On October 23, 2019, the Department of Labor (DOL) published a proposed rule that, if finalized in its current form, would make it easier for retirement plan administrators to use electronic media to furnish information to participants and beneficiaries. The proposed rule would create a new, optional safe harbor that permits plan administrators to furnish required disclosures through electronic delivery to participants and beneficiaries with valid email addresses or smartphone numbers, unless the participant or beneficiary affirmatively opts out of electronic delivery.

The proposed rule was developed in response to Executive Order 13847, issued by the White House in August 2018, which instructed the DOL to review whether actions could be taken to improve the effectiveness of retirement plan disclosures required under the Employee Retirement Income Security Act of 1974 (ERISA) and reduce costs to employers. Note that employers may not rely on the proposed rule until it is published in final form.

Background

Under ERISA, plan administrators must furnish required disclosures using a delivery method that is reasonably calculated to ensure actual receipt of information by participants, beneficiaries, and other individuals—for example, hand-delivery or first-class mail. Over time, the DOL has incrementally expanded electronic disclosure through regulations and guidance.

In 2002, the DOL amended the general standards for delivery by releasing a safe harbor (2002 safe harbor) that describes specific circumstances in which ERISA (both retirement and welfare) plans may use electronic delivery methods to furnish documents and other information required under ERISA. This 2002 safe harbor only applies to participants and beneficiaries who either (1) have access to electronic media at work or (2) affirmatively opt in to receive documents electronically. For individuals who do not fall into either of those categories, disclosure obligations cannot be met through the 2002 safe harbor and these individuals must likely be furnished with paper copies of required disclosures. A paper version must always be available on request.

Proposed Safe Harbor

The proposed safe harbor is in addition to the 2002 safe harbor discussed above. Thus, plan sponsors and administrators could choose between the two safe harbors, or use both, depending on the best approach for their plan population. The new safe harbor proposes a “notice and access” structure similar to the structure available for quarterly retirement benefit statements under Field Assistance Bulletin 2006-03. The “notice and access” structure essentially means that plan participants would receive a notice stating that information is available online, including instructions on how to access the disclosures and their right to receive paper copies instead.

Notably, the proposed rule only applies to retirement plans, not employee welfare benefit plans (such as plans providing disability benefits or group health plans). The DOL indicates that the proposed safe harbor may eventually be expanded to include health and welfare plan disclosures, but these plans may raise different considerations.

Below are some additional requirements of the proposed safe harbor.

Initial Paper Notice

Before taking advantage of the proposed safe harbor, the plan administrator must first provide each “covered individual” (defined below) with a one-time paper notice about the electronic delivery of future notices and the covered individual’s right to receive paper versions instead.

Covered Individuals

  • “Covered individuals” for purposes of the proposed safe harbor are participants, beneficiaries, or other individuals entitled to receive disclosures who have provided an electronic address (e.g., email address or smartphone number). Unlike the 2002 safe harbor, employer-provided computer access would no longer be required.
  • If the plan administrator ever becomes aware of an invalid electronic address or number, the administrator can take reasonable steps to cure the problem but in the meantime must treat the individual as if he or she opted out of electronic delivery.

Covered Documents

The proposed safe harbor can be applied to furnish any covered document required pursuant to Title I of ERISA—for example, summary plan descriptions, summaries of material modifications, or blackout notices—except for documents that must be furnished upon request.

Notice of Internet Availability

  • The plan administrator must furnish (via electronic delivery, such as email) a notice of internet availability to each covered individual for each covered document that will be delivered pursuant to the new safe harbor. So, if there are eight different documents, the administrator must provide eight different notices of internet availability. However, there are rules for consolidating these notices.
  • Plan administrators must furnish notices of internet availability at the time the covered document that is the subject of the notice is made available on the website. Administrators must continue to comply with the substance and timing rules for ERISA disclosures, so the covered document and related notice of internet availability must be posted/delivered by the applicable due date under ERISA.
  • The content of the notice must include all of the following:
    • A prominent statement, such as a subject line that reads, “Disclosure About Your Retirement Plan.”
    • A statement that reads, “Important information about your retirement plan is available at the website address below. Please review this information.”
    • A brief description of the covered document.
    • The website address where the covered document is available.
    • 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 this right.
    • A statement of the right to opt out of receiving covered documents electronically, and an explanation of how to exercise this right.
    • A telephone number to contact the administrator or other designated plan representative.
  • The website address should either lead the covered individual directly to the covered document or to a login page that provides, or immediately after logging in provides, a prominent link to the covered document. Also note that the website does not need to be maintained by the plan sponsor; it can be a website of a third-party service provider.
  • The notice must be furnished separately from any other documents or disclosures furnished to covered individuals, with some exceptions. The DOL also emphasized that the notice must be written in a manner calculated to be understood by the average plan participant, such as by using short sentences without double negatives and limiting the use of technical and legal terminology where possible.

Severance from Employment

When an employee severs from employment, the plan administrator must take measures reasonably calculated to ensure the continued accuracy of the individual’s electronic address or number, such as requesting a new email address as part of their employment termination procedures.

Conclusion

The regulations are proposed to be effective 60 days after the final regulations are published. Employers may not rely on the proposed safe harbor unless and until it is published in final form. The DOL is seeking public comments on the proposed safe harbor, such as whether the safe harbor should apply to welfare plans, through November 22, 2019.