Disclosure Requirements), the Department of Labor ("DOL") issued Technical Release 2011-03 on September 13, 2011, which addresses the electronic distribution of such disclosures. The guidance is temporary, as the DOL continues its work on updating its existing electronic disclosure regulations, originally published in 1997, with an aim to balance cost savings for companies with the protections of those participants who do not have regular computer access (or who simply prefer paper disclosures).
If a plan administrator wishes to satisfy the fee disclosure rules electronically, the method for doing so varies depending on whether or not the information may be combined with a quarterly benefit statement.
Disclosures Included in a Quarterly Benefit Statement. Certain plan-related information ? including lists of investment managers or available investment options, descriptions of voting rights or brokerage windows, and explanations of fees and expenses for general administrative services (e.g., legal, accounting, or recordkeeping services) and for processing plan loans and QDROs ? may be included in the benefit statement. For these disclosures, the same electronic distribution rules applicable to the benefit statements apply. Accordingly, such disclosures may be provided electronically to participants who have the effective ability to access the applicable electronic medium or who consent to receive disclosures electronically. In addition, the DOL has approved the use of secure websites to provide benefit statement information, as long as participants and beneficiaries are provided notice of the availability of such information and how it may be accessed.
Disclosures Not Included in a Quarterly Benefit Statement. Certain investment-related information ? including identifying information, performance data, benchmarks, and fee and expense information ? must be disclosed separately from the benefit statement. For these disclosures, plan administrators have two choices for electronic distribution: (i) the 1997 DOL regulations referenced above (which generally require that participants must either have computer access at work and use the computer to perform an integral part of their work duties, or affirmatively consent to receive disclosures electronically), or (ii) the method described in the new Technical Release. Under the Technical Release, this investment-related information may be provided to a participant or beneficiary through electronic media if the following conditions are satisfied:
- The participant or beneficiary is provided an initial notice requesting his or her email address, explaining that submission of an email address is "voluntary" (further described below), and describing (i) the electronic disclosure method, (ii) the right to request paper copies of any disclosures, (iii) the right to opt out of electronic disclosures and (iv) the procedure for updating the email address on file;
- The participant or beneficiary provides his or her email address to the plan administrator;The participant or beneficiary is subsequently provided annual notices explaining (i) the electronic disclosure method, (ii) the right to request paper copies of any disclosures, (iii) the right to opt out of electronic disclosures, and (iv) the procedure for updating the email address on file;
- The plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system result in actual receipt of transmitted information (e.g., using a return receipt feature or conducting periodic reviews or surveys to confirm receipt of transmitted information);
- The plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system protects the confidentiality of personal information; and Notices furnished to the participant or beneficiary are written in a manner that is understandable to the average plan participant.
If participants and beneficiaries already have email addresses on file with the plan, their addresses will be deemed to be submitted voluntarily if, instead of the initial notice described above, they receive an initial notice 30-90 days before the initial disclosures are required explaining (i) the electronic disclosure method, (ii) the right to request paper copies of any disclosures, (iii) the right to opt out of electronic disclosures, and (iv) the procedure for updating the email address on file.
Timing of Initial Disclosures and Initial Electronic Notice. The initial disclosures required by the final rule ? electronic or otherwise ? must be made to plan participants by the later of (a) 60 days after the first plan year beginning on or after November 1, 2011 or (b) May 31, 2012. Consequently, if the plan is on a calendar year, the initial disclosures are required by May 31, 2012, which means the initial electronic notice with respect to participants and beneficiaries whose email addresses are on file must be provided no earlier than March 2, 2012 and no later than May 1, 2012.